TuA1rl1t.S& MERSEY MARINE INs;
, ('Oircuit Court, B.
.!' . ':. 'L',' ",
Co. t1. CONTINEN'rAL
..1feioYofk. January 80, 1889.)
Leave to' file a Ilupplemental answ:er' sbould be wbere the defenses proposed lib be set up are an by which it is alleged defendant would be discharged from liability. the agreement not being shown by the' opposing affidavits;anda.prior judgment in: an action in which the pleadings show a cause. of action similar to the,on,e now in issue,
In Equity.M9tion for lellve to file supplemental answer. " FJuartIJ. Ohoate & Beaman, for Gompla.ipaut. , Butler, Still'fl/-an &: Hubbard, for defendant.
LACOMBE, J. Thesuppleml:'otal answer which defendant asks leave to tile sets up.two supposed defenses. The first ofthese is an agreement }Dade by plaintiff with the· estate of Dimick, which defendants claim is of such a character aato discharge them from liability. The opposing affidavits ,do n()t set O\;lt this agreement; defendant should therefore have the opportunity of submitting it to ,the court ,for oonstruction. The seoond supposed defense arises. up6n a .judgment recovered in an action brought by theplllit)tiff against the estate of Dimick. The pleadings in that action indicate that a claim similar t.othe one in suit was advanced. Ordinarily a judgment is assumed to dispose of all issues raised by the pleadings. Whether the judgmen.t in the Dimick Oase did or did not dispose of this claim is a question which the defendant should be allowed to settle upon the trial. The motion for leave, to file supplemental answer is granted.
UmON MOT. LIFE
Co. et al.
S. D. January 29, 1889.)
MORTGAGES-FoRECLOSURE-ON DEFAULT OF INSTALLMENT.
When a mortgage securing several installments stipulates that if one of these remains 60 days overdue the whole amount shall become due and payable at the mortgagee's election, the mortgagee must, if it knows that the mortgagor has the installment ready at its usual place of payment, and requires payment at the place stipulated in the mortgage, so notify the mortgagor, and, if it does not do so, and its agent at the usual place of payment refuses to receive payment except on certain conditions, it waives the right to payment elsewhere, and cannot, in default thereof. treat the whole debt as due.
Though the mortgagee's agent unjustifiably refused to accept an install· ment due unless the mortgagor would agree to make repairs on the premises, yet. since there is no bad faith shown, and the mortgagee may have thought that it had a right to require the agreement, the lien of the mortgage will not be deemed divested as to that installment.
UNION )lUT. LIFE INS. CO. t1. UNION MILLS PLASTER
8·. SAlfE-RECE:rvEBS""':'WAl!1El. Mere disuse of '11.' manufacturing plant under an agreement with other manufacturers,to r.estrictprQduction, though attended with the decay and dilapidation inseparable from. disuse, is not such destruction or waste as to entitle the to ask for a receiver. ' ' 4. SAM'E'-FlllDERAL' COlJRTsc...;FoIiLOWINGSTATE PRAOTIClIi., How, St. Mich. § 7847, taJ,ring from the mortgagee the righ,t .to possession until forllcloslJre sale is confil'llled, and the holding in Wagar V. Stone, 86 Mich. 364; thtit this' statute secures to the morigagor the rents and profits pending foreclosure;'collstitute 8 rule governing and not mere mat, ters of practic,e, and deprive the federal courts sittillg in that state of the power to a;ppoin,t a receiver of the rents and profits on the ground that the security is lnadequate. " .'
IS.SAlIfE-A.PPOtN'I'MENT ON PLEADINGS.
A receiver will not be appointed on the coming in of the .lIonswer, when such is the pril1.cipal question in the case, and is re.quired, if lIot all. a8 a means forenforcmg the decree,and not for a merely ancIllary purpose can,nected;with the temporary incidents of the suit, but action will be deferred till the hearing.
In Equity.. On motion for appointment of receiver. Butterfield&: Keeney; for complainant. SmUey' &: Earle, for defendant company.
