T T ^^: 1920 v.| THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES SCHOOL OF LAW BtNOERY 224 S. Soring St., L T*l. MUtoal 443^ LAW LIBRARY '1 LOS ANGELESXOUNTY '••^v- A TREx\TI^j4^ LAW AKI) PR5cEDUEE OF RECEIVERS WITH FORMS BEING A GREATLY ENLARGED, NEWLY CLASSIFIED, AND ENTIRELY RE-WRITTEN SECOND EDITION OF SMITH ON RECEIVERS BY HENRY Ct. tardy OF THE CALIFORNIA BAR AND FOR MANY YEARS ASSOCIATE EDITOR OF THE AMERICAN STATE REPORTS VOLUME ONE BENDER-MOSS COMPANY SAN FEANCISCO, CALIFORNIA 1920 Copyright, 1920, By bender-moss COMPANY T • r WILLIAMS PRINTING COMrANT INnBI-KXnBNT PKEMItOOM PREFACE TO SECOND EDITION When the preparation of this edition was commenced, it was intended to make it an ordinary new edition of the work of Mr. John W. Smith on the Law of Receivers, but it was soon found that the body of law on the subject had so grown since the first edition of Mr. Smitli's work and so many new questions had arisen by reason of the large and complex commercial problems involved in receiver- ship cases that to treat the law on the subject adequately an entirely new work was necessary, using Mr. Smith's work as a basis for the earlier decisions. Hence the entire text has been re-written and the matter re-classified to meet the needs of the immense number of new decisions rendered since the first edition by Mr. Smith. The law of receivership is a branch of equity jurisprudence which is a product of American courts, although based on original principles derived from the earlier English cases. The evolution of the law of receivership as declared by the American courts is one of the greatest achievements of the equity courts of this country, both federal and state, and has been applied to the complexities of modern com- mercial life, suiting the remedy to the evils to be over- come or the protection to be afforded to the litigants and the public. The vast amount of business conducted under corporate form during the past quarter of a century has required a statement of the principles of receivership law as applied to corporations, both private and quasi-public, and a harmonizing or distinguishment of the variant decisions on many of the problems presented to the courts. In our treatment of the subject we have deemed it essential to a (hi) iv PREFACE TO SECOND EDITION. clear statement of the law to give the reasons for the law, and especially so when the decisions are variant. This task has involved an immense amount of work by the ;\'riter, especially in view of the large number of decisions on the subject. It has been the aim to make the footnotes sufficiently ample to show^ their support of the text and their application to the concrete problems presented to the practitioner in his use of the work. The profession will appreciate the broad-mindedness of the publishers in not limiting the writer to any specific number of pages in treating this big subject. Accordingly the treatment has not been curtailed in order to conform the book to a limited size, and those topics requiring an extended dis- cussion have been treated with such length as their importance deserves. The writer has not shirked the consideration of the vast number of difficult problems by glossing them over with generalities, which would not be useful to the practitioner, nor has he failed to criticize decisions which he has deemed unsound, but always giving his reasons for so doing. And where the decisions have been variant the writer has suggested what, in view of the large bird's-eye view which has been afforded him of the whole subject, lie has deemed the sounder rule, with his reasons therefor. The topics have been so sectioned as to give a quick idea of the general contents of the section and the index lias been prepared with a view to not overburden the user with useless cross-references or non-essential titles. The writer desires to acknowledge gratefully the valu- able assistance rendered him by Mr. Francis Dunn of the San Francisco Bar in the preparation of a number of important chapters. It is hoped that this book will be found as useful to the profession as the amount of work put upon it should justify- Henry G. Tardy. Oakland, Cal., .Tuly, 1920. CONTENTS. CHAPTER I. ORIGIN AND GENERAL NATURE OF THE LAW OF RECEIVERS AND ITS GROWTH. § 1. General Origin of Receiverships. § 2. Receiver Defined. § 3. Different Kinds of Receivers. § 4. Receivership as Distinguished from Other Remedies. § 5. Necessity to Resort to the Code Provisions of Each State. CHAPTER II. GENERAL GROUNDS AND CIRCUMSTANCES IN WHICH A RECEIVER IS APPOINTED. § 6. General Principles Applicable. § 7. General Class of Cases in Which a Receiver Is Appointed. § 8. Applicability of General Rules of Equity. § 9. Necessity for Danger of an Irreparable Injury. § 10. Caution and Discretion to Be Exercised by Courts. § 11. Character of Title to Be Shown by Plaintiff. § 12. Receivership Where Recovery Is Doubtful. § 13. Whether Existence of Property Must Be Shown. § 14. Necessity for Pendency of a Suit. \ § 15. Right of Court to Refuse Appointment on Condition of Defendant Furnishing a Bond. -§ 16. Effect Where an Injunction Would Serve Same Purpose. § 17. Insolvency as a Ground for Receivership. § 18. What Constitutes a Bar to Relief by Receivership. § 19. Right of Court to Exact Security for Receivership Expenses. § 20. Appointment of Receiver with Consent of Parties. § 21. Effect of Statutory Provisions on the Subject. § 22. Effect of Combining Legal and Equitable Powers in One Court. § 23. Appointment of Receiver by Executive Officers. § 24. Right to Appoint Receiver Without Resorting to a Court. § 25. Effect of Defendant Offering to Furnish Security to Protect Plaintiff. (V) VX CONTENTS. CHAPTER III. GENERAL EFFECT OF THE APPOINTMENT OF A RECEIVER AND THE DUTIES THEREUNDER. § 26. Status of the Receiver Respecting Receivership Property. § 27. Relation of the Receiver to Pending Litigation. § 28. Relation of the Receiver to Garnishments, Attachments, and Other Liens. § 29. Effect of Judgments on the Receivership. § 30. Right Obtained by Levy of Writ of Execution. § 31. Time of Vesting of Possession of Receiver. § 32. Effect of Receiver Being Required to Furnish Bond. § 33. Effect of Order of Appointment Being Stayed. § 34. General Rule as to Liability of Receiver on Contracts of Defendant. § 35. Performance by Receiver of Executory Contracts. § 36. Effect of Receiver Adopting Prior Contracts. § 37. Conditional Sales, Consignments, and Purchases with Knowledge of Insolvency. § 38. General Liability of Receiver on His Own Contracts. § 39. Binding Force of Contracts of One Receiver on His Successor. § 40. Effect of Order of Appointment as Res Judicata. § 41. Source and Extent of the Possessory Rights of a Receiver, § 42. Manner of Determining Extent of a Receiver's Powers. § 43. General Duties and Care Required of a Receiver. § 44. Liability of Receiver for Funds on Deposit in Bank. § 45. Right of Receiver to Borrow Money. § 46. Right of Receiver to Loan Receivership Fimds. § 47. Liability of Receiver for Interest on Funds. § 48. Liability of Receiver for Violations of His Trust. § 49. Duty of Receiver Not to Profit from Receivership Transactions. § 50. Duty of Employees and Others in Intimate Control. § 51. Liability of Person Improperly Assuming to Act as Receiver. § 52. Order of Appointment as Protection of Receiver. § 53. Rights of Claimants to Property in the Possession of Receiver. § 54. Rights of Receiver Respecting Property in Possession of Claimants. § 55. Necessity of Order of Court to Pay Money. § 56. Power of Receivers to Make Settlements and Compromises. § 57. Appointment of Receiver as Constituting an Act of Bankruptcy. § 58. General Liability of the Receivership for Torts and Negligence. § 59. Right of Receiver to Make Repairs. § CO. ^Expenditures for Ru))plies, Labor, and the Like. § 61. Conducting the Receivership as a Going Business. CONTEMTS. ^'^^ CHAPTER IV. GENERAL RULE AS TO WHO MAY BE APPOINTED RECEIVER. § 62. The General Rule. § 63. Eligibility of Parties, Owners, and Other Interested Parties. § 64. Eligibility of Attorneys, Trustees, and the Like. § 65. Eligibility of Court or Other Officials. § 66. Effect of Relationship to Judge or Parties. § 67. Whether Candidate for Receiver May Be a Non-resident. § 68. Eligibility of Corporation to Act as Receiver. § 69. Method Used by the Court in Making the Selection. CHAPTER V. TRUST ESTATES AND FIDUCIARY RELATIONS. 1. Trusts and Trust Relations. § 70. General Principles Applicable. § 71. Various circumstances in Which Receiver Appointed in Lieu of Trustee. § 72. Receivership in Case of Trustee Ex Maleficio. § 73. Receivership in Case of Trustee Ex Officio. § 74. Receivership Over Trustee of Person Interested in Public Con- tract. § 75. Receivership Over Trustees Who Are Charged with Fraud. § 76. Effect of Appointment of Receiver on the Trust Property. § 77. Whether Trustees Can Declare Default in Collateral Trust Agree- ment After Receivership. § 78. Whether Receivership Deprives Trustees of Availing Themselves of Their Ordinary Remedies. § 79. Right of Trustee to Bind His Beneficiaries by His Acts. 2. Estates of Decedents. § 80. General Principles Applicable. § 81. Receivership Pending Institutions of Probate Proceedings. § 82. Receivership Pending Will Contest. § 83. Whether Receivership After Judgment in Will Contest. § 84. Receivership Where Executor or Administrator Is Charged with Fraud, Mismanagement or Waste. § 85. Effect Where Mismanagement Based on Account Approved by Probate Court. § 86. Mere Disagreement Between Several Executors as to Manage- ment. § 87. Receivership on Failure to Obey Orders of Court or Directions in Will. 5 88. Effect of Insolvent Character of Executor or Administrator. X CONTENTS. 7. Relating to the Procedure of the Appointment. § 155. Nature of Pleading and Notice Necessary. § 156. Effect of Answer Admitting Allegations of Complaint. § 157. Effect of Allegations of Complaint Being Fully Denied. § 158. Right of Creditors to Intervene in Partnership Litigations. § 159. Determination of Disputed Questions of Fact by Jury. § 160. What Will Be Determined in the Order of Appointment. § 161. How the Partnership Property Is Described in the Order. § 162. Furnishing of Bond by the Receiver. § 163. Denial of Application for Receiver as Bar to Subsequent Appli- cation. § 164. Allowance of Costs and Fees. § 165. Venue of the Suit to Appoint a Receiver. 8. Powers and Duties of the Receiver. § 166. General Effect of the Appointment. § 167. General Powers and Duties of the Receiver. § 168. Duties of the Receiver Respecting the Collection of the Partner- ship Assets. § 169. Rights of Receiver of Individual Partner. § 170. Effect of One of the Partners Being Appointed Receiver. § 171. Suing and Being Sued. § 172. Binding Force of Previous Orders or Judgments Upon Receiver. § 173. Receiver Is Bound by Equities Against Partnership. § 174. Conducting of the Partnership Business by the Receiver. § 175. Whether the Receiver of a Law Firm May Continue the Practice of the Firm. § 176. Joint Operation of Two Railroads by Receiver of One of Them Constitutes No Partnership. § 177. Liability of Receiver for Torts. § 178. Sale of the Partnership Assets by the Receiver. § 179. Right to Sell Partnership Assets Outside of State. § 180. Duty of Receiver to Pay the Debts and Account Therefor. § 181. Disposition of Earnings and Meeting Losses in Operations by Receiver. § 182. Vacation of the Appointment. CHAPTER VIII. RECEIVER IN RELATION TO JOINT ADVENTURES. § 183. When Receiver Will Be Appointed. CHAPTER IX. RECEIVERS IN PARTITION PROCEEDINGS. § 184. In General. § 185. Effect of Hostile Feelings or Disagreements Between Cotenants. § 186. Effect of Ouster or Refusal to Account for Profits. CONTENTS. XI § 187. Effect of Property to Be Partitioned Being Used in Partnership Capacity. § 188. Effect of Insolvency of Tenant in Possession. § 189. Effect Where Party in Possession Is Solvent and Offers Indem- nification. § 190. Receivership Where Care of Subject Matter Involves Heavy Expense. § 191. Effect Where One Party Claims as Tenant by the Curtesy. § 192. Receiver in Aid of Final Judgment of Partition. § 193. Partition Proceedings Relative to Personal Property. § 194. Matters Relating to the Procedure of the Appointment. § 195. Rights and Duties of the Receiver. CHAPTER X. INTERESTS IN REAL ESTATE. 1. Over What Interests in Real Property Receivers Are Appointed. § 196. In General. § 197. As Between Tenants in Common. § 198. Tenants in Common Using the Property as a Business. 2. Actions for the Recovery of Real Property. § 199. Settlements of Disputes as to Title. § 200. Actions in Ejectment. § 201. Rule in England under Judicature Act. § 202. Receiver to Collect the Rents and Profits. § 203. Receiver to Gather Crops. § 204. Receiver of Homestead. § 205. Receiver May Be Appointed at Instance of Defendant. § 206. Of Rents and Profits Outside of Jurisdiction of Court. § 207. Receivership Over Annuities. § 208. Effect of Statutory Provisions Upon Appointment in Ejectment and the Like. § 209. Questions Relating to the Procedure. § 210. Appointment of Receiver Pending Appeal. § 211. Effect of Termination of Receivership Upon Real Property Covered by It. § 212. Whether the Appointment of Receiver Prevents Running of Statute of Limitations. § 213. On Breach of Covenants. 3. Receiverships in Actions Between Vendors and Purchasers. § 214. In Suits to Set Aside Conveyances on Ground of Fraud. § 215. As Between Vendor and Purchaser in General. § 216. Effect Where Insolvency of Purchaser Alleged. Sll CONTENTS. § 217. Vexatious Legal Proceedings for Purpose of Delay. § 218. Upon Disagreement Between Vendors Upon Partition Between Them. § 219. Upon Enforcement of Vendor's Lien. § 220. Receiver Takes Property Subject to Existing Vendor's Lien. § 221. Receivership in Suits for Specific Performance. § 222. Receivership in Aid of Judicial Sales. § 223. Receivership Over the Rents and Profits. § 224. The Rule as Applied to Personal Property. § 225. Equitable Lien for Purchase of Personalty. 