Burton v. Pepper

Stevens, J.,

delivered the opinion of the court.

(After stating the facts as above). The bill of complaint exhibits,- and complainant’s case is based upon, both deeds of trust, the one executed for the year 1914 and the renewal trust deed executed February 12, 1915. The prayer of the bill is that “all the personal property belonging to the said R. L. Burton and included in said deeds of trust, filed herewith” be advertised and sold; that a receiver be appointed to take charge of the same for that purpose; that the receiver be authorized to work or lease the plantations for the year 1915,“ or to deliver said plantations to the said D. G-. Pepper, complainant, landlord and owner thereof, to be worked or re-leased by him during the year 1915, as provided by the terms of said lease, default having been made by the said R. L. *151 Burton, lessee.” There is also a prayer that the feceiver he appointed without notice, in accordance with section 626 of the present Code. The right of the complainant to the appointment' of this receiver depends largely upon the circumstances of the parties and their relationship one to the other. The record shows that Mr. Burton had been leasing these plantations from D. G. Pepper, his landlord, for five years, and each year during this time the landlord had agreed to make advances to his tenant, and as security therefore would take a note and trust deed at the beginning of each year.

At the time the bill was filed, the cotton of 1914 had not been sold, but by agreement between landlord and tenant was being held for a better market. The compress receipts for the cotton were in the possession of the landlord at the time he agreed to advance the six thousand dollars for the year 1915. The carrying of these receipts necessarily deferred a final settlement between the parties, and necessarily deferred a foreclosure of the deed of trust given in 1914. The proof does not show the exact agreement between the parties as to the holding of this cotton for better prices. The case as now made is presented solely upon the pleadings and the proof offered on behalf of the complainants, and the sole inquiry is whether the chancellor erred in declining, to revoke the appointment and remove the receiver. Any test of the interlocutory decree appealed from really presents the question whether a receiver should have been appointed in the first instance. Inasmuch as no opportunity was given the defendant to be heard when the receiver was first appointed, the motions which the chancellor overruled is the first hearing accorded him. While it is difficult to determine the exact agreement whereby the cotton was stored in compresses and held for better prices, it does appear from the testimony of Mr. A. M. Pepper that Burton, the tenant, was privileged to secure bids on the cotton and submit them, and thereby to cooperate with the landlord in effecting a satisfactory sale. *152 It appears that no hid' satisfactory to the landlord had been made on the cotton at the time the trust deed for 1915 was executed, or even at the time the bill was filed. The negotiations of the tenant for supplies for the year 1915 was, as usual, had with Mr. A. M. Pepper, son of the landlord/ and the parties agreed upon six thousand dollars in addition to the rent of three thousand dollars. In attempting to conclude arrangements for 1915, the tenant executed a deed of trust to secure an indebtedness of nine thousand and four hundred dollars, evidenced by one promissory note for six thousand and four hundred dollars due and payable December 15,1915, and the rent note for three thousand dollars payable November 1, 1915. This deed of trust states upon its face that it “is given and received as additional and cumulative security for that certain indebtedness described in that certain deed of trust recorded in Book 27, page 71, of Trust Deeds of the records of Holmes county, Miss, (the 1914 trust deed) and in renewal of said indebtedness and of said deed of trust for all unpaid balance or balances that may be due the said D. Gr. Pepper or the Bank of Lexington after the crops of the year of 1914 have been finally accounted for and sold, and credited on rent and supply account, due D. Gr. Pepper or Bank of Lexington, for the year 1914,”

The provisions of this instrument are numerous, and very binding upon the debtor. The instrument authorizes the trustee to foreclose, and even take possession of and sell, any of the property if he thinks it is endangered as security for the debt. It also authorizes the trustee to take possession of the crops in the event of foreclosure, and to gather any portion thereof in the field, gin the cotton, and sell the same either at public or private sale. This new instrument and the notes which' it was designed to secure were forwarded to Mr. D. Gr. Pepper at Sardis, and by the latter returned to Holmes county for record. After the truse deed was filed for record, Mr. A. M. Pepper ascertained that about ten of *153 the mules were embraced in deeds of trust given the Bank of Belzoni. A. M. Pepper then called D. Gr. Pepper over the telephone and advised him of the situation. Thereupon D. Gr. Pepper stated, “I cannot go any further and I want a settlement.” A. M. Pepper at the same time notified Burton that his father had “decided he can do nothing further” in the direction of advancing supplies for 1915. The correspondence discloses that the tenant was at the same time saying to the landlord:

“Now, Mr. Pepper, if you will not carry out this agreement we had the other day I will have to quit business. Now, if you will not do as our agreement was we will have to get up the cotton and mules and close up our business.”