SEWREN'S,J. The bill in this cause was filed for the purpose of foreclosing a mortgage given to Daniel Sharpe, the complainant's assignor, on: the 11th day of August, 1880, by Brosnan and McKee, to secure the pliymentof,thesum of 845,000, made payable in 12 installments 'of $3,750each, on the 1st day of June in each year thereafter, with annual interest at 4f per cent. on the whole sum from time to time, unpaid, according t()tbe tenor of a certain bond, of even date with the mortgage, from Brosnan and McKee to Sharpe.'The mortgage was given to secure the purchase price for the plaster-mills property at' Grand Rapids, and covered the whole plant. The Union Mills Plaster Company, having become incoi'porated, purchased them6rtgagedproperty of Brosnan and McKee,and !by the terms of its purchase assumed and agreed· to pay the mortgage debt to the complainant. The first two installments· of principal, and the annual'intin'l:111t on the whole sum for the firstland second years, were paid. On the maturing of the third installment,. a furtli'er:agreement was entered into between.thecomplainant and BroS'" nan'imdtbe plaster c6mpany, whereby the payment of it was deferred; and it was put at the foot of the other instaUments', to follow them as 'an animal and the rate Of interest was raised to 6 per cent., but itwa'si 'to be,ari'd was, uritil1888, in fact paid annually as before. Upon the same arrangement, the installments of'principal due in 1884; 1885, 1886, lUld ,1'887 were turned behind the first deferred payment. By the terms of the obligations they were payable at the complainant'fi office in B6ston,but in fact the payments were never made there,and generally, if not always, they were made at or through a bank at Gl'and Rapids. 'Compllliilarit's incorporation was under'the 'laws of Maine, ab:dits home, office was at pQrtland, but it: is alleged that it had also an office at Boston. It was stipulated in the mortgage that Hany portion (jf the mortgage debt shouldtemain unpaid 'foithe period of 60 'daye
after it should become due, the whole dGbt should, at the mortgagee, become immediately due and payable. <.And it was expressly provided in the agreement for deferring payments that it should not prejudice any right of the mortgagee further than should be needful to give that agreement effect. Brosnan was a friend, and seems to have had the confidence, of De Witt,the president, and was, so far as the pre&Elnt business is concerned, managing officer of the complainant. The agreements for deferring payments, above recited, were probably induced by this favor towards Brosnan, who, when the plaster company was formed, became a prominent factor in it, but died before the present controversy arose. The installment and the annual interest due on Junel, 1888, not being paid at maturity, correspondence ensued between the representatives of the plaster company and Mr. De Witt, having in· contemplation a further agreement about the payment of what was due, and the management and preservation of the mortgaged property; but, no agreement haVing, been arrived at, on the last of the 60 days after the payment was due, the plaster company telegraphed the complainant, asking it to designate some bank at Grand Rapids. to receive payment of the amount due. The answer to this referred the mattex: to their attorney at the .latter place, who, on being applied to, refused to receive the money at Grapd Rapids, except it should be accompanied by an agreement to p1;lt the buildings and the machinery on the mortgaged lands in abetter state of repair and preservation. The plaster company was willing to stipulate to a qualified limit in that direction, but would not agree .to the terms in that regard required by the complainant. The day wore off without a coming to terms, and no tender was made to tbe attorney for complainant, except that the agent of the plaster company, to whose credit the money bad for this purpose been deposited in a national bank at Grand Rapids, offered to give his check for the amount due. This was refused upon the general ground above stated, and because tbeattorneys professed to be bound to follow strictly tbeir instructions, which were to insist upon the condition. On the following day tbe whole amount was tendered to and refused by the attorneys, and plaster company thereupon sent a draft for the same amount by wail to the complainant. at the same time telegraphipg advice of its [email protected]
UNION MUT. LIFE INfl. CO. ". UNION MILLS PLASTER CO.
