888
FEDlill\AL :REl'O;ana,
"01.63.
connection between what!the smelting knew, or had reaflon to suspect, and the claim ndwset:'lip,bythe city. The rules'l1pon constructive notice in this class of cases are well settled. In Jones v.Smith;l Hare, 43, the vice chancellor states the rule thus:
any
"If there Is no .fraudulent turning away from a knowledge of the facts which the l'0S' gestae would suggest to a prudent mind; if mere want o·f cl\ution, as distinguished from fraudulent and willful. blindness, Is all that can be imputed to the the doctrine of constructive notiCe will not apply; then the purchaser wlll, in equity, be consIdered, as In fact he Is. a bona fide pul"chl1Ser without notice."
In: Ware v. Lord Egmont, 4 De Gex, M. & G. 473, the lord chancellor said ., . . ' "Where a person has actual notice of any matter of fact, there can be no danger of doing InjUstice If he is held to be bound by all the consequences of that which he 'knoW's to exist. But where he has not actual notice he ought not to be treated as if he had notice, unless the circumstances are such, as to enable. the court to say, not only that he might but also that he ought to have acquired, the notice with which It Is sought to affect, him; that he would have acquired it, but fM his gross negligence In the conduct of the business in question. The question, when it is sought to affect a purchaser with constructive notice, is not, whether he had the means of obtaining, and might, by prudent caution, have obtained, the knowledge in question, but whether the not obtaining it was an: act of gross' or negligence."
This statement of the rule is approved by the supreme court in Wilson v. Wall, 6 Wall. 83, where that court says: ,"'oA. chancellor will not be . astute to charge a constructive trnst upon :Upon the facts, as we find them! the appellee is not chargeable with actual or. conliltructive notice of the claim set up by the city; and the decree of the circuit court, dismissing the bill for want of equity, is affirmed. FOWLER et aI. v. JARVIS-CONKLIN MORTG. CO. (CircultCourt, S. D.New York. September 22, 1894.)
one who has acted honestly, and paid a full and fair. consideration without "
1; ,RECEIVERS-REMOVAL.
"It is nQ ground of rem()vaI of receivers of a mortgage company that they are as selling Ments of trustees of mOrtgages executed by the company to secure its d.ebEfntures;the power to sell the mortgages resting with the trustees, and not being' eOntrolled by the court or receivers as SUCh. '
2.
a·
is not ground for ,removal that, a 1-'ece1vea,o of a corporation. has be. ,come ,8. member of a re.organization but where a conflict, over the plan of reorganization Is foreshadowed the receiver w1ll be required to resign from membership of the committee.: , 'rhe mere whose business was complicated, IntrICate, and widely extended. with millions of dollars invested upon small mortgages through several states,. were imprudent in Investing its money, is Dosufflcient ground for selecting as receivers strangers entirely unfamUlar ,with the assets, or the machinery , for their collection. OF '. OFFICERS· OlJ! ,CORPORATION.
"
SAME.
FOWLER fl. JAR'\'lS.CONKLJN MORTG. CO.