Mr. A. M. Pepper, on February 16th, is insisting that his father “would prefer for his property to lie out than to become responsible at his age for anything further under present conditions. . . . Consequently I am very glad indeed to note from your letter that you are in position to make a full settlement as soon as you finish picking cotton now in the field, and deliver the property to a representative who my father will appoint for that purpose.”

During that time the landlord did not visit the plantations, and had no direct communication with the tenant. The landlord was in communication with his son, and told the son “not to go any further.” The proof then shows that the landlord declined to make the advances agreed upon for the year 1915, justifying his refusal on the ground that the other deeds of trust to the Bank of Belzoni had been discovered of record. So far as we can tell from the record, the same live stock pledged to the Bank of Belzoni are embraced in Mr. Pepper’s deed of trust for 1914, and if this be true Mr. Pepper was holding a first lien on all the live stock. This lien evidenced by the deed of trust for 1914. had not been satisfied or canceled, and it is doubtful whether the existence of a second lien on a portion of the live stock would justify *154 the landlord in declining to make the advances agreed upon for the year 1915.

If it be conceded,-however, that the landlord agreed to make advances for the crop year 1915 under a misapprehension of the tenant’s financial condition or under a general mistake of fact, it necessarily follows that Mr. Pepper could not decline to advance the six thousand dollars secured by the 1915 trust deed, and at the same time hold and claim the benefit of this new lien. As suggested by counsel for appellants, the landlord is in the attitude of taking the new deed of trust, and, as soon as it is filed for record and before the ink on it is hardly dry, uses it as a basis of his suit for the appointment of a receiver. The proof, as we see it, justifies the conclusion that the landlord declined to execute the agreement evidenced 'by the 1915 trust deed and notes, and when he did so the tenant took the position that there was nothing for. him to do but vacate the premises. In his letter of February 15th the tenant expressly says:

“If you will not carry out this agreement,... I will have to quit business.”

And the most favorable view for the landlord is that the • tenant acquiesced in the conclusion reached by the landlord in declining to make further advances. The record does not show that a representative of the landlord was sent to the plantations to demand possession. No formal demand was made upon the tenant to vacate, but if the position assumed by the tenant is to be construed as not only acquiescing in the refusal of the landlord to make advances, but also in giving possession or quitting business,” then it' necessarily follows that the last trust deed of 1915 should be regarded as an agreement unexecuted, canceled by agreement, and treated as if it had never been signed by the tenant. Most assuredly the landlord could not agree to supply the tenant, take a note therefor payable the latter part of the year 1915, and, as soon as the papers are executed, file suit for a foreclosure. The fact that such a lien *155 would uot mature until the latter part of the year is a sufficient suggestion that it could not he foreclosed.

Even if this last trust deed is to he regarded as a binding contract to be performed by both parties, it could not be used as a basis for the appointment of a receiver upon the theory that the tenant wais insolvent. The money agreed to be advanced was never paid the tenant, and even though the tenant should be a man of limited means and practically insolvent, this fact would not justify the landlord in having the court dispossess the tenant and substitute the judgment and business ability of a receiver for that of the tenant. If the tenant has agreed to borrow and the landlord has agreed .to lend, then certainly the tenant should have a right to expend the funds and to manage his own business, in the absence of a showing that the tenant had the fraudulent intent of misappropriating the fundso or was abandoning the property. The tenant had been managing his own plantations for five years, and each year had been spending moneys advanced by his landlord. The landlord had a perfect right to decline to make any advances for the year 1915, and thus to put the tenant upon his own resources. The rent note of three thousand dollars, for 1915, would be a preference claim protected by our liberal statutes, and there is no showing in this record that the tenant, if put upon his own resources and left to manage his own business, would not have raised sufficient crops in 1915 to pay the rent for that year. So much for the 1915 trust deed.

