HUGULEY MFG. CO. V. GAI,E'fON COTTON MILLS.

269

HUGULEY MFG. CO. et a1. v. GALETON COTTON MILLS et al. (Circuit Court of Appeals, Fifth Circuit. May 16, 1899.) No. 798.

1.

MORTGAGES-REVERSAL OF DECREE OF FORECLOSURE-RIGHTS OF MORTGAGEE IN POSSESSION AS PURCHASER.

A mortgagee having a valid mortgage which is foreclosed in a court of competent jurisdiction, and who becomes the purchaser under the decree, and is given possession of the property, cannot be treated as ,a trespasser wrongfully in possession on a subsequent reversal of the decree, but is entitled on an accounting to the benefit of the equitable rules governing mortgagees 11.. possession, and to have the rental value of the property during his possession applied on a deficiency reI)laining due him after its resale.

2. SAME-EFFECT OF STATE STATUTE.

The right and obligation of a mortgagee in possession to apply rents and profits upon the mortgage debt is a doctrine of equity, and is not affected by a state statute providing that a mortgage is only security for a debt, and passes nQ title, as mortgages were alwaJ's so regarded by courts of equity;

Appeal from the Circuit Court of the United States for the Northern District of Georgia. W. R. Hammond and John M. Chilton, for appellant. B. F. Abbott and P. H. Brewster, for appellee. Before PARDEE, McCORMICK, and SHELBY, Circuit Judges. SHELBY, Circuit, Judge. On January 1, 1884, the Alabama & Georgia Manufacturing Company executed a mortgage or deed, of trust to J. J. Robinson and two others to secure $65,000 of bonds isImed by it that day. Subsequently the property embraced in the mortgage was sold under a decree of a state court subject to the mortgage. Under this sale the Huguley Company became the purchaser and owner of the property, subject to the incumbrance of the mortgage for $65,000. It was placed in possession of the property. A bill was filed in the circuit court of the United States for the district of Georgia to foredose the mortgage, a decree of foreclosure rendered, and on appeal to this court the decree was reversed. 13, U. S. App. 359, 6 C. C. A.79, and 56 FecI. (mo. The decree of foreclosure being vacated by reversal, the circuit eourt granted a petition on the part of the Huguley Ylanufacturing Company to restore it to the pos';; ssion of the property, upon condition, however, that it pay into court $10,000, which had been paid by the purchasers under the now vacated foreclosure sale. This condition the Huguley Ylanufacturing Company did not comply with, but resisted. It took another appeal to this court, and the decree of the circuit court Wail affirmed. 30 U. S. App. 683, 19 C. C. A. 152, and 72 Fed. 70S. At the first foreclosure sale the property was purchased for the bondholders, who organized a corporation under the llame of the Galpton Cotton Mills. This corporation was placed in possessioll of the