alleged in the bill that· the mortgaged property is, from disuse and wanton neglect of repair, going to dilapidation and ruin; that the buildings and machinery are suffering depreciation in value from want of proper care, and from the same cause the more movable property is being stolen 0[' lost. It is also alleged that the affairs of the corporation have been and are corruptly mismanaged; that its debts are suffered to accumulate, while its assets are appropriated by its officers and agents in charge to their own private use; and a detail of fullness is exhibited, which, if truly alleged, would illustrate in a striking way the facilities which the fabric and machinery of incorporation afford to those disposed to fraudulent practices. It is alleged, in substance, that the corporation is kept continually on the verge of insolvency by the fraudulent appropriation of its assets by those having charge of them. To this it is added that, in consequence of the depreciation of the value of the mortgaged property, and the crippled condition of the corporation from the mismanagement of its officers, the complainant's security is greatly impaired, and is altogether inadequate to protect the debt. Therefore it is prayed that a receiver may be' appointE'd to take charge of the assets and business of under the direction ofthe court, to take the rents and profthe its, and that they may be applied to the. mortgage debt, etc. The present motion is for the appointment of such receiver, and affidavits are filed in support of the bill. ,In response to the order to show cause, the defendants, the plaster company, and the officers and stockholders complained of, havl' answered, and filed affidavits. They deny the allegations of the bill, on the basis of which a receiver is prayed. In the answer the defendants ofter to pay the installment of principal and the annual interest. which were tendered before the filing of the bill. The evidence adduced on this hearing was quite voluminous, and all the material parts of it have been attentively considered. The conclusions of fact drawn by the court therefrom will be stated so far as such conclusions form the ground of decision. That it is com petent for parties to stipulate that on default in the payment of an installment the whole may become due at the election of the payee, is well established, and courts of equity will give such stipulatiMs effect when they have been fairly made, and the right of election fairly exercised. Noonan v. Lee, 2 Black, 499; Olcou v. Bynum, 17 Wall. 62. It will not, however, aid in the enforcement of such right where the conduct of the payee indicates artfulness. trickery, or stratagem in on the technical conditions upon which he exercises the right. His purpose must have been open and honest, and advantage cannot be taken of any misleading produced by his own action, or (what is the same thing) the reasonable implication contained in it. Noyes v. Olark,7 Paige, 179; Broderick v. Smith, 26 Barb. 539. In the present case, while I do not find that there was a deliberate purpose to hold off the payment which was due in June, 1888, by stratagem, until the 60 days should have elapsed, still I am of the opinion that when the complainant was notified that the defendants were ready to pay the money at the place where it had usually been paid, and knew that the money v.37F.no.7-19
wasln readiness, it should have signified its purpose to 'demand the exact fulfillment of the contract as to the place of payment, ifi! intended to insist upon it, and thati is conduct in refusing to receive ,p8Jment except upon ce:t:tain conditions was an .implied waiver of Hsright to have the payment made in. Boston, which .it signified no purpose to require. It is very probable that lithe defendants had understood that that condition was to be exacted, they would have taken steps to have payment tendered at Boston on the last day, arid with the facilities of the present day for transmitting funds there would probably have been no. serious difficulty in accomplishing it·. The almost fatal consequences to the 4efandant company of bringing this whole debt upon its hands for payment, would doubtless have stimulated to great effort to avoid it. It is therefore. held. that upon the facts dis.closed it would be inequitable to permit the right to elect the whole debt due to be exercised. Another branch of.thesubject remains for consideration. A tender of the whole sum which was in fact due having been made, is the mortgage security as to the SUInso tendered lost by the .refusal to accept? It is the rule undoubtedly that a tender discharges the security. Moynahan v. Mich. 9; Caruther8 v. Hwmphrey, 12 Mich. 270; Potts \1'.: Plaisted, 30 Mich. 149. But to produce such serious and heavy conse-' quence the refusal must have been unqualified, and unaccompanied by any bonafide claim of right, which was supposed by thepl\rty to justify his reful'llU. 