4. Receivership at Instance of Landlord or Tenant. § 226. Circumstances in Which Receiver Appointed. § 227. Receivership Over Growing Crops. § 228. Combined Lease and Sale Contract. § 229. Deed of Trust to Secure Advances to Tenant. § 230. Breach of Covenants of Lease. § 231. Status of Receiver of Landlord in Relation to the Property. § 232. Receivership Determined Upon Conditions at Time of Appli- cation. § 233. Duration of the Receivership. 5. Receiverships Affecting Leases. § 234. Receivers to Collect Rent. § 235. Receiver of a Lessee. § 236. Receiver of a Lessor. § 237. Receiver as Lessor or Lessee. CHAPTER XI. MORTGAGES, PLEDGES, MECHANICS' AND OTHER LIENS. 1. Mortgages on Real Property, (a) General View of the Subject. § 238. Scope of Treatment of Subject. I 239. Roceivers Under Common Law. (b) Receivership on Behalf of First Mortgages in Foreclosure of Equitable Mortgages. § 240. General Principles Applicable. § 241. Preservation of the Property as Security as an Essential Ground. § 242. Indispensable Grounds or Conditions for the Appointment of a Receiver. § 243. Necessity for Showing Conditions or Grounds Additional to the Indispensable Grounds. § 244. Effect of Statutory Provisions on the Subject. § 245. Effect of Stipulations in the Mortgage. § 246. Discretion of the Court. CONTENTS. XIU § 247. Property Affected by the Receivership. § 2-48. Persons Other Than Mortgagor Affected by Receivership. § 249. Time for Applying and Duration of Receivership. § 250. Duties, Powers, and Liabilities of the Receiver. § 251. Appointment Before Maturity of the Debt. § 252. Questions Relating to the Procedure. (c) Receiverships on Behalf of Junior Mortgagees. § 253. Right of a Junior Mortgagee to a Receiver as Against the Mortgagor. § 254. Right of a Junior Mortgagee as Against a Senior Mortgagee. (d) Receiverships Affecting IVIortgaged Property. § 255. Receiverships in Actions for Benefit of Others Than the Mort- gagee. § 256. Receivership as Against Mortgagee in Possession. § 257. General Receivership Over the Affairs of Insolvent Creditor. § 258. Receiverships Created at Instance of Others Than Mortgagees. 2. Receiverships Affecting Mortgaged Chattels, (a) Common Law and Equitable View of Chattel Mortgage and Right to a Receiver on Foreclosure. § 259. Common Law View. § 260. Equitable View. (b) General Principles Governing Receiverships in Actions to Foreclose Chattel Mortgages. § 261. Discretion of Court. § 262. Necessity for Pending Suit. § 263. Property Affected by Receivership. § 264. The Court's General Control Over the Receivership. § 265. Grounds for Appointing a Receiver. 3. Receivership Affecting Pledges. § 266. General Rules Applicable. 4. Receivership Affecting Mechanic's Liens. § 267. Receiverships on Foreclosure of Mechanic's Liens. § 268. Receiverships Affecting Property Covered by Mechanic's Liens. 5. Receiverships Respecting Statutory Labor Liens. § 269. Rules Governing the Subject. 6. Receiverships Affecting Equitable Liens. §270. General View of the Subject. CHAPTER XII. PROCEEDINGS IN AID OF GENERAL CREDITORS. 1. In General. § 271. Scope of Treatment of Subject. § 272. Right of Contract Creditors to Have Receiver Appointed. XIV CONTENTS. 2. Creditors' Equity Suits to Set Aside Fraudulent Conveyances. § 273. General Nature of the Action. § 274. Conditions for Appointment of Receiver. § 275. Grounds for Appointment of a Receiver. § 276. Effect of Assignment for Benefit of Creditors, 3. Creditors' Equity Suits to Reach Assets not Accessible Under Law Process. § 277. Nature of the Action. § 278. Conditions for Appointing a Receiver. § 279. Grounds for the Appointment of a Receiver. § 280. Necessity for Shov/ing Existence of Property of Debtor. § 281. Property Affected by the Receivership. § 282. Effect of an Assignment for Benefit of Creditors. § 283. Lien and Priority Acquired by the Complainant. § 284. Duties and Powers of Receivers. § 285. Effect of Statutory Provisions. 4. Proceedings Supplementary to Execution. § 286. General Character of Such Proceedings with Reference to Receiverships. § 287. Conditions for Appointment of Receiver. § 288. Necessity for Showing Existence of Property Subject to Receivership. § 289. Lien Acquired by Creditor. § 290. Powers of Receiver in Supplementary Proceedings. § 291. Power Over Property in a Foreign Jurisdiction. 5. Receivership in Respect to Bulk Sales. § 292. General Discussion of the Subject. CHAPTER XIII. PRIVATE CORPORATIONS. 1. General Rules Respecting Corporation Receivership. § 293. General Nature of Receivership of Corporations. § 294. Receiverships at the Instance of a Corporation or with Its Consent. § 295. Discretion of Court in Making the Appointment. 2. Inherent Jurisdiction of Courts of Equity to Appoint Corporation Receivers. § 296. Grounds of Equity Jurisdiction. § 297. Recognition of Equity Powers by Statutory Provisions. 3. Appointment by Equity Courts at Instance of Stockholders. § 298. Circumstances and Conditions Essential to Proceeding. § 299. Necessity for Existence of an Independent Cause of Action. CONTENTS. 2i^V fi 300. General Rule Respecting Circumstances Under Which the Appointment Is Made. § 301. Cessation of Corporate Business or Failure to Maintain Active Officers. § 302. Inability to Attain the Business Purposes of the Corporation. § 303. Disastrous Dissensions or Deadlock Among Officers or Stock- holders. § 304. Mismanagement on Part of Majority Stockholders. § 305. Insolvency as a Ground for the Appointment. 4. Appointment by Equity Courts at Instance of Creditors. § 306. What Status of Creditors Is a Necessary Condition. § 307. Circumstances Necessary to Warrant the Appointment. § 308. Insolvency as a Controlling Circumstance. 5. Duration and Extent of Equity Corporation Receiversliip. § 309. General Rule Respecting the Matter. 6. Appointment of Corporation Receiver Under Statutory Autliority. § 310. General Discussion of the Subject. § 311. Equity Character of the Statutory Power. § 312. Effect of the State Statutes on the Jurisdiction of the Federal Courts. § 313. Constitutionality of Receivership Statutes. 7. Receiversiilps on Dissolution of Corporation. § 314. General Review of the Subject. § 315. Effect of Statutes Providing for Dissolution Proceedings. § 316. When Liquidating Trustees Are Favored Rather Than Liquidat- ing Receivers. § 317. Court's Method of Making a Choice Between Liquidating Trus- tees and Liquidating Receivers. § 318. Displacement of Liquidating Trustees by Receivers. 8. Status of Statutory Receivers Appointed on Account of Insolvency. § 319. General Rule in Respect to the Subject. 9. Receivership on Account of Corporation Maintaining a Monopoly or Engaged in Illegal Transactions. § 320. Circumstances when Receiver Appointed in Proceedings for Maintaining a Monopoly Under Sherman Anti-Trust Law. § 321. Right of Receiver of Corporation Injured by Violation of Anti- Trust to Recover Treble Damages. § 322. Whether the Cause of Action for Treble Damages May Be Asserted by Receiver After Dissolution of Corporation. § 323. Right to Sell Plant to Sole Competitor in Business. XVI CONTENTS. § 32-1. Circumstances When Receiver Appointed Under State Anti- Trust Laws. § 325. Receiverships Where Corporation Is Engaged in an Illegal Busi- ness, such as Racing, Gambling, or Prize-flghting. 10. Receivers Over Foreign Corporations. § 326. Receivers Over Foreign Corporations for Special Purposes. § 327. Ancillary Corporation Receiver of Foreign Corporations. § 328. Independent Corporation Receivers of Foreign Corporations. § 329. General Circumstances and Conditions for Appointment. § 330. When Receivership in Ancillary Jurisdiction May Be Considered a Primary One. §331. Necessity for the Existence of Property in the Ancillary Juris- diction. I 332 Federal Courts Not Affected by Diversity Citizenship Rule. § 333. General Status and Rights of the Primary Receiver in Another Jurisdiction. § 334. General Povi^ers and Purposes of the Ancillary Receivership. § 335. Exclusive Character of Jurisdiction of Primary Receivership Created in Place Outside of Domiciliary. § 336. What Showing Is Necessary to Obtain Appointment of an Ancillary Receiver. 11. Administration of the Estate. (a) Relation of Receivers and Officers of the Corporation to the Estate. § 337. General Relation of the Receiver to the Estate and Court. § 338. Difference in Relation to Estate of Equity and Statutory Receivers. § 339. Effect Where Receivership Does Not Involve All of the Corpo- rate Property. § 340. General Rules Respecting Maintenance of Litigation by or Against the Receiver. § 341. Relation of Directors and Officers of the Corporation to the Estate. § 342. Status of the Corporation Pending the Receivership. (b) Who Will Be Appointed Corporation Receiver. ? '43. Who Will Be Selected as the Receiver and Qualifications He Should Possess. \cj General Duti^s of the Receiver Respecting the Property p* the E-tate. A. In General. § 244. General Duty of Reducing to Possession the Assets of the § 345. Compe--;n? Qflflrprs of Corporation to Testify Regarding Aisats and Turn lis Books Over to Receiver. CONTENTS. XVli § 346. Extent to Which Receiver Is Affected by Right of Corporation to Recover Property — Doctrine of Estoppel. § 347. Sale in Lieu of Litigation Attempting to Reduce to Possession. B. Suits by Receiver to Recover Corporate Assets Recov- erable by Corporation if No Receivership. § 348. Suits Against Strangers to the Corporation. § 349. Actions Against Trustees, Directors, or Officers for Malfeasance, Misfeasance, or Negligence. § 350. Actions Against Stockholders for Unpaid Subscriptions to Stock. § 351. Matters Relating to the Procedui-e of Such Actions. § 352. Effect Where the Statutory Liability Is Directly to the Creditor Instead of Corporation. 0. Right of Receiver to Sue for Assets in Cases Where Corporation Itself Is Estopped to Sue. § 353. Receiver's Right to Sue for Assets as to Which the Corporation Is Estopped to Sue. § 354. Actions on Behalf of Creditors to Recover Corporate Property from Strangers, Where Corporation Itself Estopped. § 355. Actions on Behalf of Creditors Against Directors and Officers in Cases Where Corporation Itself Estopped. § 356. Action to Recover Illegal Transfers of Property or Dividends Paid to Stockholders. § 357. Actions on Behalf of Creditors Respecting Unpaid Stock, Bonus Stock, and Statutory Liabilities in Cases Where the Corpora- tion Is Estopped. § 358. General Defenses to Actions by Receiver on Behalf of Corporate Creditors. D. Duty of Receiver Towards Contracts of Corporation and of Himself. § 359. Litigation Concerning the Receiver's Own Transactions. § 359a. Duty of Receiver Respecting Executory Contracts. § 360. Position of Receiver Toward Leases of the Corporation. E. Management of the Property as a Going Concern. § 361. Conducting the Property or Business as a Going Concern. § 362. Duty of Receiver Regarding Pending Contracts of Employment. § 363. Right of Receiver to Employ and Discharge Employees Con- nected with the Receivership. § 364. Rights of Employees in Case of Grievances. § 365. Rights of Employees of Receivers to Belong to Trade Unions. § 366. Payment of Wages to Persons Employed by the Receiver. § 367. Payment of Wages Earned Immediately Prior to the Receiver- ship. xviii CONTENTS. F. Rights of Receivers in Foreign Jurisdiction Respecting Property of tlie Corporation. § 368. Assets Located in a Jurisdiction Other Than That of the Domicile of the Corporation. § 369. Right of Foreign Jurisdiction to Protect Its Resident Creditors. § 370. Effect of Having Ancillary Receivers Appointed. § 371. Effect of Various Statutes Making Receiver an Assignee or Quasi Assignee of Estate. § 372. Effect of Conveyances of Property to Receiver by Insolvent Corporation. § 373. Creditor of Foreign State Suing Corporation Under Receiver- ship in Another Foreign State. § 374. Whether Residents of Jurisdiction of Receivership Are Pre- cluded from Suing Elsewhere. § 375. Whether Foreign Creditors Can Attach Receivership Property Temporarily Brought in His Jurisdiction by Receiver. § 376. Independent Foreign Receiver of a Foreign Corporation. § 377. Marshaling of Assets in a Foreign Jurisdiction and Creditor's Right of General Participation. CHAPTER XIV. RAILROADS AND OTHER PUBLIC UTILITY CORPORATIONS. 1. General Scope of the Subject and Principles Applicable. § 378. The Peculiar and Distinguishing Features Pertaining to Such Receiverships. § 379. Receiverships for Purposes Common to Individuals and Ordinary Corporations. § 380. Receiverships in Cases of Violation of Anti-Trust Law. § 381. Effect of War-time Government Control of Public Utilities. § 382. Who Will Be Selected as Receiver. § 383. Appointment of Ancillary Receivers. 2. Disposition of the Operative Property Through a Receivership. § 384. Usual Methods of Disposing of the Property During the Receivership. § 385. Whether Receivers Should Continue Operations When Done at a Financial Loss. § 386. General Attitude of Receivership Toward Large Financial Trans- actions Made in Course of Business. 3. Powers and Duties of the Receiver. § 387. General Statement as to the Extent of Powers of the Receiver. § 388. Respecting the Operation of the Business of the Public Utility. § 389. Indebtedness for Operation Incurred by the Receiver. CONTENTS. XIX § 390. Issuance of Receivers' Certificates. § 391. Executory Contracts of the Public Utility Itself. § 392. What Constitutes an Adoption or Rejection of Executory Con- tracts. § 393. Liability Created by Adoption of Executory Contract, § 394. Liability Created by Rejection of Executory Contract. § 395. Status of the Public Utility Operative Property. § 396. Duty of Receiver Respecting Wages of Operating Employees. § 397. Extent of Protection Given by Court to Receiver in Operating Railroad. § 308. Adjustment of Labor Grievances by the Court Itself. § 399. Right of Employees to Quit Employment. § 400. Right of Employees to Organize and Extent of Their Right to Strike. § 401. Right of Strikers to Reinstatement by Receivers. § 402. Right of Receiver to Recover Treble Damages Under Anti-Trust Act Against Unincorporated Labor Unions. 