Appeal from the District Court of the United States for the Western District of Pennsylvania.
Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.
These are appeals from two decrees of the District Court. In the first decree, the court ordered the receiver to sell a tract of land of 112 acres free, clear, and discharged of liens and, in the second, it refused to permit the appellant, the People's-Pittsburgh Trust Company, trustee, to foreclose its mortgage on the same tract.
The question in issue is whether or not the court erred in entering these decrees.
A court of equity, under proper circumstances, has power to order a receiver to sell property free and clear of all incumbrances and to deny the mortgagee the right to foreclose his mortgage. Stokes v. Williams (C.C.A.) 226 F. 148; In re Dyer (D.C.) 8 F.2d 376; Broadway Trust Company v. Dill (C.C.A.) 17 F.2d 486; Seaboard National Bank v. Rogers Milk Products Company (C.C.A.) 21 F.2d 414; Mellen v. Moline Malleable Iron Works, 131 U.S. 352, 9 S. Ct. 781, 33 L. Ed. 178; Van Huffel v. Harkelrode, etc., 284 U.S. 225, 52 S. Ct. 115, 76 L. Ed. 256.
The question for the court to determine in any particular case is whether or not the circumstances are such in that case as justify it in denying the mortgagee the right to foreclose his mortgage and in ordering the receiver to sell the property free and clear of the lien thereon. The question before the appellate court in such case is whether or not the court in the first instance abused its discretion. The determination of this question in the case at bar involves the necessity of examining the circumstances which prompted the action of the District Court.
The Conneaut Lake Company, hereinafter called the company, had for a long time owned a resort known as Conneaut Lake Park, situated on the west shore of Conneaut Lake in Crawford county, Pa. The park consists of about 112 acres "on which is situate a small city." The company has leased property to a large number of people who have erected homes thereon. Many of these people reside there during the entire year. The company has constructed on the property a hotel of 340 rooms, a dance hall made of steel and concrete, a bowling alley, a boat house, a theater, a convention hall with a seating capacity of 5,000, an auditorium, many structures rented to concessionaires for the conduct of commercial business, a large garage and many small garages, a gasoline station, a concrete fire engine house, an office building, carpenter shops, plumbing shops, electrical shops, thirty to forty cottages, several amusement places, a complete water system which provides water for all domestic and fire purposes, an electric light distributing system which supplies current for domestic, industrial, and street lighting purposes, a sewage system and a sewage disposal plant to serve the sanitary needs of the inhabitants of the park.
The company, in addition, owned about 600 acres of farm land and some undeveloped and unimproved land. On some of this land it constructed a golf course. Since then two farms have been sold under foreclosure, and the receiver has been ordered to sell the balance of the undeveloped and unimproved land.
On February 13, 1924, the company borrowed $100,000 from the appellant for the purpose of building a wing to the hotel, and executed a mortgage covering the 112-acre tract. The unpaid balance on this mortgage is $97,440. The appellant is seeking to foreclose this mortgage.
On September 27, 1929, the plaintiff, Ralph H. Hirsch, a citizen of the state of Ohio, filed his complaint in which he alleged that the company was unable to pay the pressing claims of its creditors; that several suits had been threatened or actually instituted; that its property was liable to become subject to judgment, execution, attachment, and garnishment proceedings and its property to be disposed of and sacrificed with great loss to its creditors and stockholders, and prayed for the appointment of a receiver to take charge of the property of the company and conduct its business, etc. R.J. Mac-Donald was appointed receiver.
At this time there were three classes of creditors: (1) Mortgagees, holding underlying mortgages aggregating $127,500; (2) the trustee and bondholders under a trust mortgage given in 1927 in the sum of $475,000 ($324,500 of these bonds were issued and outstanding, and the balance of $127,500 were deposited in escrow with the appellant under certain arrangements); (3) general creditors. The appellant was a member of each class, being mortgagee, trustee, and general creditor.It consented to the appointment of the receiver, and during the following three years consulted and co-operated with him in the operation of the company's properties.
On October 11, 1932, the receiver petitioned the District Court for leave to sell the property of the company because the appellant and the Crawford County Trust Company had notified him of their intention to ask leave to foreclose their mortgages and because he was without funds to continue the operation of the plant in the face of the threatened foreclosures. On the same day the appellant and the Crawford County Trust Company presented their petitions to the court and prayed for leave to foreclose the mortgages in question. On December 14, 1932, the court, as above stated, filed its opinion and entered decrees allowing the receiver to sell the tract of 112 acres covered by the appellant's mortgage, together with certain other real estate, free, clear, and discharged of all liens, but at the same time denied the petition of the appellant for leave to foreclose, but allowed the Crawford County Trust Company to foreclose its mortgages against two farms and certain undeveloped land upon filing with the court a bond, ...