94 FEtlERAL' REPORTER.
mg the lip:peal,! and after tliereversal of tne decree; and upon the

property

first

()qoreclosurez

pend-

second became ba"e ,remained continuously in possession, operating the mills on the property. The Galeton Cotton Mills were in possession of the property under the ()f fQreG!osure for a period qf, :eig,Jht months. The real controversy in the present litigationisabonLthe rents of the property during this <period. The net rentlifhave been ascertainooto lastft)reclosure'sale a:balance was left due, after the mortgage debt, of$33;414.21. 'l'he HuguleYi Manufacturjn,g contends that the possession afthe purchasers at; the foreclosure sale, the decree afterwardsbeing·reversed; andr;wrongful, and that in stating the account of reference the company was not to be treated as a mortgagee in possession, Qut that a stricter rule Bhould be applied on the I1pd that theitenls th¢' property of the Huguley Mapufacturing 'CompanY,Jilnd ,silOu.ld';be paid it. The Galeton Mills, on the contrary, ·contends that its possEflsion was not tortious, but legal, that it should be treated and charged only on the accountin,g a mortgagee in an.<l,tpu! rents beIJald to the Buguley MaIiufacturing Company, but should be applied to the payment of the amount left unpaid on thenlOrtgRge. These are the onlysubstantialquestiori:s 'in the case. The material to the-statement of the account beassignments of error fore tbe master, or thli'application. of the rents to of the morfgage debt. We are relieved from stating these questions and factB relating to them more minutely by, the Qpinion, of the learned judge who rendered the decrees appealed from hi the circuit court. 89 Fed. 218-231.' . '. 1. The' of. the purchasers' at the first foreclosure sale was not wrongful' in the sense tfu:tt such possession mRde them trespassers. The decree was rendered by a: court having jurisdiction of the. case. The mortgage' foreclosed was .valid. The decree was binding, and not subject to, collateral attack. It was valid and effectual to place the purchasers:in possession, and to protect them in posse-ssion till it was. reversed. . 2 Jones, Mortg. (5th Ed.) §§ 1587, 1588. It was reversed by this court, and the circuit court then grantedan order of restitution, but upon condition that the Huguley ManufacturingCompany would pay into court the sum of $10,000, which had been paid by the purchasers at the date of their purchase. This court, on appeal, affirmed this condition; The Huguley ManufacturCompany did not pay the $10,000, lilId so were not entitled to the' possession by the tertnsof the order made by the circuit court and, affirmed by this court. From its inception the possession in question WRS sanctioned by a decree of the court having jurisdiction of the parties and the property. The reversal of the decree does not make the purchasers under it trespassers. The purchasers iIi this case, on the facts stated, are entitled to the benefit of the equitable in poBsession, and the account should be rules governing stRted Rnd the rents applied by fluch rules. Dutcher v. Hobby, 86 Ga. 198, 12 S. E. 356; Brobst v. Brock, 10 Wall. 519; Lane v. Holmes,
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to .

HUGULEY MFG. CO. V. GALETON COTTON MILLS.

271

55 Minn. 379, 57 N. W.132; Townshend v. Thomson, 139 N. Y. 152, 34 N. E. 891. 2. Under the English law, which has been substantially adopted in many of the states, a mortgage on real estate is of dual nature. In a court of law the mortgagee is regarded as the owner. He possesses the legal title, and can recover the estate in ejectment. In a court of equity the mortgage is deemed only a security for the debt described in it. Welsh v. Phillips, 54 Ala. 309; 3 Porn. Eq. JUl'. § 1184; 1 Jones, Mortg. (4th Ed.) § 11. In Georgia, as in several of the states, the English view does not prevail. The legal title does not pass to the mortgagee. The mortgage, both at law and in equity, is always deemed a mere security for debt. This was settled in Georgia many years ago by judicial decision. Davis v. Anderson, 1 Ga. 176; Vason v. Ball, 56 Ga. 269. It is now confirmed by statute. "A mortgage in this state is only security for a debt, and passes no title." Civ. Code Ga. § 2723. In the argument of this case it was urged with much earnestness that these decisions and the statute are controlling in this case, and that their proper application to the case will give to the appellant the rents and profits of the property. It must be conceded as established by authority, as a general principle, that a .mortgagee in possession, whether in person, by trustee, or receiver, is in equity accountable for the rents and profits, "and must apply them to the reduction of the mortgage debt." 2 Jones, Mortg. (5th Ed.) § 1114. This is a matterexcltisively of equity jurisdiction, and is for the benefit of the mortgagor. By such application of the rents his debt is paid or reduced so as to lessen the burden of redemption. It is also nothing more than is due to the mortgagee. He is entitled to be paid. In cases where the corpus of the property is not sufficient to pay the debt, and where the mort.gagor is insolvent, the mortgagee has no other means of obtaining full payment except to secure the rents. As between an insolvent mortgagor and the mortgagee who has collected rents, the property mortgaged being insufficient to pay the debt, the rents must be applied to extinguish the debt. The mortgagee would not, in equity, be permitted to retain the rents, and not apply them to the debt. In no jurisdiction would he be required to pay the rents to the· mortgagor, his debtor, and leave the debt unpaid. As the mortgagor. uJlder.such circuID8tauces, could not prevent the rents being applied to the payment of his debt, he cannot, by selling his equity of redemption to another, invest him with a right he did not have himself. The purchaser of the mortgagor's right of redemption can have no greater rights than the mortgagor. In cases like this the equitable right of the mortgagee to apply the rents to the payment of his claim seems undisputed by the general.practice and principles of equity jurisprudence. This, we understand, if not conceded by the appellant, is not denied, but the co;ntentiQn is that these principles are not applicable to a mortgage controlled by the laws of Georgia. Is there anything in the Georgia law in conllict with these principles? Does the statute which makes a mortgage only a security for debt, intend to make it any less a security, in equity, than other mortgages on real esta,te? Under the English rule, a mortgage on real estate