'The claim of right may have been one that could not be 8upporte(t as ,matter of law; still, if it was believed in, and was not wl;lJltonlyput forward as a cover to a. wrong purpose, it is sufficient to prevent thQ forfeiture of the So here, while it is clear enough. thllt the complainant had no right to make,it a condition of reC'.eiving payment, that.the defendant should enter into stipulations about making repairs on the mortgaged properthstill it may have: been that it thought it. had such right, and 1 do not :find such evidence of its bad faith in this regard as to justify a declaration of forfeiture. Waldron v. Murphy, 40 668;. P08t v. Springsted, 49 Mich. 91, 13 N. W.· Rep. 370. It results from these considerations that the complainant's bill is well filed for the foreclosing of the mortgage in .respect of the installment cipal and the annultl and the taxes for 1887. A question about costs may arise at the hearing. It is shown that the plaster-works eovered by the mortgage have not" been operatedfor two or three years past,. the defendant company having' elltered into. a combination with other plaster companies at Grand Rapids and keep the. price of the product up to the.rate ngreed upon, and arranged with another member of the combination for the production of the Union Mills master Company's proportion, as allotted. by the combination. this arrangement with the' other company is said to be that tbelatter has. such facilities that it Can produce the plaSter at a cheaper cost, and it is claimed that it lsbetter for the defendant to pay what it does for thus furnishing its proportion, than to furnish the plaster .from its own mills. The defendant's mills. works have therefore remained idle, and have Buffered from the decay
UNION HUT. LIFE 'INS; CO. 'V. UNION MILLS PLASTER
and dilapidation incident to' such works when disused. The prima facie despoiling of the property , made in support of the motion, IS fairly'refuted by the itnswer of the defe;tdants and the affidavits of others suppoding'the answer,and the resu!t.of all the evidence is that no such destruction Of of the propertjas would on that'account warrant the appointment of a receiver is sho,!n. To justify such an appointment the waste must be serious, and the danger of destruction or impairment of the security imminent. Pullanv. Railroad Co;, <l: Biss. 47; Morrison v. Buchner, Hemp. 442; Beverley v. Brooke, 4 Grat. 187. In this case I am not convinced that the waste is other or more serious than would ordinarily occur to such property from. mere disuse." But it claimed by the complainant-and, if the conduct which has thus far characterized of the affairs of the defendant company is to be continued, I think with strong reason-that the security is inadequate. While I am satisfied that some of the corpplainant's witnesses have greatly underrated the value of the mortgaged property, still the impression left upon my mind is that it is quite doubtful whether in'the present condition of affairs the property is adequate as security for the debt. Upon this aspect of the situation, the complain:ant prays :for the appointment of a receiver to take the rents and profits, to the end that they may be appropriated to the satisfaction of the mortgage debt; ahd there is thus presented a somewhat difficult, but very itnportant; question, touching the practice of the federalcouris in Michigan in mortgage foreclosure cases, which, so far as r am aware, has never been expressly decided in these courts, and that is whether, in view of the law in this state in regard to the rights and relations of the parties to a mortgage of real estate to the mortgaged property, as declared by statute and 'e'XpOunded by the supreme court of tne state, the mortgagee may, upon showing that his security is inadequate, have an appropl'iation of the' rents and profits to help out the deficiency. The statute (How. Ann.iSt.. § 7847) takes away from the mortgagee the right to the possessidnuhtil foreclosure is completed by sale,' and the sale has be:" come absolute by confirmation. And