4. Amenability of Public Utility Receivers to Governmental Control. § 403. General Statement. § 404. Amenability of Federal Receivers to State Laws and Regula- tions. § 405. Amenability of Receivers to the Authority of Public Service Commissions. § 406, Amenability of Receivers to the Remedial Laws of Civil or Penal Character. 5. Liability of the Receivership Estate for Injuries Duo Negligence. § 407. General Statement. § 408. Liability of the Company. § 409. Liability of the Receiver. § 410. Liability of the Purchaser at a Receivership Sale. § 411. Liability of the Company if the Property Is Returned, 6. Presentation and Allowance of Claims and TheiP Priorities, § 412. General Rules Governing Presentation and Allowance, § 413. General Liability of Receivership for Preferred Claims. § 414. General Rule as to What Constitutes a Preferred Claim. § 415. Characteristics and Qualities Essential to Preferentiality. §416. The Consideration -as an Essential Characteristic. § 417. The Source of Payment as an Essential Characteristic. § 418. Time of Accrual of Claim as an Essential Condition to Its Pref- erence — The "Six Months Rule." § 419. Funds to Which Preferred Claims Attach. § 420. Unmortgaged Assets, Including Current Income Not Covered by Mortgage, as a Payment Fund, XX CONTENTS. § 421. What Constitutes Mortgaged Assets. § 422. Status of Current Income from Operation of the Receivership Property. § 423. Resort to the Corpus of the Mortgaged Property to Replace Diversions from Current Income. § 424. Resort to the Corpus of the Property to an Amount Greater Than That of Diversions. § 425. Discussion of the Gregg Case and Its Results. § 426. Equitable Ground of the Doctrine of Preferred Claims. § 427. Status of Preference as Dependent Upon Estoppel Against Mort- gagee. § 428. Interest Upon Preferred Claims. § 429. Effect of Provisions Concerning Payment of Preferred Claims in Order Appointing the Receiver. 7. Receivers of Public Utility Corporations Appointed by State Courts. § 430. General Extent of the Powers and Duties of Receivers Appointed by State Courts. § 431. Operation of Public Utility by Receiver. § 432. Preferred Claims Under State Statutes or in State Receivership Cases. § 433. Status of the Executory Contracts Belonging to Receivership. CHAPTER XV. BANKS AND BANKING MATTERS. 1.- Matters Relating to the Appointment. (a) General Nature and Effect of Receiverships of Banking Institutions. § 434. Public Character of Such Institutions as Affecting Receiverships. § 435. What Receiverships Do Not Affect the Corporate Entity. § 436. Effect of Appointment of a General Receiver Over a Banking? Institution. (b) Powers of Equity Courts Over Banking Institutions. § 437. General Extent of Powers of Equity Courts Over Such Institu- tions. (c) Nature and Effect of Special Statutory Regulations. § 438. General Character of Statutes Relating to Banks. § 439. Effect of Changes in Banking Law Pending Proceedings. § 440. Impairment of Capital and Insolvency Under Statutory Provi- sions. § 441. Whether Regulatory Banking Act Excludes Application of Gen- eral Corporation Laws, COisTTENTS. ^^^ § 442. Effect of Dissolution Proceedings in State Court Upon Prior Equity Receivership in Federal Court. § 443. Reopening of Bank Under Temporary Receiver Appointed at Instance of Bank Superintendent. (d) Receivership Over Private Banks. § 444. Status of the Bank in Connection With Other Assets of Private Banker. (e) Receiverships Over National Banks. § 445. Nature of Receiverships of National Banks. (f) General Causes for Appointment of Receiver. § 446. Usual Grounds for Receivership. (g) Appointment and Removal. § 447. Who Will Be Appointed. § 448. Right to Remove the Receiver. 2. Powers and Duties of the Receiver, (a) Reducing Assets to Possession. § 449 Nature of Title to Bank Assets Acquired by Receiver. § 450. General Duties of the Receiver and Effect of His Appointment. § 451. General Powers of Receivers of National Banks. § 452. Embezzlements by Receivers of National Banks. §453 Lltigation'by Receivers to Collect Assets. § 454. Right of Receiver in Respect to Pledges and Collateral Agree- ments. § 455. Right of Receiver to Recover on Notes Given or Held for Pur- poses of Deceiving Bank Examiners. § 456. Whether Leave of Court Necessary to Sue Receiver Appointed by Bank Commissioner or Like Official. § 457. Suit by Receiver to Recover Treble Damages Under Anti-Trust Law. (b) Relation of Receiver to Trust Funds and Property of the Bank. § 458 Duty of Receiver Respecting Trust Funds of Bank. § 459. Status of Bonds Deposited by National Bank Under Statute on Organization. (c) Relation of Receiver to Deposits. § 460. General Relation to Deposits of the Bank. § 461 Special and Fiduciary Deposits. § 462. Status of Deposits by Public Officials or Governmental Bodies, (d) Enforcement of Liabilities of Directors for Negligence and the Like. § 463 Right of Receiver to Sue Directors of Bank for Negligence. § 464. Right to Sue Directors for Wrongful Diversions of Bank's Property. xxii CONTENTS. § 465 Application of Statutes of Limitations to Such Actions. § 466. Liability of National Bank Director Under Either Common Law or Statutory Provisions. (e) Enforcement of Liabilities of Stockholders. § 467 Recovery of Illegal Preferences and Dividends. § 468. Recovery of Liabilities of Stockholders for Unpaid Stock. § 469. Right of Stockholder to Rescind Contract of Subscription. § 470. Recovery of Statutory Liabilities from Stockholders. §471. Conditions Precedent to Stockholders' Liability Suit. § 472. Form, Character, and General Nature of the Suit. § 473. Purchase of Stock at Above Par Constitutes No Payment on Stockholders' Liability. § 474. Enforcement of Statutory Liabilities of Stockholders in National Banks. § 475. Suits Against Stockholders for Illegal Preferences and Divi- dends, (f) Payment of Claims and Allowance of Priorities. § 476. Presentation, Allowance, and Payment of Claims. § 477. Allowance of Priorities. § 478. Allowance of Interest Upon Claims in Favor of or Against Receivership. § 479. Whether Attorney's Fees Stipulated in a Note Are Recoverable Against Receiver. (g) Application of the Right of Set-off. § 480. Right of Set-off in Bank Receiverships. § 481. Right of Set-off by Borrower Who Is Also a Depositor. § 482. Right of Set-off by Endorser Who Is a Depositor. § 483. Right of Set-off by Stockholders. (h) Right of Receiver to Sue Outside of Jurisdiction. § 484. General Discussion of the Subject. CHAPTER XVI. INSURANCE COMPANIES, BENEFICIAL, FRATERNAL SOCIETIES, AND BUILDING AND LOAN ASSOCIATIONS AND THE LIKE. 1. Appointment of the Receiver. § 485. General Purpose and Effect of Such Receiverships. § 486. Appointment Under Special Statutes Relating to Such Organi- zations. § 487. Whether Such Statutory Systems Are Exclusive. § 488. Appointments Not Made Under Special Statutory Authority. § 489. Appointment on Account of Futility of Continuing Business Under Existing Plan— Opportunity to Reorganize, CONTENTS. xxiii § 4D0. Rec-^iver of Incorporated Beneficial Association Based on Fail- ing Operations. § 491. Federal Court Will Assume Constitutionality of State Statute Regarding Insurance Societies. § 492. Whether a Federal Equity Court May Appoint a Receiver After Preliminary Steps by State Officials Under Statutory System. § 493. Corporation Merely Engaged as Agent for Insurance Companies. § 494. Effect of Receiver Being Appointed Over the Insured. § 495. Discretion of the Court Respecting the Appointment. § 496. How Insolvency or Inability to Continue Operations Is Ascer- tained. § 497. What Facts Generally Necessary as a Basis for Appointment. 2. Administration of the Estate. § 498. Who Will Be Appointed Receiver. § 499. General Statement of Principles Applicable. § 500. Reducing the Assets to Possession. § 501. Status of Special Funds of Such Organization on Deposit with Officials. § 502. Effect of the Appointment of a Receiver on the Policies or Executory Contracts of the Corporation. § 503. Effect of Appointment of Receiver on Matured Rights Respect- ing Policies or Contracts. § 504. Rights of Borrowing and Non-Borrowing Members of Building and Loan Associations. § 505. Assessment of Members of Mutual Companies or Associations by Receivers. § 506. Suits to Enforce Such Assessments Levied by the Receiver. § 507. Application of Statutes of Limitation to Suits Upon Assess- ments. CHAPTER XVII. PROPERTY OF A SPECIAL CHARACTER. 1. Mining Properties. § 508. General Rule Regarding Receivership for Mines, and Reasons Therefor. § 509. Rule in Regard to Placer Deposits. § 510. Receiverships in Litigation Between Tenants in Common. § 511. Receiverships in Litigation Between Vendor and Purchaser, § 512. Receiverships in Foreclosure Proceedings. § 513. Receiverships Between Mining Partners. § 514. Extent to Which the Receiver Should Operate the Mine. ? 515. Receivership Over Mining Corporations. Xxiv CONTENTS. 2. Oil and Gas Properties. § 516. General Rule Regarding Receivership for Oil and Gas Proircrties. § 517. Effect of Persons in Possession Furnishing Indemnity Bond in Lieu of Receivership. § 518. Between What Parties and What Kinds of Actions Receiverships Generally Sought. § 519. Receiverships in Suits by Government to Quiet Title or Cancel Mineral Locations. § 520. Receivership Over Oil Lands in Indian Reservations. § 521. Receiver for Purpose of Drilling Well as Protection Against Drainage. § 522. Limiting Purposes of the Rectivership to Assessment Work, Collection of Royalty, and the Like. § 523. Operation of Oil Wells and Payment of Expenses Thereof. § 524. Extent of Right of Receiver to Reduce the Property Into Possession. § 525. Receivership for a Pipe Line Company. 3. Patents, Trade-Marks, Trade-Secret Processes, and Trade Names. § 526. Respecting Patent Rights. § 527. Respecting Trade Secrets, Trade-Marks, and Secret Processes. 4. Sliips and Actions in Admiralty. § 528. Whether Receiverships Must Be Incidental to an Admiralty Action. § 529. Appointment of Receivers Over Ships. 5. Pensions and Licenses^ § 530. Receiverships Over Pensions. § 531. Receiverships Involving Licenses. CHAPTER XVIII. MISCEIvLANEOUS INTERESTS IN PROPERTY AND RIGHTS ARISING THEREFROM. 1. Property Rights and Interests of Various Kinds. § 532. In General. § 533. Receiver Over Property of Absentees or in Procesdings to Escheat. § 534. Receiverships as Between Joint Adventurers. 2. Clubs, Churches, and Unincorporated Bodies. § 535. Receivership of Clubs and Churches. § 536. Receivership Over Unincorporated Bodies. CONTENTS. XXV 3. Municipalities and Other Public Bodies. § 537. Receivers of Municipal Corporations. § 538. Receivers of Boards or Quasi-Public Corporations. § 539. Receivers of Public Officers or Fees Earned by Them. § 540. Receivers for Contractors of Public Work. CHAPTER XIX. RECEIVERS' CERTIFICATES. 1. General Principles Regarding the Subject. § 541. Nature and General Purposes of Receivers' Certificates. 2. Rule Regarding issuance of Certificates in Public Utility Receiverships. § 542. Tbe General Rule and Reasons Therefor. § 543. Whether Rule Applicable to Railroads Is Also Applicable to Other Public Utilities. § 544. General Purposes for Which Certificates May Be Issued. § 545. For Purposes of Paying Taxes. § 546. For Funds with Which to Recover Assets by Litigation. § 547. For Purposes of Preserving Property Outside of Jurisdiction of Receivership Court. § 548. For Purposes of Paying Labor Material Claims. § 549. For Repairs, Supplies, Betterments, and General Operating Expenses. § 550. For Purposes of Completing Railroad or Other Improvements. § 551. For Payment of Interest on Bonds or Other Secured Debts. § 552. Effect Where Certificates Are Issued to Replace Other Securities. 3. Rule Regarding Issuance of Certificates in Receiverships of Private Corporations. § 553. The General Rule. § 554. Effect of Statutory Provisions on the Subject. § 555. Effect of Obtaining Consent of Lien Holders to Issuance of Certificates. § 556. What Constitutes Purposes of Preservation Sufficient to Support Issuance of Certificates. § 557. For Purposes of Preventing Loss Through Forfeiture, Reversion, or Other Disastrous Default. § 558. Effect of Peculiar Character of Oil and Mining Properties. § 559. For What Ordinary Debts Certificates May Be Issued. § 560. In Receivership Over an Estate of a Decedent. 4. General Requirements for Issuance and Sale. § 561. Nature of Discretionary Power of Courts in Issuing Certificates. § 562. Necessity of Showing Need of Certificates Before Issuance. § 563. Necessity for Notice to Lien Holders Affected by Issuance. XXVI CONTENTS. § 564. What Constitutes Sufficient Notice to Lien Holders. § 565. Necessity for a Consideration. § 566. Necessity for a Valid Order Directing Issuance of Certificates. § 567. Effect of Void Order of Appointment on Certificates. § 568. Effect Upon Certificates Issued in Excess of Order of Court. § 569. Form and General Contents of the Certificates. § 570. Successive Issues of Receivers' Certificates. § 571. Securing Certificates by Deeds of Trust or Collateral Securities. § 572. Certificates Requiring Plaintiff to Become Liable for Any Deficiency. § 573. What Rate of Interest May Be Allowed. 5. Priorities and Liabilities Which May Be Created by Issuance of Certificates. § 574. Creation of Priorities. § 575. Extent and Effect of Priorities Created by Receivers' Certifi- cates. § 576. Over What Other Claims and Expenditures Priorities Have Been Declared. § 577. Whether Priority of Certificates Exists Over Other Receivership Expenses. § 578. To What Extent Rights of Certificate Holder May Be Said to Be Vested. 