Crane Co. v. Fidelity Trust Co.

The Crane Company, appellant, from time to time between January 1, 1911, and May 31, 1914, sold certain water pipes, fittings, and gas and water equipment to the Washington-Oregon Corporation engaged in the operation of electric railway systems and light and water systems in Washington and Oregon. In May, 1911, the Washington-Oregon Corporation made a mortgage and deed of trust to Fidelity Trust Company, as trustee, to secure a bond issue of Washington-Oregon Corporation for $5,000,000, the bonds to bear 6 per cent, interest, interest maturing on the 1st of April and the 1st of November in each year; the mortgage constituting a -lien upon all property of every nature and description then owned by Washington-Oregon Corporation and thereafter acquired by it, and upon the rents, issues, and profits of all of such property. The mortgage was duly recorded. Interest was paid upon the bonds issued under the mortgage up to November 1, 1913, but the defendant corporation defaulted in the interest due on April 1, 1914. Foreclosure proceeding was instituted, , a receiver was appointed, and the possession of the property passed to the receiver on July 31, 1914. The Crane Company intervened in…

(dissenting). There are two grounds on which I think it should be held in this case that the mortgagee, coming into a court of equity seeking equitable relief, and asking for the appointment of a receiver, should be required to do equity, and submit to the preferred payment of claims of the appellant which, within a reasonable time prior to the receivership, furnished goods to keep the mortgaged property a going concern, in the expectation of payment out of the income, but which has not been paid because of the diversion of the income to the payment of interest or betterments. One is the broad principle upon which the equitable right rests. As stated by Chief Justice Waite in Fosdick v. Schall, 99 U. S. 235 , 25 L. Ed. 339 , the power to displace a mortgage upon the corpus or upon the earnings “rests upon the fact that, in the administration of the affairs of the company, the mortgage creditors have got possession of that which in equity belonged to the whole or a part of the general creditors. Whatever is done, therefore, must be with a view to a restoration by the mortgage creditors of that which they have thus inequitably obtained.” An equitable right of so meritorious a nature…