it was held in'Wagar v. Stone, 36 Mich. 364, 'that this statute, by implication, secured to the mortgagor the retits lind profits pending foreclosure, and that therefore an appropriation of them by the hand of a receiver for the benefit of the mortgagee deprived the mortgagor of a substantial right. Notwithstanding this de:" cision, the federal court in this district continued the practice of appoint:. ing receivers in such cases and for such purpose in the same way as had been customary in the early equity practice, and a number of precedents have been found in which my predecessor ulllde such appointments after the practice in the state courts had been other way. The matter does not appear to have been debatedbefdre him on any actual dispute shown by the record, but it cannot be doubted that sowell in:" formed a judge was cognizant of the ruling ofthestate court on subject, and I 11m convinced that he followed tne original practice upon the theory that it was a matter of practice merely J and" that it was the duty
of this court sitting in equity to follow its own course, instead of conforming to local practice regulations of the state; and 'such doubtless is the general rule. But it seems quite clear that the duty of following the original course of the court in equity does not extend to the extremity of overthrowing substantial rights. When it meets such it bends so far as is necessary to protect them, but otherwise holds on in its oustomary way, simply adapting itself to the emergency. This is the doctrine which was so forcibly enunciated in the now familiar case of Brine v.Insurance 00., 96 U. S. 627. The analogy of that case, and the applicability of the reasoning of the supreme court in deciding it, to the present question are obvious, as I think, and lead to the conclusion that it is not a matter of practice simply; that the right of the mortgagor to the rents and profits pendente lite is a substantial one under the laws of Michigan, which must be recognized by the courts of the United States in administering the rights of parties to a mortgage. There is no practical difficulty in doing this, and matters of form must yield in the presence of legal right. I am aware that there are some decisions in the courts of the United States in which the principles of decision are inconsistent with those of Wagar v. Stone, supra, and which hold that the substantial right of the mortgagor to rents and profits is not impaired in any legal sense by the appointment of a receiver to tByke them; the theory being that the hand of the court is to be regarded not as hostile, but as holding for the mortgagor as well, and turning over his property through judicial process to the payment of his just debt, when needed to meet a deficiency. It is not needful for me to express any opinion on this divergence of views in the present case, for the doctrine of adherence to the local law in real proper.ty matters looks to the rule adopted, rather than to the reasoning which has led to' it, and I think that the law of the state as declared in Wagar v. Stone requires that should be held here that a receiver of the rents and profits cannot be appointed, in mortgage foreclosure cases, upon the sole ground that the security is inadequate. Whether the court will appoint a receiver in foreclosure cases, where the property is being destroyed or wasted by the mortgagor, is an entirely different question. There is nothing in Wagar v. Stonewhich controverts the power and duty of the court to interfere in such cases for the protection of the security. , What the court should do with fund that might be left in the hand of the receiver, and incident to the dealing of the court with the property, might be a question subject to the control of the rule in Wagar v. Stone, but that question is not now presented. I"should have, I think, no doubt that a receiver might be appointed in the circumstances last mentioned, if the waste or destruction was so serious as to justify so grave a step, but, as I have said, the facts are not so bad as to warrant it in the present case. An offer is made in the answer to pay the amount of the installment, and the annual interest which reIUains unpaid, and the taxes of 1887, and this offer was repeated at the hearing of this motion. ,If this is done, the further prosecution of the bill for the purpose of foreclosure would, upon the views already stated, be quite fruitless; and the ques-
UNION MUT. LIFJi)' INS. CO. 11. UNION MILLS PLASTER CO.