889
Petition by Elizabeth Garnett for the removal of Samuel M. Jarvis and Roland R. Conklin as receivers of defendant in a suit by Benjamin M. Fowler, J. G. Zachry, and Elizabeth Garnett against the J arTIs-Oonklin !fortgage Company. 1'readwell Oleveland, for the motion. Wheeler H. Peckham, Arthur H. Masten, and Winslow S. Pierce, opposed. LACOMBE, Circuit Judge. The petitioner gave to the receivers due notice of motion to remove them from office, and served therewitltvoluminous affidavits. Upon the hearing of such motion, COUJil.sel for the receivers submitted affidavits in answer to the charges made by petitioner. Inasmuch as counsel for petitioner had no opportunity to inspect these answering affidavits until the day of the hearing, he asked for and obtained from the court permissioll to file additional affidavits in reply to any new matter contained in those submitted on behalf of the receivers. To this counsel for receivers objected; insisting that his affidavits contained no new matter, but only detailed answers to the charges. Nevertheless the permission asked for was granted, it being assumed that counsel for petitioner would himself take the trouble to find out, from an analysis of his own and his adversary's papers, what was in fact new matter entitling him to reply. He seems to have preferred to leave this labor to the court. The voluminous additional affidavits which he has filed consist almost entirely of an amplification of hili! first charges, or of new averments as to the management of the insolvent corporation, not touched upon by the papers or arguments of either side when the motion was heard. Were ·this an ordinary motion, not concerned with the conduct of officers selected by the court itself, the additional affidavits would be returned as not complying with the terms upon which leave to file them was granted. As it is, the court has carefully examined them, and given due consideration to the few detached sentences found in them, which may, by a most liberal construction, be regarded as in the nature of a reply to the affidavits or argument of the receivers. The new charges contained in them are made without proper notice, and can· not be now considered. To do so would be grossly unfair to the receivers, who have had no opportunity to answer them. 'I'here is nothing in the moving papers now properly before the court to show mismanagement or misconduct by the receivers. It appears that the mortgages which lie back of a particular series of debentures (not the series in which complainant owns) have been sold at 40 per cent. of their face value, and petitioner expresses the apprehension that those back of debentures in her own series may be sold at a sacrifice, without adequate advertisement and opportunity to bidders. But the power to sell or to refrain from seIling mortgages back of debentures does not rest with the receivers, but with the several trustees of the different series, who are wholly uncontrolled by the court or its receivers. Nor is there any impropriety in the receivers acting as selling agents of these trustees, if
t8 employ tMl.ln.. that I:lsxpacity.." the contrary, ,it,ileeins to be for the interest ,0£ all ijlat tl,ley qpso. ' .: 'i<Nror) lis it any ground fol' tl1:atoneQfrt4e receivers has a member of a -Several federal courts ,have approved of such. a practice ; and although this. court ll.different opiniqu{!tnd.will require.absolute neutrality on tHe 'plitt oHts officers,3.s 'betwlkn conflicting plans of tion,it will be sufficient if the receiver, now that some conflict; over the plan of reorganization is foreshadowed, promptly resign fro:r:t1'membei'ship of the cemmittee. . . .orIginal moTing papeJ."S is taken up with The bnlk,of as to the management of tl,ie busineSs of ,the cQJJPoration the'appointment of receivers.' The' eaJ'eful; elaborate, and eXhaJu81lhe' answer ofJarvis an,d' Oonklin to the . detailed charges as. to the aridinvestIp,enis specified in thar petition disproves ' any."ugge$tion,of such .frand1lllent ,practices as would 'disqualify them ;from acting as officers of the court. It waa well known to the court'wben, tlieywere appointed that it was under theirm/:l.nagement of' its;aftairs that the corporation came to gtief, and it would be' no snrpmse to the court, to. that their business. judgment liad not beenlround; that: their methoq,s of. management had not been conservative; that they had beenoversa.ngUine, and improvident in investments. But it was apparent to the court then, and it is equally a,pparentnow, that a business of such character, so complicated and. intricate, so widely extended, with millions of dollars inveSted upon: 'am.all mortgages scattered tbrough several states, requiringpoompt attention., for collection of ·interest, maintaining of insurance,and payment of, taxes, would bellest attended to by receivers . presumably, were familiar with all its details, and with the machinery already established for looking after its interests -in hundredS of towns and hamlets in distant states. As receivers, there would bene new investnlents for them to make, calling for the exercise of·8ndiscretion which had in the past proved to be not always wise. They would only have to realize what they could from the assets by collection or by sale,and pay the same out uuder the coutt's order, meauwhile seeing to it that the property was conserved and thebllsiness organization kept up for the benefit of all concerned until some plan of reorganization was consummated, or the receivership wound up by sale and distlibution of the property and goodwill. Inasmuch a'S this would have to be done under the supervision of·the court, ·with full oppOrtunity to all .concerned of inspecting their. books and pa.pers ;and overhauling all their proceedings, thetnere fact that they had, while officers of the company. been imprudeIitiin investing.its money, Wfl!S no suffi.cient ground wit4 ·. those assets, or the for. selecting strangers enti1'ely fnachineryfor their collectiO'.u. .The motion is denied.