6. Sale, Transferability, and General Rights of Holders. § 579. Right to Sell Certificates Below Par Value. § 580. Whether Certificate Buyer Bound to Inquire Into Application of Proceeds. § 581. Assignability of the Certificates. § 582. Non-Negotiable Instrument Character of the Certificates. § 583. Extent of Notice Imputed to Holders of Certificates. § 584. Waiver or Loss of Right to Question Certificates by Reason of Estoppel. § 585. Effect Where Question of Priority or Validity Arises in a Court Other Than the Receivership. 7. Payment or Redemption of Certificates. § 586. How and When Paid. § 587. Sale of Receivership Property Subject to or Free of Certificates. § 588. Extent to Which Receivership Property Can Be Sold for Bonds and Effect on Certificates. § 589. Acceptance of Receivers' Certificates in Payment at Sale of Receivership Property. § 5D0. Personal Liability of Receiver in Respect to Sales of Certificates, CONTENTS. XXvii CHAPTER XX. PRESENTATION AND ADJUDICATION OP CLAIMS AND ACCOUNTING BY RECEIVER. 1. Presentation and Allowance of Claims. § 591. General Duties of Receiver Regarding Claims and Accounting. § 592. General Statement of the Rules Governing Disposition of Claims. § 593. Presentation of Claims in Receivership. § 594. What Constitutes Provable Claims. § 595. Time for Presentation of Claims Arising Prior to the Receiver- ship. § 596. Time for Presentation of Claims Arising During the Receiver- ship. § 597. Allowance of Set-offs. § 598. Allowance of Interest on Claims. 2. Distribution of Receivership Assets. § 599. General Statement of the Matter. § 600. Vested Rights of Creditors. § 601. Claims Against the Receiver. § 602. Rights of General Creditors. § 603. Rights of Creditors to Participate in General Funds. § 604. Rank of Stockholders in Distribution of Corporate Property. § 605. Stockholders and Officers of Corporation Participating as Creditors. § 606. Right of Original Owner to Create Lien on Residue After Pay- ment of Receivership Claims. 3. Accounting by Receiver. § 607. Necessity for an Accounting. § 608. Power of Court to Require an Accounting by Legal Represent- atives of Receiver. § 609. Form of the Account. § 610. Objections to the Account. § 611. Duty of the Receivership Court to Pass on the Receiver's Account. § 612. The Practice of Referring Account to a Master or Auditor. § 613. Surcharging the Receiver's Account, § 614. How and Where Surcharges Are to Be Determined. CHAPTER XXI. FEES AND EXPENSES OF RECEIVERSHIP. 1. Fees and Expenses of the Receiver. § 615. General Right of Receiver to Compensation. § 616. Effect Where Receivership Fund Insufficient to Pay Compen- sation. Xxviii CONTENTS. ' § 617. Allowance of Disbursements. § 618. Nature of the Compensation as Costs and Judicial Character of Duty of Fixing Them. § 619. When to Be Paid— Right of Court to Award Partial Allowances on Account. § 620. Amount of Receiver's Fee Largely a Matter of Discretion. § 621. Controlling Elements in Fixing the Receiver's Compensation. § 622. Statutory Regulations of Receiver's Fees. § 623. Fees by Agreement with Parties to Litigation. § 624. Amount Allowed to Receiver Is Necessarily Variable. § 625. Apportionment of Fees Among Different Classes of Creditors. § 626. Loss or Forfeiture of Fees or Non-Payment by Reason of Receiver Being a Litigant. § 627. Fees of Receivers in Case of Void or Wrongful Receiverships. 2. Fees for the Attorney for Receiver and Other Attorneys Connected with Receivership. § 628. Right of Attorney for Receiver to Compensation. § 629. Status of the Attorney's Compensation in Receivership. § 630. Necessity for Authorization of Court to Employ an Attorney. § 631. Selection of Attorney for Receiver. § 632. Whether a Receiver Who Is a Lawyer May Be Compensated for His Legal Services. § 633. Right of Attorney Acting in Official Capacity to Be Paid Fees Out of Estate. § 634. Control of Receivership Court Over Allowance of the Fees to Attorney. § 635. Rule of Attorneys' Liens on Judgment Not Applicable to Attor- ney for Receiver. § 636. Fixing Amount of Attorney's Compensation and Principles Applicable. § 637. Effect Where Appointment of Receiver Is Held Void or Set Aside for Error. § 638. Particular Amounts and How Paid. § 639. Compensation of Attorneys Other Than Attorney for Receiver. CHAPTER XXII. SALES AND REORGANIZATIONS OF RECEIVERSHIP PROPERTY. 1. Sale Proceedings and General Effect. § 640. General Nature of the Sale. § 641. Necessity for and Scope of Order of the Sale. § 642. Necessity and Sufficiency of the Notice of Sale, § 643. General Manner of Conducting the Sale. § 644. What Property May Be Sold Under the Order of Court. § 645. Inclusion of Good Will and Trade in Sale. § 646. What Is Included in Corporate Assets, CONTENTS. XXIX § G47. Effect Where Receiver Sells the Property, Retaining a Secret Personal Trust Therein. § 648. Executions of the Deeds or Other Instruments of Conveyance. § 649. Application of the Doctrine of Caveat Emptor and Nature of Title Passing. 2. Who May Purchase at the Sale. § 650. Receiver or His Business Associates as Purchaser. § 651. Stockholders or Officers of Receivership Corporation as Pur- Chasers. 3. Necessity for Confirmation of Sale by Court and Extent of Right to Set It Aside. § 652. General Necessity for Confirmation. § 653. Extent and Scope of Confirmation. § 654. Effect of Inadequate Price on Motion to Confirm. § 655. Effect of Defective Title on Motion to Confirm. § 656. Effect of Misrepresentations by Receiver on Motion to Confirm. § 657. Proceedings to Compel Purchaser to Complete Sale. § 658. Proceedings to Set Sale Aside. § 659. Attack Upon the Sale by Separate Action or Collaterally. § 660. Effect Where the Receiver's Sale Is Void. § 661. Estoppel to Object to Sale or Its Effects. 4. Payment of Purchase Price, § 662. When and How Price to Be Paid. § 663. Effect of Rescission by Receiver. 5. Sales of Public Utilities. § 664. General Rules Regarding Sales of Public Utility Properties. § 665. Returning the Property to Owners. § 666. Power of Court Over Terms and Conditions of Sale. § 667. Whether Purchaser Should Be Required to Operate the Public Utility. § 668. What Passes at the Sale. § 669. Rights and Obligations of the Purchaser at the Sale. § 670. Confirmation or Setting Aside of the Sale. 6. Reorganization of Public Utilities. § 671. Attitude of the Receivership Court to Reorganization Plans. § 672. General Plans of Reorganization Available. § 673. Duty and Function of the Court in Passing on Reorganization Plan. § 674. Relation of State Railroad Commissions to Reorganizations. § 675. Expenses of the Reorganization. 7. Reorganization of Private Corporations. § 676. Application of Reorganization Plans to Private Corporations. § 677. Reorganization of Corporation Which Has Become Prosperous While in Receivership — Extent of Court Control. XXX CONTENTS. CHAPTER XXIIl. TAXATION OF PROPERTY UNDER RECEIVERSHIP. § 678. General Rule Concerning the Taxation of Property Under a Receivership. § GTf). Distinction Between Taxation of Personal Property and Realty. § GSO. General Rule Regarding Corporation Franchise Taxes. § 681. Franchise Taxes Where Receiver Does Not Conduct the Busi- ness of the Corporation. § 682. Franchise Tax Where Receiver Conducts the Business. § 683. Franchise Taxes as a Charge Against a Foreign Receiver. § 684. Liability of Receiver for Gross Earnings Tax. § 685. Liability for Income Taxes. § 686. Payment of Penalties for Delinquency in Payment of Taxes. § 687. Receivership Courts Control of Payment of Taxes and Enforce- ment of Lien. § 688. Effect of Taxes on Receivership Sales. § 689. Appointment of a Receiver to Collect or Pay Taxes. CHAPTER XXIV. JURISDICTION AND CONFLICT OF DIFFERENT COURTS. 1. General Extent of Jurisdiction in Receivership Cases. § 690. General Scope and Character of the Jurisdiction. § 691. How the Jurisdiction Is Ascertained. § 692. Effect of the Court Being Without Jurisdiction. § 693. General Powers of Courts of Co-ordinate Jurisdiction. § 694. Effect Where Two Receivers Appointed on Same Day by Different Courts. § 695. Jurisdiction of Particular Courts to Appoint Receivers. § 696. Jurisdiction of Appellate Courts to Appoint Receivers, 2. Receivership Jurisdiction of the Federal Courts. § 697. Equity Jurisdiction of Federal Courts in Receiverships. § 698. Jurisdiction as Dependent Upon Judicial District. § 699. Jurisdiction of Suits Ancillary to the Receivership. § 700. Right of Federal Receiver to Sue in State Court in the Federal District. § 701. Right of Federal Court to Proceed Under State Statutes. 3. Conflicts of Jurisdiction Between State and Federal Courts. § 702. General Rule of Priority of Jurisdiction in Receiverships. § 703. Status of Federal Receiver as Against Receivership by State Cou.t. CONTENTS. XXXI § 704. Status of State Court Receiver as Against Receivership in Federal Court. § 705. How Determination of Conflict Is Ascertained. § 706. Litigation in State Court Relative to Matters Not Interfering with Federal Receivership. § 707. Litigation in State Court Relative to Matters Interfering with Federal Receivership. § 708. Litigation in Federal Court Relative to Matters Not Interfering with State Receivership. § 709. Litigation in Federal Court Relative to Matters Interfering with State Receivership. § 710. Ouster of Receivership by Bankruptcy Proceedings. 4. Extra-Territorial Jurisdiction of Receivership Courts. § 711. Origin of the Power of Receivers to Sue in Foreign Juris- dictions. § 712. Extent of Power of Receivership Court Over Property Outside of Jurisdiction. § 713. Extra-Territorial Jurisdiction by Comity. § 714. Extra-Territorial Jurisdiction by Reason of Legal Title. § 715. Extra-Territorial Jurisdiction Where Receiver Enters It with Receivership Property. § 716. Extra-Territorial Jurisdiction by Means of Ancillary Receiver- ships. CHAPTER XXY. MATTERS RELATING TO THE PROCEDURE OF RECEIVERSHIPS. 1. Scope of Chapter and General Requirements of Receivership Actions. § 717. Scope of Chapter on Procedure. § 718. Nature of the Action in Which a Receiver Is Appointed. § 719. Effect of Statutory Requirements. § 720. Necessity for Existence of Pending Suit. § 721. Discretionary Nature of the Power of Appointment. 2. Venue, Parties, and Pleadings. § 722. Venue of the Receivership Action. § 723. Parties to the Receivership Action. § 724. Allowing Parties to Intervene in the Receivership. § 725. Nature and Contents of Complaint or Bill in Receivership Action. § 726. Necessity for Prayer and Verification. § 727. Defensive Pleadings or Waiver Thereof by Default or Consent. § 72P. Whether Plaintiff Can Agree to Withhold Filing of Receiver- ship Suit for a Consideration. XXxii CONTENTS. 3. Service of Process and Notice of Application for Receiver. § 729. Service of Process in Receivership Suits. § 730. Necessity for Notice of Application for a Receiver. § 731. Rule in Regard to Ex Parte Appointments in Cases of Emer- gency. § 732. Effect of Statutory Provisions on Ex Parte Appointments. § 733. Character of Showing Necessary for Ex Parte Appointment. § 734. Waiver of Notice by Appearance or Otherwise. 4. Questions Preliminary to or Relative to the Appointment. § 735. By Whom the Application Is Made. § 736. At What Stage of the Suit a Receiver May Be Appointed. § 737. Disqualification of Jud.ge to Preside in Receivership Case. ' § 738. Evidence to Be Produced at Hearing for Appointment. § 739. Abatement of Action and Receivership on Account of Alien Enemy Litigants. § 740. The Order Appointing Receiver and Its Effect. § 741. Interlocutory Proceedings in the Receivership. 5. Removal of Cause to Federal Court. § 742. Removal of Main Cause of Action. § 743. Removal of Suit by or Against a Receiver. 6. General Procedure of Suits by or Against Receiver. § 744. General Nature of Such Suits and Right to Maintain Them. § 745. What Receiver Must Show in Order to Maintain Suit. § 746. Court in Which Receiver May Be Sued. § 747. General Necessity for Leave to Sue. § 748. Nature of Leave to Sue as to Whether Jurisdictional or Not. § 749. Statutes Bearing on Right to Sue Receiver. § 750. Effect of Suit Without Leave to Sue. § 751. Waiver of Objection to Suit Without Leave. § 752. Circumstances Under Which no Leave Necessary. § 753. Proceedings to Obtain Leave to Sue. § 754. Discretionary Power of Court in Granting Leave to Sue. § 755. Revocation of Leave to Sue. § 756. In W'hose Name Receiver Should Sue. § 757. Parties to Suit by or Against Receiver. § 758. Pleading Capacity of Receiver to Sue or Be Sued. S 759. Pleading Cause of Action. § 760. Issuance and Service of Process. § 761. Interlocutory and Trial Proceedings. g 762. The Judgment Rendered in Such Cases. CONTENTS. XXXm CHAPTER XXVI. RECEIVERSHIP BONDS AND WRONGFUL RECEIVERSHIPS. § 763. Necessity for Furnishiug of Bond on Appointment of Receiver. § 764. Formal Matters Relating to the Execution and Filing of the Bond. § 765. Liability on Plaintiff's Bond Preliminary to Appointment. § 766. Duration of Liability on Receiver's Bond. § 767. General Liability on Receiver's Bond. § 768. Manner of Enforcing Receiver's Bond. § 769. Application of Statutes of Limitation. § 770. Right of Surety on Receiver's Bond to Protect Himself. § 771. Personal Liability of Receiver. § 772. Liability Upon Bond Given in Lieu of Appointment of Receiver. CHAPTER XXVII. INTERFERENCE WITH POSSESSION OF RECEIVER AND HIS CRIMINAL RESPONSIBILITY FOR HIS ACTS. § 773. Interference with Possession of Receiver. § 774. Civil and Criminal Contempt Distinguished. § 775. Criminal Contempt in Receivership Cases. § 776. Civil Contempt in Receivership Cases. § 777. Perjury as the Basis for Punishment of Contempt. § 778. Contempt on Part of the Receiver. § 779. Collateral Attack in Contempt Proceedings on Orders Made in Receivership Cases. § 780. Procedure in Contempt Cases Arising Out of Receiverships, b 781. Criminal Responsibility of the Receiver or Others in Connec- tion with the Receivership. CHAPTER XXVIII. REMOVAL AND DISCHARGE OF RECEIVER AND EFFECTS THEREOF ON RECEIVERSHIP PROPERTY. 