Was the appointment of a receiver justified under the deed of trust for 1914? As stated, the main portion of the cotton crops secured by the 1914 trust deed had been ginned baled, and deposited in compresses ready for the market. By agreement of the parties a sale of the crop was being delayed. The landlord held- the compress receipts and was in position to sell this cotton at any time. If the cotton evidenced by these receipts was inadequate to pay the indebtedness due the complainant, he had a *156 right to demand a final settlement and foreclosure of the 1914 lien at any time and to that end to call upon the trustee in the deed of trust to foreclosure. At the time the bill was filed no demand had been made upon the tenant for a final settlement, the cotton had not been sold, and no demand had been made upon the trustee in the deed of trust to take possession of the live stock or other property covered by the instrument. On the contrary the landlord, in February, 1915, was in the attitude of taking additional and cumulative security, presumably for the purpose of holding the 1914 cotton for a better price. After the landlord declined to make advances for 1915 and refused to execute the agreement evidenced by the 1915 trust deed, he had a right to liquidate his demands against the tenant by selling the cotton in the compress, and either calling upon the trustee to foreclose the 1914 lien or to seek a foreclosure through the chancery court. As we interpret the pleadings and the proof this is the utmost right the complainant had, that is, to foreclose the past-due trust deed of 1914. In foreclosing, he had a right to the services of his trustee, and a foreclosure at trustee’s sale or a foreclosure in equity. In either case the appointment of a receiver would have been ill-advised and unnecessary. If a foreclosure by the trustee, the latter could demand possession under the liberal terms of the instrument and the rights of the beneficiary fully protected. The trustee would have an adequate remedy at law for the possession of any of the live stock. If a foreclosure in equity, necessary writs of sequestration could be applied for and awarded, for the purpose of bringing the property into the custody of the court. Under a bill to foreclose the 1914 trust deed, there would be little that a receiver could do. In a foreclosure bill proper, the end sought would be a judicial sale of the property covered by the instrument. Such a bill would not contemplate the use of the properly pending litigation, and the relief sought by such procedure would not justify-the landlord in appropriating the personal property of the tenant in *157 operating Ms own plantations for another year. If the landlord elected to foreclose his 1914 lien, then the tenant had a right to a speedy foreclosure and a sale of the pledged property and the proper application of the proceeds. As it is, the following unusual decree was entered by the court in this case:

“And it further appearing that it hasHbecome necessary for the said C. H. Campbell, receiver, to deliver said plantations known as Famosa and Winter Quarters, in Holmes county, to D. G. Pepper, the owner thereof, in order that the tenants and laborers thereof and thereon might be furnished sufficient supplies for food and clothing, they being in a destitute condition when said receiver took charge of said plantations, and it further appearing that said receiver for the purpose of obtaining sufficient feed for the thirty-six horses and mules now on said plantations has agreed and arranged with the said D. G. Pepper to furnish said feed until said mules and horses are sold as prayed for in said bill of complaint, in return for the work of said mules on said plantations, the same to remain under the care and control of said receiver.”

From this decree it is difficult to say whether the landlord was cultivating his own plantations in 1915 or whether the receiver was in possession and operating for the benefit of the landlord. It is manifest that the tenant had been ousted of possession, and the bill of complaint in tMs'case is made to operate as a suit for possession, and the process of the chancery court is given the effect of awarding immediate possession of the plantations to the landlord! It could hardly be said that these plantations are being operated by the receiver for the benifit of the tenant. His very live stock and agricultoral implements are seized without notice and given over to the landlord to be freely used, worn, and torn, without any compensation except the “feed” of mules. The effect of this order is to deprive the tenant of the use of his property without compensation, first or last. In the report *158 of the receiver and the petition for this order the receiver states that he — “has delivered said plantations over to said D. Gr. Pepper, he having agreed to supply the tenants and laborers thereon through the present year, and agreeing to feed said mules for their work until such time as your honor may direct that they be sold and the proceeds thereof applied to the indebtedness due the said D. Gr. Pepper.”

By this order Burton’s mules, like prisoners in a foreign and hostile country, are doing service for their feed. It does appear at the time the motions came on for hearing at the May term that the cotton had been sold and the landlord was then ready to account for the proceeds, and the record does show that this cotton was then insufficient to pay what the landlord was claiming to be due. No accounting has been had, and w.e are not justified in drawing any conclusions as to the exact amount of this indebtedness.

It is manifest, however, that the proceedings in this cause proceed upon the idea that the lease has been terminated. The lease contract bears the stipulation that if the rental is not paid for any year the lease could be terminated at the option of the landlord, and the bill charges that the tenant had been requested to deliver over the plantations and has failed and refused to do so. The proof thus far does not prove this allegation of the bill, at least it does not show that Burton refused to deliver possession. In the prayer of the bill it is stated that “default having been made by the said B. L. Burton, lessee.” If the tenant breached his lease contract the landlord had a right to demand possession and, upon failure to recover possession on demand, had an adequate remedy at law to regain the possession of the premises. The appointment of a receiver then was not necessary simply to gain possession, and even if this could be regarded as a suit for possession, summary proceedings in equity for the immediate recovery of the possession of real estate without notice would not be justified. The *159 use of process of the court of chancery for such purpose would be oppressive.