GRAPE CREEK'CO!L CO.
&: TRUST CO.
'891
GRAPE CREEK COAL CO. at at v. FARMERS'LOAN & TRUST CO. (Circuit Court of Appeals, Seventh Circuit. 1'10.148. 1. PRACTICE-AsSIG.NMENT OF ERROR.
May 31, 1894.)
Under the eleventh rule of the circuit court of appeals for the seventh circuit (1 C. C. A. xlv., 47 Fed. vi.), requiring: the error urged to beset out separately and particularly, an assignment of error cannot bego9d if it is necessary to look beyond its terms to the brief for a specific state-ment of the question to be presented. Upon foreclosure ot ,a mortgage for nonpayment of Interest,' when the principal .isnot due, and is not, by the terms of the mortgage, to becOme due upon default in payment of. interest, it is both proper alfd necessary for the courtto find- the amount of principal unpaid, and decree its payment out of the proceeds when the property is to' be sold as an entirety. UNPAID BUT NOT DUE.
.
.8.
SAME-WHERE PRINCIPAL NOT DUE-REDEMPTION.
A mortgage securing an issue of bonds provided-First, that if the interest should be in arrear for six months, or if the principal, should not be paid at maturity, or if a· stipulated payment to a sinking shollld not be made, the trustee should' take possession, manage the property, pay the interest in default, and cOllPons maturing from time ,to time, and apply the remaining income upon the principal of the bonds; .second, that after .",ix months' default in payment of principal or interest the trustee should sell the property as an entirety, and apply the proceeds to the payment of principal and interest, "whether the priricipli.! is then {iue or not;" and, third, that in case of the trustee's taking possession, or proceeding to sell, if the mortgagor, before the bonds became due, and before sale, should pay all arrears of interest, with costs, etc., the proceedings should be discontinued by the trustee, and, the property restored to the mortgagor. Held, upon a bill to foreclose for default in payment of interest, that a power to decree the whole ·lebt due could not be inferred from the foregoing provisions, and though it was proper to direct payment of the Whole debt from the proceeds of the property, when sold as an entirety, the mortgagor sh(mlrl be permitted by the decree to redeem ·before sale, upon payment of the overdue interest and costs only. The provisions of the mortgage permitting the mortgagor to stay proceedings by paying the overdue interest does not render harmless the error in a decree adjudging the whole debt due, since, until modified in some lawful way, Soucb decree is conclusive for every purpose of the 'amount due. The fact that a sale had actually been made pursuant to a decree erroneQus in adjudging the whoie debt due, should not prevent its reversal; the el'l'or being substantial, and the appellate court not being In a position to determine the bona fides of the sale. It is no objection to a decree for foreclosure that it leaves uncertain the amount of costs, counsel fees, etc" to be paid in order to redeem before sale; it being common practice to leave such amounts unfixed, and it being in the power of any party to move to have them fixed. ·
4. 'SAME-HARMFUI, ERROR.
11.
SAME-SALE PENDING ApPEAL.
,,6.
[i'OREcr,OSURE-CQST-AMOUNT NOT FIXED.
'1.
MORTGAGE-LIEN UPON AFTER-ACQUIRED PROPERTY.
Courts of equity extend the lien of a mortgage to after-acquired property upon the theory that, though ineffective as a conveyance, it operates as !ll1 executory agreement attaching to the property when acqUired. It seems, therefore, that a mortgage, purporting to convey all after-