1. Removal and Discharge of Receiver. § 782. Distinguishment Between Removal and Discharge. § 783. Removal of the Receiver. § 784. Appointment of Successor on Vacation or Resignation. § 785. Effect of Removal on Claims Against the Receiver Personally. 1. Termination of Receivership by Vacation of Order Appointing Receiver. ? 786. Vacation of Order of Appointment by Appointing Court. § 787. Termination by a Court Other Than the Appointing Court. XXXiv CONTENTS. 8 7SS LOSS of Right to Move for Vacation on Account of Laches § 789. Effect of the Order Vacating Receiveiship as a Discharge of the Receiver. 3. Termination of the Receivership as to Property Other- wise Than by Order of Vacation. § 790. General Rule as to Duration of the Receivership. § 791. Release by Bond Furnished by Defendant. § 792 Return of Property to Owner as Termination. § 793. Adjustment of Obligations Existing at Time of Return of Property. § 794. Termination by Dismissal of Suit. § 795 Technical Discharge of the Receiver. § 796. Termination of Receivership by Federal Bankruptcy Proceedings. § 797. Receivership Proceedings as an Act of Bankruptcy. CHAPTER XXIX. APPEALS IN RECEIVERSHIP MATTERS AND THEIR EFFECT. 1. Reviewability as Affected by Parties or Nature of Decision. § 798. Scope of Chapter and General Rules Applicable to Appeals. § 799. Appealability as Dependent Upon Finality and Judicial Char- acter of Order. § 800. Ri.i^ht to Appeal from Orders Appointing or Refusing to Appoint Receivers. § 801. General Right of Receiver to Appeal. § 802. Right to Appeal from Order Discharging or Removing Receiver or Refusing to Do So. § 803. Right to Appeal from Matters Respecting Leave to Sue. § 804. Right to Appeal from General Administrative Orders. § 805. Right to Appeal from Order Issuing Receiver's Certificates. § 806. Right to Appeal from Orders Respecting Sales of Receivership Property. § 807. Right to Appeal from Orders Allowing Compensation of Receiver or His Attorney. § 808. Right to Appeal from Orders Respecting Accounts of Receiver. 2. Proceedings Transferring Cause to Appellate Court and Effect Thereof. § 809. Parties to the Appeal. § 810. Court to Which Appeal Should Be Taken. § 811. Requirements of and Service of Notice of Appeal. §S12. Appeal and Supersedeas Bonds. I 818. Record on Appeal. CONSENTS. izxv 3. Presentation of Grounds of Review. §814. Necessity for Objection or Exception in Lower Court § 815. Assignments of Error in Appellate Court. 4. Scope of Review and Determination. § 816. Reviewability as Dependent upon Nature of Appeal or Condi- tion of Record. § 817. Effect of Estoppels and Harmless Error on Review. § 818. Presumptions on Appeal. § 819. Review of Discretionary Orders. § 820. Rehearing by Appellate Court. § 821 Effect of Decision of Appellate Court. § 822. Appointment of Receiver by Appellate Court Pending Appeal. § 823. Effect of Appeal on Action by Court Below. § 824. Appointment of Receiver by Lower Court Pending AppeaL 5. Review by IVleans of Extraordinary Writs. § 825. Review by Certiorari or Mandamus. § 826. Review by Writ of Prohibitiori. CHAPTER XXX. FORMS. § 827. Regarding Forms Appended. § 828. Complaint in Federal Court for Receiver of Insolvent Corpora- tion. § 829. Creditors Bill Seeking Appointment of Receiver. § 830. Stipulation of Parties for Appointment of Receiver. § 831. Answers Admitting or Denying Necessity for Receiver. § 832. Notice of Motion for Appointment of Receiver. § 833. Order to Show Cause Why Receiver Should Not Be Appointed. § 834. Order Appointing a Receiver. § 835. Order of Appointment Directing Operation of Business. § 836. Order for Receiver De Bonis Non. § 837. Order Appointing Non-Resident Receiver. § 838. Order Substituting New Receiver. § 839. Order Granting Receiver Leave to Sue. §840. Petition by Receiver for Leave to Sue Directors and Stock- holders of Receivership Corporation for Unpaid Stock. § 841. Order Granting Petition to Sue Directors and Stockholders for Unpaid Stock. § 842. Petition by Receiver for His Discharge. § 843. Order Discharging Receiver. § 844. Order Removing Receiver. § 845. Order Turning Receivership Property Over to Bankruptcy Court. CHAPTER L ORIGIN AND GENERAL NATURE OF THE LAW OF RECEIVERS AND ITS GROWTH. § 1. General Origin of Receiverships. The power to appoint receivers is one referable solely to the powers exercised by courts of chancery. Courts ot law, as such, do not have or exercise such powers unless spekally conferred upon them.- The power to appoin a receiver ve»dente lite has been exercised by co-^t^ «' chancery as incidental to their jurisdiction. It has not been deemed to depend upon statute.- It is a power which the Court of Chancery of England freq"f>«y exer- cised long before the establishment of the United State., and the leading principles in relation to it were estab- lished in that court in ancient times and have always beou considered as powers of great utility and necessity The earlier English cases concerning receivers generalh relate to real estate, and the office and duty of the receiver were not extended further than to exclude tres- passers, to make such repairs as were indispensably nec- essary, and to collect and account for the rents and profi s. But where the preservation of personal property was the object of the appointment, the receiver was, m many re pects, invested with the authority of a ^-r-torho^. of the Roman law. Following the rules of the English Chancery Court the remedy of receiverships has been applied by the chancery courts of this country from early days. In one of the early leading cases,* Chancellor , FoUom V. Evan,. 5 Minn. 418; = PeacocU v. Peacock. 16 Ve, X, 1 • ^r.A lUf^ fi^q ^5 49- Harding v. (jlover, i» ves. Miller v. Perkins, 154 Mo. b^y, dd i^. 281 ^■^■^'^^- ^ ^ .. 104 N Y 4 Williamson V. Wilson, 1 2 Decker v. Gardner, 124 N. Y. vv n 334, 11 L. R. A. 480. 26 N. E. 814. Bland's Ch. (Md.) 418. I Rec— 1 2 LAW OF RECEIVERS. Bland, in ansAvering the argument tliat tlie remedy might be used for the most pernicious purposes, said: ''That this court should have the power in unusual and press- ing emergencies, at the instance of a party interested, effectually and without delay to put its hand upon prop- erty, so far as to prevent waste, inextricable confusion, or total destruction, seems to be admitted by all to be clearly right, or at least highly beneficial." The growth of the law of receivership has been along the lines of evolution. Receivers are regarded as instru- mentalities of the court and hence the law in respect to receiverships has kept pace with the extension and development of the general rules of law in respect to the complex conditions arising out of modern business methods and having for its purpose the protection and preservation of the property which forms the subject matter of the litigation until the final adjudication of the rights of the litigating parties. In its original exer- cise the appointment of a receiver was purely an inci- dental power of the Court of Chancery, put into operation as part and parcel of the great body of equitable juris- prudence, intended to secure justice by more complete and adequate remedies M^here the strict and unelastic rules and practice prevailing in the common law courts were insufficient.^ 5 Chancellor Bland in 1826 says: pear very evident from, a review "It is a power of the court of of the nature and the variety of chancery of England which ap- the exigencies in which it has pears to have been frequently been called into action, either to called into action during more prevent fraud, to save the sub- than a century past. All the lead- ject of litigation from material in- ing principles in relation to it jury, or to rescue it from inev- were well established there long itable destruction." Williamson before our revolution; and it was v. Wilson, 1 Bland Ch. (Md.) 418. then, and has ever since been con- See also Myers v. Estell, 48 Miss, sidered, there and here, as a 401; Beverley v. Brooke, 4 Gratt. power of as great utility as any (Va.) 187 (208). Vice Chancellor which belongs to a court of chan- Giffard, in Hopkins v. Worcester eery. And that it is so will ap- & B. Canal Co., L. R. 6 Eq. 437, ORIGIN OF THE LAW OF RECEIVERS. 3 Much of the modern hiw relative to receiverships has been the result of the extraordinary growth of corpora- tions and of the innnense railway systems of the country during the past quarter of a century. Following the prin- ciple that a mortgagee in possession will be allowed his expenses for making such repairs as are necessary for the maintenance of the mortgaged property and for the doing of such things as are necessary for the protection of the mortgagor's title,*^ and in accordance with the principle that a court deems it to be part of its duty to protect and preserve trust funds in its possession,' the courts of this country have developed to its greatest efficiency the issuance of receivers' certificates by means of which insolvent properties, especially those concerned with pub- lic utilities, have been enabled to recuperate and re-estab- lish themselves as going concerns. It must, however, be admitted that in some cases it may be questioned whether the rehabilitation of a public utility b}" means of a receiv-^ ership proceeding is a proper proceeding, although in most cases receiversliips as a method of refinancing defunct or failing corporations have proved advantageous in the long run to both stockholders and creditors, whether secured or unsecured. It is, however, a power which must be exercised with great caution on account of the liability of its being abused.^ Recognizing the dangers of using receivership proceed- 447, says in regard to the ap- "But it is a power to be spar- pointment of receivers: "That is ingly exercised. It is liable to one of the oldest remedies in this great abuse, and while it is court," and is a remedy which a usually resorted to under the pre- court of chancery will always text that it will enhance the se- grant ex debito justitis, upon a curity of the bondholders, it not proper showing. infrequently results in taking from c Sandon V. Hooper, 6 Beav. 246; them the security they already 2 Jones on Mortgages, § 1126. have and appropriating it to pay 7 Wallace v. Loomis, 97 U. S. debts contracted by the court." 146, 24 L. ed. 895. Credit Company v. Arkansas Cen- ■^ Meyer v. Johnston, 53 Ala. 237, tral Ry. Co., 15 Fed. 46, 5 Mc- 349. Crary 23. 4 LAW OF RECEIVERS. ings for purposes of refinancing private corporations tlie tendency of the courts has been to limit such use of receiverships to transportation and other quasi public corporations.'^ The general attitude now maintained by our courts of last resort toward using a receivership as a means of rehabilitating a failing public utility and run- ning it as a going concern through a receiver, was shown by Mr. Justice Peckham in a leading case^*^ in which, in ujjholding the right of a simple contract creditor to have a receiver appointed over a street railway company in a case in which the defendant company admitted the alle- gations in the petition and consented to the appointment, he said: ''Wliile so holding we are not unmindful of the fact that a court is a very unsatisfactory body to admin- ister the affairs of a railroad as a going concern, and we feel that the possession of such property by the court through its receivers should not be unnecessarily pro- longed. There are cases — and the one in question seems a very strong instance — where, in order to preserve the property for all interests, it is a necessity to resort to 9 American Brake etc. Co. v. has been attempted in this case, Pere Marquette Ry., 205 Fed. 14, every private corporation operat- 123 CCA 322 i°S ^ sawmill, gristmill, mine, .,_,, .. , . ;„ .,„ f^„ factory, hotel, elevator, irrigating The cessation of business for , , , . ,. . • ditches, or carrying on any busi- a day would be a public injury. ness pursuit, would speedily seek A railroad is authorized to be con- ^^.^ protection of a chancery structed more for the public good ^^^^^^ ^^^ ^^^^^ ^^^^^ ^^^,^ to be subserved than for private ^^^^ ^^ conducting the business gain. As a highway for public of all the insolvent private cor- transportation it is a matter of porations in the country." Hanna public concern, and its construe- y g^ate Trust Co., 70 Fed. 2, 30 tion and management belong pri- l_ r_ a. 201, 16 C. C. A. 586. marily to the commonwealth, and jn this connection see the excel- are only put into private hands jent article of Thomas A. Thacher, to subserve this public conven- ggq., on "Some Tendencies of ience and economy." Barton v. Modern Receiverships" in Vol. IV, Barbour, 104 U. S. 126, 26 L. ed. California Law Review, p. 32. 672. 10 Matter of Reisenberg (Metro- "If the junior creditors of an in- politan St. R. R. Case), 208 U. S. solvent corporation, could do what 90, 52 L. ed. 403, 28 Sup. Ct. 219. ORIGIN OF THE LAW OF RECEIVERS. » such a remedy. A refusal to appoint a receiver would have led in this instance almost inevitably to a very largo and useless sacrifice in value of a great property, oper- ated as one system through the various streets of a popu- lous city, and such a refusal would also have led to endless confusion among the various creditors in their efforts to enforce their claims, and to very great inconvenience to the many thousands of people who necessarily use the road every day of their lives." The main purposes of receivership proceedings, how^- ever, remains that of preserving and protecting property which is the subject of litigation until the final deter- mination of the litigation. § 2. Receiver Defined, A receiver is a person appointed by the court, as its representative, for the purpose of taking into his control, custody, and management property which is the subject matter of or involved in litigation for the purpose of preserving it pending the ultimate determination of such litigation, when it appears to the court to be unreason- able that it should remain in possession of the litigants.