t.ion remains whether the case can be proceeded in as upon a bill filed by a mortgagee and creditor of the defendant corporation upon the ground that the management thereof is so grossly corrupt and bad as to entitle the complainant 00 ask the court to interfere for the protection of his debt. That relief of this kind may be given in a proper case appears to be settled by the weight of authority. 2 Mor. Priv. Corp. §§ 797, 860. I have had some doubt whether the suit could thus be converted from its original purpose into one which was a mere incident to the primary object of the bill. The allegations in the bill are broad enough to cover litigation on this branch, and the prayer for relief is general, and it may be that th,e versatility of equity practice will admit of the further suit. If counsel are advised to proceed, notwithstanding the doubt now expressed, the question may be reserved until the hearing; but if the case is proceeded with on that theory, and for that purpose only, it becomes evident that it would be improper to anticipate the very object of the litigation by a prejudgment involving the whole merits of the case. It would be the duty of the court to hold matters in statu qoo until the hearing, as it could only then be rightly determined whether the facts would require the proposed action or not. It is the very common practice in appointing receivers to take such action on the coming in of the answer. High, Rec. §§ 100, 106. And that is quite proper where the appointment is for r. merely ancillary purpose, which is concemed with the temporary incidents of the suit. But it is otherwise where the proprietyof the appointment is a principal question in the case, and it is required, if at all, by the view which the court shall ultimately take of the case, as part of the means which should be taken to afford the relief contemplated by the decree. Barry v. Briggs, 22 Mich. 201; Hawkins v. LU8.combe. 2 Swanst. 375; High, Rec,. § 109. The result of these views is that the court will order that, upon payment by the defendants into the registry of the court for the benefit of the complainant of the amount of the installment with the annual interest and the taxes of 1887, witli interest thereon, within 10 days from the entry of such order, the motion fo): the appointment of a receiver pendente lite, 'will be denied. If the payment be not made within that time, the matter, of such appointment will be further considered by the court. In the event of such pay:' ment, and the election to proceed with the suit, an injunction will be awarded to restrain the defendants from disposing of the assets of the corporation by way of dividends or otherwise, except as may, by further order of the court, be allowed, and subject to such conditions as the progress of the business may require, and the court may from time to time think fit, upon the representations of the parties, to prescribe.
(Qif'cult(Jowrt·. EJ. D. Ohio,' W; 1). January: 96, 1889.)
The articles of between complainant and defendant provided that:comphtinant should, contributeeis his share of the capital the exclusive of his.three-fourths interestlnce,rtain patented improvements, to be use used in the manufacturing. business of the firm, together with his. three'fourths interest in the property and assets of a certain marble company; that 'ihe Ilhouldcontributesuch money as mighth('l needed for the purchase of necessarYlDachinery and materials, pn which he was to have interest. He , was' to attend to the financial management of the business. and place the manufactured goods of the' firm upon the market. Defendant was to contribute as his share of the c!!:pital his ,one-fourth interest in said patented 1'!1provements and his one·fourth interest in the property and assets of saId marble company, and iras 'to apply his skill and experience', and devote all his time and .personalservices to the business of manufacturing. The profits and loss,es were to be shared equally. At the termination of the partnership, each partner, after payment of the firm debts, was entitled first. to withdraw .bis contribution to the capital, and the residue of the assets, if any, to be divided equally. The business proved ·unprofitable,. the bulk of the capital stock being lost. Held, that the articles were not open to the construction that defendant's skill was put in against complainant's capital so as to relieve him from liability to complainant for one-half the loss. ' '
;Suit by Clemens Hellebush against Reese P. Coughlin to recover a balance on partnership account. ' Long, Avm-y, Kramer&:Kramer,for c0mplainant. '1 Black Oc.Rockhold and Parkins(Y(l, &: Parkinson, for defendant.
SAGE, J. The articles of copartnership between the parties provided that the complainant should contribute as his share of the capital the exclusive use of his three-fourths interest in certain patented improvements, to be used in the manufactures of the copartnership, together with his three-fourths interl'st and ownership in the property and assets of the Eagle Marble Company; that he should contribute such money as might be needed for the purchase of necessary machinery and materials, not to exceed $5,000, on which he was to have interest, payable annually. He was to attend to the financial management of the business, and place the manufactured goods of ,the firm upon the market. He alone was authorized to sign checks for the firm. The defendant wasta contributej as his sh_ of the capital, his one-fourth interest in saidpaoonted -im'provement,and his one-fourth interest in the property and assets of said Eagle Marble Company, and was'to apply his skill and and devote all his time and personal services, to the manufactures of the firm, which were to be under his charge and management. The profits and losses were to be shared equally. At the termination of the part·· nership, each partner, after payment of the firm debts, was entitled first to withdraw his contribution to the capital; defendant's contribu· tion to be estimated at $1,000, and complainant's at $8,000, the residue of the assets, if any, to be divided equally. The business was unprof. itable. All the capital stock was lost excepting about $800, now in the