The situation, as we see it, justifies the conclusion that the landlord has taken possession of his own, made new contracts with the laborers and croppers, has supplied the croppers since the filing of the bill, has taken charge of the livestock and agricultural implements, and is farming his own property. He claims to be doing this under the general supervision of the receiver, hut there is no order in the record authorizing the receiver to spend any money or to incur any debts. If this is the situation, then no further rent is accruing to be charged against the tenant, and the supplies being furnished by the landlord in using his own property would not be chargeable against the tenant and would not be classed as receiver’s debts. The true situation seems to be that the landlord has taken full control and possession of the plantations and doing with them as he pleases, and pending a delayed foreclosure of the 1914 deed of trust is allowed to use the very property asked by him to he sold. This is unauthorized and, in fact, oppressive.

The complainant was not justified in asking for the appointment of a receiver in the first instance. The appointment was ill-advised, and the motions of the defendants to revoke the appointment should have been sustained. This is not a case where the appointment of a receiver is sought to take charge of real property to preserve rents and profits pending litigation over the rest. If it were, the appointment in such case is, as said by Mr. High “regarded as an extremely delicate branch of equity jurisdiction, and one whose exercise should be guarded with the utmost caution.” High on Receivers (4th Ed.), par. 553.

To justify a receiver in a foreclosure suit, there should be a clear showing of inadequacy of the security, the insolvency of the mortgagor, and a present need for the preservation and management of the mortgaged property. There should, in this case, have been a clear show *160 ing that the tenant was not only insolvent and the security insufficient, hut that the tenant had either removed or abandoned the premises, or was misappropriating the property and placing it beyond the jurisdiction of the court, or doing some other act tending'to destroy the value of the security. In paragraph 562, Mr. High, in discussing the rule as between lessor and lessee, says:

“The general rule already stated, denying the aid of a receiver in a contest as to title as against a defendant in possession, is applicable to the case of a lessor and lessee of real estate, and equity rarely interferes with the lessee’s possession by granting a receiver. The lessee being clothed with title and possession under his lease, and being in the enjoyment of rights apparently legal, will not be deprived of his possession by a receiver, unless under very urgent and peculiar circumstances. ’ ’

In the case of Henderson v. Reynolds, 168 Ind. 522 , 81 N. E. 494 , 11 L. R. A. (N. S.) 960, 11 Ann. Cas. 977, the supreme court of Indiana says.:

“The exceptional cases are when the defendant is beyond the jurisdiction of the court, or cannot be found, or when some emergency is shown rendering interference, before there is time to give notice, necessary to prevent waste, destruction, or loss, or when notice itself will jeopardize the delivery of the property over which the receivership is extended in obedience to the order of.the court. It must be a case of imperious necessity, requiring immediate action, and where protection cannot be afforded the plaintiff in any other way. Continental Clay & Min. Co. v. Bryson, 168 Ind. 485 , 81 N. E. 210 , and authorities cited; Chicago & S. E. R. Co. v. Cason, 133 Ind. 49, 51 , 31 N. E. 827 ; High on Receivers (3 Ed.), pars. 113, 117; Beach, Receivers, pars. 140-143. It has been held that a receiver will not be appointed without notice when a court, as in this state, has the power to grant a temporary restraining order, without notice, and the same is ample to protect property until notice is*given and the applica *161 tion for a receiver heard and determined. Grandin v. La Bar, 2 N. D. 206, 213, 214 , 50 N. W. 151 ; McCarthy v. Peake 18 How. Pr. 139 , 140; Fischer v. Superior Court 110 Cal. 129, 138 , 42 Pac. 561 ; State v. Jacksonville, P. & M. R. Co., 15 Fla. 210 , 286; Nusbaum v. Locke, 53 Ill. App. 242, 244 ; Cabaniss v. Reco. Min. Co., 54 C. C. A. 190, 195, 196 , 116 Fed. 318, 323, 324 . It was said in Cabaniss v. Reco. Min. Co., supra: ‘When snch notice can be given it should be given, unless there is imminent danger of loss, or great damage, or irrevocable injury, or the greatest emergency, or when, by the giving of notice, the very purpose of the appointment of a receiver would be rendered nugatory, and such instances are of rare occurrence in the federal courts, because of their power, when an injunction is asked for, to grant a temporary restraining order (Rev. St. U. S., section 718; U. S. Comp. St. 1901, p. 580 [U. S. Comp. St. 1916, section 1243a]), which may be served at the same time that the notice is served, to prevent .action by the defendant or his agent, and to preserve the existing conditions, until the application for an injunction and for a receiver can be heard. North American Land & Timber Co. v. Watkins, 48 C. C. A. 254 , 109 Fed. 101 .’”