^ 1 Wilkinson V. Lehman-Durr Co., Dickinson, 21 How. Pr. 275; 136 Ala 463 34 So. 216; Hall v. Waters v. Carroll, 9 Yerg. (Tenn.) Stulb, 126 Ga. 521, 55 S. E. 172; 102; Beverley v. Brooke, 4^ Gratt. ' . \ ,„ , (Va) 187, 208; Harman V. McMul- Baker v. Administrator of Backus ^.^ ^^ ^^ ^^^^ ^ ^ ^ 3^^. ^^^^^^ 32 111. 79; Wiswall v. Kunz. 1<3 ^ ^^^^.^^ ^^ ^ ^ ^^^ ^^^ ^ 33^^ 111. 110, 50 N. E. 184; Nevitt v. ^^ ^ ^^ ^g^. j^^^^j^ ^ j^^j.^ ^f Woodburn, 190 111. 283, 60 N. E. Marlborough, 2 Swanst. 125; Ex 500; Hay v. McDaniel, 26 Ind. App. p^rte Jay, L. R. 9 Cb. 133. 683, 60 N. E. 729 ; Hunter v. Peaks, a "receiver" is a person ap- 74 Me. 363; State v. Ross, 122 pointed by a court or judicial offi- Mo. 435, 23 L. R. A. 534, 25 S. W. cer to take charge of property 947; St. Louis etc. Ry. Co. v. pending a civil action, suit, or Holladay, 131 Mo. 440, 33 S. W. 49; proceeding, or upon the entry of Gardner v. Caldwell, 16 Mont. 221, a judgment, decree, or other 40 Pac. 590; Lattimer v. Lord, order, and to manage and dis- 4 E. D. Smith 183; Libby v. Rose- pose of it in accordance with the krans, 55 Barb. 202; Devendorf v. directions of the court. Egan v. LAW OP RECEIVERS. He is regarded as an officer of the court appointing liim and whatever he does under the orders of the court in North American Loan Co., 45 Or. 131, 76 Pac. 774, 775. A "receiver" is a person ap- pointed by a court to take into his custody, control, and manage- ment the property or funds of an- other pending judicial action con- cerning them. John C. Orr Co. v. Cushman, 54 Misc. Rep. 121, 104 N. Y. S. 510. "The conception of a receiver is some one to take manual pos- session, for the court, of prop- erty, to take it out from the pos- session of others, and hold it for the better security of those who may be ultimately entitled thereto." Harrigan v. Gilbert, 121 Wis. 127, 99 N. W. 909. A receiver is an officer of the court, and its representative in administering trust estates. He acts by order of the court. His powers come from the court. He has no Individual status. His duty is to bring all the property belonging to his trust into pos- session, familiarize himself with the details of the estate and its business, keep accurate accounts, and make detailed reports with his recommendations to the court, so that the estate may be closed by the court as soon as the best interests of the owner and cred- itors will justify. Decker Bros. v. Berners Bay Min. & Mill. Co., 2 Alas. 504. A receiver is a person author- ized to take possession of prop- erty in litigation for the purpose of preserving it for whichever of the litigants the court may finally determine is entitled to it. Cook v. Terry, 19 Cal. App. 765, 127 Pac. 816, 817. "The 'receiver' is the represen- tative of the court and of all parties in interest, and can neither surrender to others nor divide with them the manage- ment of the prosecution or de- fense of such suits or the re- sponsibility therefor." A receiver is appointed upon a principle of justice for the benefit of all con- cerned. He is virtually a repre- sentative of the court, and of all the parties in interest in the liti- gation wherein he is appointed. Atlantic Trust Co. v. Dana, 128 F. 209, 22.3, 62 C. C. A. 657 (quoting and adopting Davis v. Gray, 16 Wall. (83 U. S.) 203, 217, 21 L. Ed. 447; citing and adopting Doggett V. Florida R. Co., 99 U. S. 72, 78, 25 L. Ed. 301; Southern Exp. Co. V. Western North Carolina R. Co., 99 U. S. 191, 199, 25 L. Ed. 319; Porter v. Sabin, 149 U. S. 473, 13 Sup. Ct. 1008, 37 L. Ed. 815; Gray v. Davis, 1 Woods 420, 10 Fed. Cas. 1006, 1009; Ames v. Union Pac. Ry. Co., 60 F. 966; High, Rec. (3d ed.), sees. 134, 135, 650; Jones, Railroad Securities, sec. 495). A receiver is "the officer of the court, appointed on behalf of all parties, to take the possession and hold (the property) for the benefit of the party ultimately en- titled." Town of Vandalia v. St. Louis etc. Co., 209 111. 73, 70 N. E. 662. Where property is the subject of litigation and is liable to clear equities in a party out of posses- ORIGIN OF THE LAW OF RECEIVERS. 7 respect to the property over which he is appointed receiver is the act of the court itself. His custody is that sion the court may appoint a re- ceiver for it when it seems just and necessary to keep the prop- erty in dispute from the control of either party until the contro- versy is decided. Skinner v. Max- well, 66 N. C. 45. A "receiver" is an indifferent person between parties, appointed by the court to receive the rents, issues, and profits of land or other thing in question, pending the suit, where it does not seem rea- sonable to the court that either party should do it. He is an offi- cer of the court; his appointment is provisional. He is appointed in behalf of all parties, and not of the complainant, or of the defen- dant only. He is appointed for the benefit of all parties who may establish rights in the cause. The money in his hands is in custodia legis for whoever can make out a title to it. It is the court itself which has the care of the property In dispute. The re- ceiver is but he creature of the court. He has no powers except such as are conferred upon him by the order of his appointment and the course and practice of the court. When a court exercising jurisdiction in equity appoints a receiver of all the property of a corporation, the court assumes the administration of the estate; the possession of the receiver is the possession of the court; and the court itself holds and admin- isters the estate, through the re- ceiver as its officer, for the bene- fit of those whom the court shall ultimately adjudge to be entitled to it. The trustee in a mortgage of the property of a canal and ir- rigation company, who brings a suit for foreclosure and sale, and obtains the appointment of a re- ceiver to take charge of and man- age the property pendente lite, does not, by reason of such ac- tion, become personally liable for money borrowed, expenses in- curred, and certificates issued by the I'eceiver under orders of the court, in keeping the corporation on its feet as a going concern, which the proceeds of the sale proved insufficient to pay. Atlan- tic Trust Co. V. Chapman, 28 Sup. Ct. 406, 409, 208 U. S. 360, 52 L. Ed. 528, 13 Ann. Gas. 1155 (citing Booth v. Clark, 58 U. S. (17 How.) 221, 322, 15 L. Ed. 164, 167; Porter v. Sabin, 13 Sup. Ct. 1008, 1010, 149 U. S. 473, 479, 37 L. Ed. 815, 818). Under Ballinger's Ann. Codes & St., sec. 5455, defining a "receiver" as a person appointed by a court to take charge of property pend- ing a civil action or proceeding, and to manage and dispose of it as the court may direct, a person appointed by the court to take charge of mortgaged chattels and retain them pending foreclosure proceedings is a "receiver," re- gardless of whether he be ap- pointed under section 5486, pro- viding generally when receivers may be appointed, or under sec- tions 5877 and 5878, relating to the case of a chattel mortgagee having reasonable cause to be- lieve the debt to be insecure. LAW OF RECEIVERS. of the court and lie can not act save as he is directed Libert v. Unfried, 47 Wash. 182, 91 Pac. 774. One of the main objects of a re- ceivership is to conserve the prop- erty for the benefit of creditors and owners, and it should not be dissipated by fees and expenses. Goodman v. Wilder, 234 111. 362, 84 N. E. 1025. A receiver is an officer of the court which appoints him and is its immediate representative in the custody and administration of the property which it has taken into possession. Ridge v. Manker, 132 Fed. 599, 67 C. C. A. 596. Inasmuch as the main purpose of a receiver is to preserve the property which is the subject of the litigation, danger of its loss or injury is one of the principal grounds for his appointment. Hastings v. Tousey, 121 App. Div. 815, 106 N. Y. S. 639. A receiver pendente lite is ap- pointed to prevent injury to the property or thing in controversy, and to preserve it for the secu- rity of all parties in interest, for the purpose of disposition as the court may finally direct. Gray v. Council of Town of Newark (Del. Ch.), 79 Atl. 739. A "receiver" is an officer of the court from which he receives his appointment. He is sometimes de- scribed as an impartial and indif- ferent person between the parties to a cause, appointed by the court to receive and preserve the prop- erty or funds in litigation pen- dente lite, when it does not seem reasonable to the court that either party should hold it. He is in no sense an agent or representative of any party to the action. He exercises his function in the in- terests of no individual interested in the litigation, but for the com- mon benefit of all concerned. He is frequently spoken of as the "hand of the court," and has been called the "executive hand of the court" (citing High, Rec. sec. 2; Beach, Rec. sec. 2). Hence the compensation of a receiver and the party or parties to be charged with the payment of the same are matters to be determined by the court from which the receiver de- rives his appointment. Hall v. Stulb, 126 Ga. 521, 55 S. E. 172. A receiver in an action is an im- partial person appointed by the court to collect and receive, pend- ing the proceedings, the rents, is- sues, and profits of land, or the produce of personal estate or things in question, which it does not seem reasonable to the court that either party should collect or receive, or where a party is in- competent to do so, as in the case of an infant. A receiver can only be properly granted for the pur- pose of getting in and holding or securing funds or other property, which the court at the trial, or in the course of the action, will have the means of distributing amongst, or making over to, the person or persons entitled thereto. Evans v. Coventry, 3 Drew. 80. Receiver, in English law, an oflS- cer or manager appointed by a court to administer property for its protection, to receive rent or other income and to pay author- ized outgoings. Receivers may be either appointed pendente lite or by way of equitable execution, e. g., for the purpose of enabling ORIGIN OF THE LAW OF RECEIVERS. by the court.- He is very frequently characterized as a judgment creditor to obtain pay- ment of his debt, when the posi- tion of the real estate is such that ordinary execution will not reach it. Formerly receivers were appointed by the court of chan- cery, but by the Judicature Act 1873 it is now within the power of all divisions of the High Court to appoint receivers. Their powers and duties are exhaustively set forth by Kerr on Receivers (5th ed., 1905), who classifies the cases in which they may be appointed under the following heads: (a) In- fants, (b) executors and trustees, (c) pending litigation as to pro- bate, (d) mortgagor and mortga- gee, (e) debtor and creditor, (f) public companies, (g) vendor and purchaser, (h) covenanter and cov- enantee, (i) tenant for life and remainderman, (j) partners, (k) lunacy, (1) tenants in common, (m) possession under legal title, and (n) other cases. The appoint- ment of receivers is entirely within the discretion of the courts, and the power may be ex- ercised "in all cases in which it shall appear just and con- venient." Application for a re- ceiver is usually made by motion, and the court will appoint the fit- test person, without regard to who may propose him, the appoint- ment of a receiver being for the benefit of all parties. Under the Conveyancing Act, 1881, when a mortgagee has become entitled to exercise his powers of sale, he may, by writing under his hand, appoint such person as he sees fit to be receiver. In bankruptcy practice a receiver, termed official receiver, is an of- ficer of the court who in this capacity takes possession on the making of a receiving order, of all a debtor's assets. He is also an officer of the board of trade with the duty of taking cogni- zance of the conduct of the debtor and administering his estates (see Bktcy.). Vol. 22, En- cyclopedia Britannica 951. 2 State V. Reynolds, 209 Mo. 161, 123 A. S. R. 468, 15 L. R. A. (N. S.) 963, 14 Ann. Cas. 198, 107 S. W. 487. Eichert v. Eichert, 28 Ohio Cir. Ct. R. 795, judgment affirmed 74 Ohio St. 512. 78 N. E. 1124. The property or funds coming into the hands of the receiver are regarded as in the custody of the court. State v. Hubbard, 58 Kan. 797, 39 L. R. A. 860, 51 Pac. 290; State ex rel. Fichtenkamm v. Gambs, 68 Mo. 289; Farmers Loan etc. Co. V. Oregon etc. Co., 31 Ore. 237, 38 L. R. A. 424, 65 Am. St. Rep. 822, 48 Pac. 706; Wilder v. New Orleans, 87 Fed. 843, 31 C. C. A. 249; Rothschild v. Hasbrouck, 65 Fed. 283; Fallon v. Egberts Woolen Mill Co., 31 Misc. 523, 64 N. Y. S. 466; Battle v. Davis, 66 N. C. 252. A "receiver" is but an officer of the court, whose tenure of of- fice is indeterminate. Screven v. Clark, 48 Ga. 41; National Ex- change Bank v. Woodside, 107 Mo. App. 47, 80 S. W. 715; Hubert v. New Orleans, 130 Fed. 21, 64 C. C. A. 389. A receiver is an officer of the court having certain statutory du- ties to perform but at all times subject to the court's jurisdiction. Denver City Waterv/orks Co. v. 10 LAW OF RECEIVERS. the arm or hand of the court.