94 FEDERAL REPORTER,'

It is only at law that the mortgagee is regarded as the owner of the legal title. The Georgia statute changes thefefl'ect; in this regard, of a mortgage at law, but it is only a legislative'recognition of the equitable rule, which views a mortgage as merely, a security for debt. It is held in Hart V': Respe8s, 89 Ga. 87, 14 FLE,,9l0, as stated in the syllabus:
''While the mortgagee has no legal title' to the rents and profits, he has an eq.uitable claim upon the same in so far as they may be needed to discharge so tuuch of the mortgage debt 'as cannot be realized out of the corpus of the prolJerty, the facts of the. ease indicating that the debtors are insolvent, and the creditors likely to sustain loss."

.is'iu eqriityalways regarded as 'a'mere security for debt.

The decree of the circuit court is affirmed.

INTERSTATE COMMERCE CmlMISSION v. CHICAGO, B. & Q. R. CO.

et aI. (Circuit Court, N. D. Illinois, N. D. May 9, 1899.)
No. 25,101.

1.

CARRlEIlS-INTERSTATE COMMERCE ABLE CHARGES.

TO ENJOIN UNREASON-

A petition by the Interstate comwerce for an order of a federal,court enjoining a 'carrier from making certain charges, which the commission has declared to be unrellsonable .and unjust, is authorized by the 'interstate commerce act, and is not 'subject to objection as an attempt to :fix maximum rates; the question of the reasonableness of the charges. complaine(l of being one which the cOli+t is required to determine in such proc:eeding.

, " The findings of the interstate commerce commission on which it basI'S I an order requiring carriers to cease and desist from making certain charges as unreasonable and unjust, which are made. prima facie evidence of the facts tberein ,stated on the hearl;ng of a petition by the commission asking ,a court to enjoin obedience to SUCh, order, will not, in view of the terms of the statute and its remedIal character, be given a narrow construction on ! the hearing Ora demur'rer to the petition' on the ground that such findings do riot sUstain the order made. S. 1)E Novo. . Tbe court will not be limited on the to a review of the evidence before the Interstate commerce c()mmlssion, and a hearing de novo on the merits should be granted where the findings and petition of the commission are within the letter of tbe act.

·2.,8.,6.ME.

On to Petition. S. H. Be-thea, U. S. Dist. Atty., for plaintiff'. R.obeIlt Dunlop, for defendant Atchison,T. & S. F. R. Co. Robert Mather, for defendant Chicago, R. I. & P. R. Co. Sidney F. Andrews,for defendalli'tIllinois Cent. R. Co. William Brown, for defendant Chicago' & A. R. Co. " G. S. Bennett, for Wl1bash R. Co. C. M. Dawes, for defenidant Chieag{},iB. & Q. R. Charles R Keeler, for defendant. Chica'go, M. & St. P. R. Co. Lloyd W.Bllrrows, for defendant Chicago & N. W. R. Co. FrankE. Kellogg, for defendant Chit"ago G. W.' R. Co.

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