In the case thus freely quoted from there was an application for the appointment of a receiver for a growing crop and the appointment was asked without notice. The court reached the conclusion that a receiver should not have been appointed. This case also directs attention to the general rule that a receiver will not be appointed with out notice except in cases of greatest emergency. As stated by Mr. High:

“Courts of equity are exceedingly averse to the exercise of their extraordinary jurisdiction by the appointment of receivers upon ex parte applications, and this practice is never tolerated except in cases of the gravest emergency, demanding the immediate interference of the court for the prevention of irreparáble injury, or in cases *162 where defendant has absconded and willfully put himself beyond the jurisdiction of the court. And it may be stated as the settled practice, both in England and in America, to require the moving party to give due notice of the application to defendant, . . . that his property may not be summarily wrested from him upon an eos parte application.” Paragraph 111.

Mr. High calls this “an inflexible rule which courts are not at liberty to disregard. ’ ’

This is both the letter and spirit of our statute (section 625, Code of 1906). “Good cause” must be shown why the notice is not given. Mere insolvency does not justify the appointment of a receiver to take charge of the assets of an individual debtor. If this were true the woods would be full of receivers, at least in Mississippi. The appointment in the present case was attempted to be justified by showing the condition of the' livé stock and the improvements at the time the receiver took charge. The receiver when on the witness, stand, was asked the condition of the mules. His response was, “Some good; some bad.” There was also testimony that there was practically no feed on hand for the mules.

These after-litigation conditions cannot change the legal rights of the parties as they existed at the time the suit was instituted. There was indeed some testimony tending to prove that the tenant had practically no feed; that the laborers needed supplies, and that the plantations were at the time the receiver was appointed somewhat isolated or cut off by flood tides of the river. It still remains that the appointment of a receiver added practically nothing to the complainant’s security.

The- situation which Mr. Burton found himself in at the time should not be overlooked. He was engaged chiefly in raising cotton as a money crop. He, his croppers and his live stock had practically weathered the storms of winter; he had just made arrangements with his landlord for supplies for another year, and as soon as these arrangements were concluded the landlord took the very *163 trust deed which had just been executed and used it as a basis of having the receiver appointed without notice. If Mr. Burton then, as contended by counsel, not only released the croppers but suggested to some that they move, his conduct was more or less human under the circumstances, and possibly he was provoked into doing this by the hard'and summary proceedings against him. The hardships with which the tenant was then contending could not be bettered or overcome by the receiver wresting from his possession every mule and every tool on the plantations, and thereby leaving the defendant stripped of everything in the way of agricultural implements or supplies. Of course, the landlord had no intention of injuring the tenant by the present proceedings. The necessary result of the receivership proceedings, however, well illustrates the hardships of having a receiver appointed without notice. The record- shows that Mr. Burton was served first with an order of the court appointing a receiver without notice and a writ of assistance directed to the sheriff to oust him from possession of all of his property. Then followed a series of mandatory injunctions, alias writs to other counties, and a rule to show cause why he should not be fined as for a contempt of the court. Every possible process, it seems, was invoked except to call out the militia. On the hearing of the motions in May when crops should be growing, the court refused to allow the tenant to bond the personal property. The proof shows that only a small per cent of the croppers left the plantation, but most of them remained and were supplied and used by the receiver. So, in practical effect, the landlord has his plantations given over to him, and all the valuable live stock is delivered to him to be used merely for their feed and nothing more. The tenant is denied the privilege of bonding his property; court costs and interest charges are accruing; while the tenant, under threat of contempt proceedings, must quietly and mournfully look on, and that too at a distance.

*164 The motions of the defendants should have been sustained and the appointment of a receiver revoked in toto, and the receiver discharged upon proper accounting. This being an appeal from an interlocutory decree, we are not called up'on to determine the right of the complainant to a foreclosure of either trust deed under the pleadings as now framed, and we intimate nothing as to the duty of the chancellor on a remand of this cause other than revoke the appontment of the receiver and accept his final account.

The effort of the unsecured creditors to join in the bill after the appointment of the receiver has no direct bearing upon the rights of the parties on this appeal. It appears that they were communicated with by the complainant and his counsel, and came into this case seeking merely their pro rata share in any excels after the secured creditors are paid. Surely, the appointment- of a receiver would diminish instead of increase their chances for a dividend.

Reversed and remanded.