^ Being an officer of the court and exercising his functions for the benefit of American Waterworks Co., 81 N. J. Eq. 139, 85 Atl. 826. A receiver is an officer of the court appointing him, and his power does not extend beyond the jurisdiction of that court, and will not be recognized by the courts of another state, except upon con- siderations of comity. Choctaw Coal & Mining Co. v. Williams- Echols Dry Goods Co., 75 Ark. 365, 87 S. W. 632, 5 Ann. Cas. 569; Ma- lone V. Johnson, 45 Tex. Civ. App. 604, 101 S. W. 503, 505. A "receiver" is but an officer of the court by whom he is ap- I ointed — as it is sometimes said, the right hand of the court. His custody is that of the court, and he can not act, save as he may be specially authorized. He may not enter into litigation respecting property in his possession, save by consent of the court. And the law of comity among courts, whether of the same or a differ- ent state or jurisdiction, requires that leave should be asked and granted before suit against a re- ceiver. Manker v. Phoenix Loan Assn. of St. Joseph (Iowa), 96 N. W. 982, 983 (citing Smith V. St. Louis & S. F. Ry. Co., 151 Mo. 402, 52 S. W. 378, 48 L. R. A. 368; Keen v. Breckinridge, 96 Ind. 69; Central Trust Co. v. East Tenn. Ry. Co., 59 Fed. 523; Haag v. Ward, 89 Mo. App. 186). In general, a "receiver" by vir- tue of his appointment is clothed with only such rights of action as may have been maintained by the person over whose estate he has been appointed and whose rights, for purposes of litigation, he has succeeded. The "receiver" is the officer, the agent, and hand of the court, and therefore his powers are limited, and are derived from the order of appointment, if a common-law receiver, and from statute, if a statutory receiver. In re National Mercantile Agency, 128 Fed. 639, 640 (quoting and adopting High, Rec. (3d ed. 1894) sec. 201; Beach, Rec. (Alderson's ed. 1897) sec. 650). A "receiver" is a mere officer of the court whose first duty is to obey the orders of the court. He has no discretion, speaking gener- ally, as to the application of funds which are in his hands by virtue of the receivership, and he holds them strictly subject to the order of the court, to be disposed of as the court may direct. Being a mere agent of the court he has no authority to appeal from orders made by it in the pending pro- ceeding, except as it may author- ize him so to do, and with the further exception that he has the right to appeal in all matters re- lating to his official conduct or his accounts and credits, or from judgments rendered against him in other proceedings. Polk v. Johnson (Ind.), 76 N. E. 634 (cit- ing Herrick v. Miller, 123 Ind. 304, 24 N. E. Ill; Smith v. Harris, 135 Ind. 621, 629, 35 N. E. 984; How V. Jones, 60 Iowa 70, 14 N. W. 93; Dorsey v. Sibert, 93 Ala. 312, 99 South. 288; People v. Troy Steel & Iron Co., 31 N. Y. Supp. 337, 82 Hun 303; Smith on Receiverships, sec. 417). 3 The order appointing him does not affect the title to property. ORIGIN OF THE LAW OF RECEIVERS. 11 all parties concerned in the litigation, he is not to be regarded as an agent of either the plaintiff or defen- dant.^ He acts for the common benefit of all parties inter- He holds the property merely as a custodian. So. Granite Co. v. Wadsworth, 115 Ala. 570, 22 So. 157; Jackson v. King, 9 Kan. App. 160, 58 Pac. 1013; State ex rel. Fichtenkamm v. Gambs, 68 Mo. 289; Wilder v. New Orleans, 87 Fed. 843, 31 C. C. A. 249; Harrison V. J. J. Warren Co., 183 Mass. 123, 66 N. E. 589; Union Bank v. Kan- sas City Bank, 136 U. S. 223, 34 L. Ed. 341, 10 Sup. Ct. 1013. The property though tempo- rarily in the keeping of the court is sheltered by the same rights of ownership as before being so placed. State Cent. Sav. Bank v. Fanning Bail-Bearing Chain Co., 118 Iowa 698, 92 N. W. 712; Sul- livan Timber Co. v. Black, 159 Ala. 570, 48 So. 870; Knickerbocker Trust Co. V. Green Bay Phosphate Co., 62 Fla. 519, 56 So. 699; State ex rel. Sullivan v. Reynolds, 209 Mo. 161, 15 L. R. A. (N. S.) 963, 123 Am. St. Rep. 468, 14 Ann. Cas. 198, 107 S. W. 487; Vila v. Grand Island etc. Co., 68 Neb. 222, 63 L. R. A. 791, 110 Am. St. Rep. 400, 4 Ann. Cas. 59, 94 N. W. 136, 97 N. W. 613; American Trust etc. Bank v. McGettigan, 152 Ind. 582, 71 Am. St. Rep. 345, 52 N. B. 793; International Trust Co. v. Decker Bros., 152 Fed. 78, 11 L. R. A. (N. S.) 152, 81 C. C. A. 302; Coy v. Title Guarantee & Trust Co., 198 Fed. 275. Receiver is arm of the court and not representative of either party to suit. Dietrich v. O'Brien, 122 Md. 482, 89 Atl. 717; Bird v. Peo- ple's Gas etc. Co., 158 Fed. 903. A receiver is an arm of the court and represents the debtor and creditors as well as the court. Harvey v. Gartner, 136 La. 411, 67 So. 197, Ann. Cas. 1916D, 900. A "receiver" is "the mere right arm of the court appointing him, to obey its orders in matters of administration within its jurisdic- tion, and as such is entirely sub- ject to its control. He executes bond for the faithful performance of his duties, to account alone to the court appointing him; and the funds coming to his hands as such receiver are in custodia legis, held by him for distribution and application by the court whose commission he holds." Fowler v. Osgood, 141 Fed. 20, 21, 72 C. C. A. 270, 4 L. R. A. (N. S.) 824. A receiver is but an arm of the court to take care of and admin- ister the property, assets, and estate in suit, to do with it as the law may direct for the benefit of the parties concerned; and, while in theory he can do noth- ing without the court's order or sanction, he has, in matters of management and manner of dispo- sition of the estate, a large discre- tion. Coy V. Title Guarantee & Trust Co., 198 Fed. 275. "The appointment of a receiver does not determine any right or affect the title of either party, in any manner whatever. He is the officer of the court, and truly the hand of the court." Ellicott v. Warford, 4 Md. 85. 4 Kreling v. Kreling, 118 Cal. 421, 50 Pac. 549; Hay v. McDaniel, 26 Ind. App. 683, 60 N. E. 729; 12 LAW OF RECEIVERS. ested in the litigation.^ In view of his duties toward all Gaither v. Stockbridge, 67 Md. 222, 9 Atl. 632, 10 Atl. 309; Rum- sey V. People's Ry. Co., 154 Mo. 215, 55 S. W. 615; Daube v. Phila- delphia etc. Co., 77 Fed. 713, 23 C. C. A. 420; Hale v. Hardon, 95 Fed. 747, 37 C. C. A. 240; Balti- more Building etc. Assn. v. Alder- son, 99 Fed. 489, 39 C. C. A. 609. Receivers being officers of the court are not agents of the party for whom they are appointed re- ceivers, in the sense that they have authority to bind such party by any act or omission on their part. Stannard v. Robert H. Reid & Co., 118 App. Div. 304, 103 N. Y. Supp. 521. A receiver of a railroad is not the agent of the company, nor its representative, nor in any sense under its control. He is a person who comes into possession of the equipment and business in in- vitum, placed there by the court which virtually sequestrates the property for the time being to pre- serve it from ruin for the benefit of creditors primarily and other parties interested secondarily. Eckels v. Farley, 131 111. App. 557. A receiver of a railroad is not a representative of the company, but is rather an officer or repre- sentative of the court. His rela- tion to the company is analogous to that of a sheriff holding its property under judicial order or process. Fountain v. Stickney, 145 Iowa 167, 139 Am. St. Rep..410, 123 N. W. 947. "A 'receiver' does not become a litigant in the action, nor does he represent one more than the other of any of the parties of the liti- gation. He merely takes posses- sion of the property as the right arm of the court for the benefit of the party ultimately entitled to it." Vila V. Grand Island Electric Light, Ice & Cold Storage Co., 68 Neb. 222, 63 L. R. A. 791, 110 Am. St. Rep. 400, 4 Ann. Cas. 59, 97 N. W. 613. Receivers are officers of the court, and not agents of the party for whom they are appointed re- ceivers, in the sense that they have authority to bind such party by any act or omission on their part. Stannard v. Robert H. Reid & Co., 118 App. Div. 304, 103 N. Y. Supp. 521. A "receiver" is an officer of the court and not in any . sense an agent or representative of either party; he is not such a general agent as has any implied power, and he can not make effectual contracts unless they are author- ized or ratified by the court. Lazear v. Ohio Steel Foundry Co., 65 W. Va. 105, 63 S. E. 772. A receiver of property ap- pointed by court is not an agent. He is an indifferent person hold- ing the property for those ulti- mately entitled to it, and his possession is that of the court. Wilderberger v. Hartford Fire Ins. Co., 72 Miss. 338, 48 Am. St. Rep. 558, 28 L. R. A. 220, 17 So. 282. It has, however, been held in Louisiana that where a receiver was appointed for a partnership with the consent of the partners in a suit for the dissolution of the partnership, he would not be re- garded as the officer of the court but merely the agent of the par- ties. Kellar v. Williams, 3 Rob. (La.) 321. 5 McGarrah v. Bank, 117 Ga. 556, 43 S. E. 987; Hooper v. Winston, ORIGIN OF THE LAW OF RECEIVERS. 13 parties to the litigation, he naturally should be a person who is impartial as between the litigants and parties interested in the outcome of the controversy.^ A receiver has also been characterized as a quasi trustee holding the fund for the benefit of whoever may eventually estab- lish title to it.'^ 24 111. 353; Baker v. Backus, 32 111. 79; Kaiser v. Kellar, 21 Iowa 95; Williamson v. Wilson, 1 Bland (Md.) 418; Ellicott v. W^arford, 4 Md. 80; Osborn v. Heyer, 2 Paige (N. Y.) 342; Brown v. Northrup, 15 Abb. Pr. N. S. 333; Corey v. Long, 43 How. Pr. 497, 12 Abb. Pr. N. S. 427; King v. Cutts, 24 Wis. 627; Meier v. Kan. Pac. R. Co., 5 Dill. 476, Fed. Cas. No. 9394; Booth V. Clark, 58 U. S. (17 How.) 331, 15 L. ed. 167. He is bound to act for the equal benefit of all the parties and hence can not agree to place the property in his custody under the control and management of one of the parties to the litigation. Shade- wald V. White, 74 Minn. 208, 77 N. W. 42. A receiver is appointed on behalf of all the parties to the action and not on behalf of the complainant or defendant only. Atlantic Trust Co. V. Chapman, 208 U. S. 360, 13 Ann. Cas. 1155, 52 L. ed. 528, 28 Sup. Ct. 406. He is a ministerial officer of the court appointing him and his pos- session is not adverse to either party, but for the benefit of all the parties to the suit according to their respective rights. Chicago etc. Co. V. Kenney, 29 Ind. App. 506, 68 N. E. 20. 6 Coy V. Title etc. Co., 157 Fed. 794. A "receiver" is a ministerial of- ficer of a court of chancery, ap- pointed as an indifferent person between the parties to a suit, and he holds the property for the ben- efit of all the parties interested, and his title and possession is that of the court. State v. Nor- folk & S. Ry. Co., 152 N. C. 785, 26 L. R. A. (N. S.) 710, 21 Ann. Cas. 692, 67 S. E. 42. Receivers are instrumentalities of the court, and are required to be impartial as between the par- ties litigant, and should have authority from the court, either ex- press or implied, for all of their acts. Metropolitan Trust Co. of City of New York v. North Caro- lina Lumber Co., 162 Fed. 170; American Box Co. v. North Caro- lina Lumber Co., 162 Fed. 170. A receiver should be in a large sense indifferent as between the various interests involved. He phould have no such personal in- terest as would interfere with an unbiased and impartial exercise of his duties as a receiver. Farmers Loan etc. Co. v. Northern Pac. R. Co., 61 Fed. 546. T King V. Goodwin, 130 111. 102, 17 Am. St. Rep. 277, 22 N. E. 533. 14 LAW OF RECEIVERS. § 3. Different Kinds of Receivers. A chancery receiver is but the hand of the court which has taken over the administration of the affairs of the person whose property has been placed under a receiver. The ownership of the property does not pass to the receiver but continues in tlie defendant, although his control over it is vested in the court acting through its receiver. The property by being placed in the hands of a receiver is protected against the interference of others. No action can be taken b}' or against the owner of the property without the sanction of the court. If anything is done in respect to the property it must be done through and by the receiver.^ Such a chancery receiver derives his authority to deal with the property from the court and not the parties. - The term "temporary receiver" should be confined to the mere custodian receiver, who is often appointed, upon the filing of the bill, under the general equity power of the court, in order to preserve the assets from waste until the hearing can be had which will determine whether the defendant assets are in such condition as to require being placed under a receiver.^ A "permanent receiver" is one appointed by or pursuant to a final judgment or a tem- porary receiver who is continued by the final judgment.^ A receiver acting as the arm of the court is frequently termed an "equitable receiver," and as such is a mere custodian without title and without any power excepting 1 Kelly V. Dolan, 218 Fed. 966. 609, and (D. C.) 189 Fed. 661, 194 2 Pennsylvania Steel Co. v. New Fed. 543. York City Ry. Co., 198 Fed. 721, 3 Gallagher v. Asphalt Co. of 117 C. C. A. 503, reversing decree America, 67 N. J. Eq. 441, 58 Atl. (C. C.) ; In re New York City Ry. 403. Co., 188 Fed. 339, and ("C. C.) ; 4 So defined by the General Cor- Pennsylvania Steel Co. v. New poration Law of New York which York City Ry. Co., 188 Fed. 343, is merely a codification of the gen- modifying decrees (C. C.) ; Penn- eral rule. Strauss v. Casey Ma- sylvania Steel Co. v. New York chine & Supply Co., 68 Misc. 474, City Ry. Co., 189 Fed. 661. 190 Fed. 124 N. Y. Supp. 32. ORIGIN OF THE LAW OF RECEIVERS. 15 that conferred upon him by the order of appointment.^ An "auxiliary receiver" xs a custodian of the property within the state where he is appointed for the purpose of preserving the assets belonging to the party proceeded against within the state, in order that creditors may reach them without being compelled to go to a foreign jur- isdiction to prove their claims.*^ A ''special receiver" is simply an officer of the court and as such has no right even in the cause in wdiich he is appointed, without leave of the court, to intermeddle m questions affecting the rights of the parties.^ An ''ancil- lary receiver" is one appointed by a court of one juris- diction in aid of a primary appointment by the court of another jurisdiction. Such an appointment is often made where property belonging to the receivership exists in several states.* A receiver to be appointed pursuant to 5 Cogan V. Conover Mfg. Co., 69 N. J. Eq. 358, 60 Atl. 408. 6 Frowert v. Blank, 205 Pa. 299, 54 Atl. 1000. 7 Whyel V. Jane Lew Coal & Coke Co., 67 W. Va. 651, 69 S. E. 192. 8 Scaife v. Scammon Inv. etc. Assn., 71 Kan. 402, 80 Pac. 957; Eisenhart v. Scammon Inv. etc. Assn., 71 Kan. 855, 80 Pac. 960; Reynolds v. Stockton, 140 U. S. 254, 35 L. Ed. 464, 11 Sup. Ct. 773. When a receiver has been ap- pointed for a corporation by a court of the state where it is dom- iciled, a federal court of another jurisdiction has power to appoint the same person as ancillary re- ceiver in such jurisdiction. Shin- ney v. North American Savings, Loan & Building Co., 97 Fed. 9. When application is made for the appointment of a receiver for a foreign corporation which is al- ready in the hands of a receiver at the place of its domicile, the court in which the application is made can do one of three things: First, it can refuse to ap- point a receiver in the state and let the domiciliary receiver bring suits in this state to collect all debts of the insolvent corporation within its limits; second, it can appoint the domiciliary receiver as ancillary receiver; third, it can appoint some one other than the domiciliary receiver. Irwin v. Granite State etc. Assn., 56 N. J. Eq. 244, 38 Atl. 680. The purpose and practice in ap- pointing ancillary receivers are similar to those obtaining in re- spect to ancillary letters of admin- istration. The rules of comity existing between the courts of dif- ferent states and courts of differ- ent jurisdiction in the same state are followed in such cases. An ancillary suit mav be insti- tuted in the courts of any juris- 16 LAW OF RECEIVERS. the stipulations contained in a mortgage or deed of trust is not considered in the light of a technical receiver to he appointed by a court. Such a receiver could be termed a contract receiver. ** Where an instrument such as a mortgage provides for tiie appointment of a receiver under certain contingencies the receiver is to be regarded and treated as the agent of the mortgagor, although it is in fact the mortgagee who has nominated him.^*' The receiver of a national bank is different in character from the receivers appointed by the courts. The matter of such appointments is regulated entirely by the National Bank- ing Act, and the Comptroller in making the appointment of such a receiver is not regarded as performing a judi- cial act. It is the decision of the head of department of the federal government over which the courts have ordi- narily no control. ^^ A receiver appointed pursuant to a statute providing for the appointment of a receiver under certain conditions and circumstances is the legislative agency to be named by the court and has only such powers as are granted by the legislative act. He is sometimes called a "statutory receiver."^- The powers of receivers appointed under statutes providing for such appoint- diction where property of the o Rice v. St. Paul etc. R. Co., debtor may be found, and the 24 Minn. 464. local court of equity on such ap- ^„ ^^^^^^^ ^ Dickson, L. R. 1 plication will take, the debtor's ^^ ^g^. ^^^ ^ ^ ^ ^ ^^ local property into its own cus- , , ' ' . . . f uo 634; Owen v. Cronk (1895), 1 tody bv the appointment of its ' ' own receiver. This jurisdiction is Q- ^- 265; Gosling v. Gaskell freely exercised by state courts (1897), A. C. 575. in aid of proceedings pending in ii Price v. Abbott, 17 Fed. 606; the courts of other states or in Washington Nat. Bank v. Eckels, the federal courts of other states. 57 p^^j gyQ. Bushnell v. Leland, National Trust Co. v. Miller. 33 ^g^ ^ g g^^^ ^^ ^ ^^ g^g^ ^^ Sup. Ct. 209. N. J. Eq. 155; Buswell v. Supreme Sitting, 161 Mass. 224, 23 L. R. A. 846, 36 N. E. 1065; Baldwin v. 12 Gallagher v. Asphalt Co. of Hosmer, 101 Mich. 119, 25 L. R. A. America, 67 N. J. Eq. 441, 58 Atl. 7S9, 59 N. W. 432. 403. ORIGIN OF THE LAW OF RECEIVERS. 17 ments are, however, construed in the light of the settled doctrines of courts of equity in respect to receiverships.^^ Although receivers are sometimes designated as gen- eral receivers, receivers pendente lite, special receivers, interim receivers, managers, ancillary receivers, and, in England, liquidators, the purposes in all cases being the same, though the methods of accomplishment may differ, and though the functions of the receiver may vary in dif- ferent cases, no good result, but confusion rather, fol- lows the application of the several names to the receiver, and so far as the general treatment of the subject is concerned, no nominal distinction will be observed. Receivers may be general as to property and special as to power, or vice versa. Nearly all receivers are pendente lite, and with equal propriety might be called interim, while a manager is only in the exercise of an enlarged power, wdth the accomplishment of the same end.^^ § 4. Receivership as Distinguished from Other Remedies. The law of receiverships is peculiar in its nature in that it belongs to that class of remedies which are wholly ancillary or provisional, and the appointment of a receiver does not affect, either directly or indirectly, the nature of any primary right, but is simply a means by which primary rights may be more efficiently preserved, protected, and enforced in judicial proceedings. It adju- 13 Cogan V. Conover Mfg. Co., manent receiver, or any legal 69 N J. Eq. 358, 60 Atl. 408; power except such as is spe- Boonville Nat. Bank v. Blakey, cifically conferred upon him hy 107 Fed 891, 47 C. C. A. 43; Ma- the court. His functions are lim- ^ . ^ Til- V, IT A T.,H ited to the care and preservation rion Trust Co. v. Blish, 170 Ind^ ^^^ ^^^^^^ ^ ^^^^_ 686, 18 L. R. A. (N. S.) 347. 84 ^^^ ^^4 N. Y. 334. 11 L. R. A. N. E. 814 (rehearing denied 8o ^^^^ ^6 N. E. 814; Herring v. New N. E. 344). York, L. E. & W. R. Co., 105 14 A receiver pendente lite is a N. Y. 340, 12 N. E. 763; Keeney mere temporary officer and does v. Home Ins. Co., 71 N. Y. 396, 27 not possess the power of a per- Am. Rep. 60. _ I Rec. — 2 18 LAW OP RECEIVERS. dicates and determines the rights of no party to the pro- ceeding and grants no final relief directly or indirectly. In this respect its effects are analogous to the law in relation to injunction and interpleader, and sometimes, as will be seen, an injunction will afford an adequate remedy without interfering with the possession of the property. It leaves the parties as they have placed themselves, as determined by the final judgment or decree of the court. Hence a receivership can only be resorted to in a pend- ing action for specific relief which is within the jurisdic- tion of the court to graut.^ Although proceedings for the appointment of a receiver are regarded as extraordinary in character^ and the duty of a court of equity to appoint a receiver pen- dente lite to prevent injury to the thing in controversy is a delicate and responsible duty, it nevertheless should be used unhesitatingly in a proper case.^ The power of a court of equity in a proper case to appoint a receiver is one which exists independent of any statute.* But the power to make such an appointment is never exercised if the petitioner has a full and adequate remedy at law. A receiver will not, however, be denied for this reason alone, unless it is made to appear that the legal remedy 1 Red River Potato Growers' etc. R. Co., 125 TJ. S. 361, 31 L. ed. Assn V. Bemardy. 126 Minn. 440, 694, 8 Sup. Ct. 887. 148 N W 449- Davis v. Alton Unless the power to appoint a etc Ry Co ISo'lll. App. 1; Miller ^«««iv«r *« exercised carefully it ■ has a tendency to run into un- V. Bowles, 58 N. Y. 253. controlled and arbitrary action on 2 Smith V. Brown, 50 Wash. 240, ^^^ ^^^^ ^^ ^ single judge. Hutch- 96 Pac. 1077; Prudential Securi- ^^^^^ ^ American Palace Car Co., ties Co. V. Three Forks etc. V. R. jq4 ped. 182, 187. Co., 49 Mont. 567, 144 Pac. 158; 3 Ellis v. Penn Beef Co., 9 Del. Strum v. Blair, 182 111. App. 413. q^i. 213, 80 Atl. 666. The power to appoint a receiver 4 State v. Farmers & Merchants' is a delicate one and should be ex- Ins. Co. of Lincoln, 90 Neb. 664, ercised sparingly and with ex- Ann. Cas. 1913B, 643, 134 N. W, treme caution. Sage v. Memphis 284. ORIGIN OF THE LAW OF RECEIVERS. 19 is equally as complete, efficient, and effective as that in equity.^ The power to appoint a receiver is a stronger measure than that of injunction inasmuch as the effect is to trans- fer the custody of the property in controversy from a litigant to a third party under the direction of the court during the litigation. It is not so much in the nature of an attachment as of a sequestration.*^ A receiver differs from an assignee in bankruptcy in that the latter is vested with the legal title to property held bv the bankrupt, such as a lease or the like, while a receiver has no estate in such property, but is a mere custodian for the court." The appointment of a receiver for a corporation has been likened to the remedy of an "equitable execution," the court thereby obtaining absolute control of the cor- poration's property with full power to adjust claims, determine priorities, order sale, and fix the distribution of funds in accordance with procedure in equity, so that claimants thereafter need not litigate their claims in plenary suits, but may have the same determined m the receivership proceedings. « Under the provisions of section 92, chapter 89 of the Companies Act of 1862 provision is made in England for the appointment of a liquidator or liquidators, for the purpose of the winding up of companies and asso- ciations thereunder: (1) When the company has passed a resolution requiring the company to be wound up ; (2) when the company does not commence its business within a year from its incorporation, or suspends its business for a whole year; (3) when its mem])ers are reduced in number to less than seven; (4) when the com- 5Robbins V. Reed, 174 Ind. 291. 7 Dietrick v. Q-Brien. 122 Md. 91 N E 921 482, 89 Atl. 717. fi Pelzer v Hughes, 27 S. C. 408, « Randall v. Wagner Glass Co., -> S K IS ' 47 Ind. App. 439, 94 N. E. 739. 20 LAW OF RECEIVERS. pany is unable to pay its debts; (5) whenever the court is of the opinion that it is just and equitable that the company should be wound up. The powers of the official liquidator under the above act are: (a) To bring or defend any action, suit, or prosecution, or other legal proceeding, civil or criminal, in the name and on behalf of the company; (b) to carry on the business of the com- pany so far as may be necessary for the beneficial wind- ing up of the same; (c) power to sell the company's assets and effects; (d) to do all acts and to execute in behalf of the company all deeds, receipts, and other documents, and if necessary to use the company's seal; (e) and, generally, to do and perform all other acts and things that may be necessary for winding up the affairs of the company and distributing its assets.^ It is also provided by the act (§96) that the liquidator may exercise the above enumerated powers without the sanction or intervention of the court where the order for his appointment so provides. While it is true that the appointment of a liquidator, under the provisions of the above act, does not abolish the office of a receiver, and under peculiar circumstances receivers are still appointed by the courts, yet so far as corporations and associations embraced in the act are concerned, the offi- cial liquidator, with largely increased powers and duties, has superseded the receiver in England, but the func- tions of his office are such, and the decisions of the courts relating thereto so highly instructive and important, that they may be regarded and are treated herein as contribu- tions to the general and growing body of the law of receiverships. Under the Winding-Up Act of 1890, after an order has been made for ^\inding up the company, the court has no power to appoint a provisional liquidator n Ch. 89, Vol. XIV. Rev. Stat. 202 (.25 and 26 Victoria to 28 and 29 Victoria, A. D. 1862-18G5). ORIGIN OF THE LAW OF RECEIVERS. 21 other than the official receiver.^" As to the general power to appoint receivers, see Judicature Act of 1873. § 5. Necessity to Resort to the Code Provisions of Each State. In most of the states statutory provisions have been enacted which prescribe the functions, powers, and duties of receivers and especially in respect to receivers relating to the assets of corporations. As a general rule these statutory provisions have enlarged the scope of the powers of receivers, although in most instances they are mere codifications of the powers always exercised by courts of equity in respect to receiverships. And fre- quently they adopt the practice of the High Court of Chancery of England on the subject of receivers. It would serve no useful purpose to set out or refer to the code sections of the various states on the subject. Whenever the court in its decision has based its rule of action upon a specific statute we will in our review of the case state that fact. 10 Re North Wales Gunpowder ceiver may be appointed in due Co (1892) 2 Q. B. 220; under the course of law. Taylor v. Eckers- T :, ; A . f 1«7^ 8?^ ol 8 ley. ^- R- 2 Ch. Div. 302, 45 L. J. Judicature Act of 1873. § 25, cl. 8. y. ^^ ^ ^ ^^^ the court has most ample power ^ ^^^^^^^ ^^^^^^^ ^^ ^^ ^ ^^^^.. in the appointment of receivers, ^^^ appointed to carry on a busi- and may do so whenever it is just ^^^^ pendente lite. Smith v. New or convenient, or as construed by York Consol. Stage Co., 18 Abb. the court, just and convenient. p^. ^^^^ ^33 rj-j^g purpose is to en- North London Railway v. Great ^^^^ ^^^ company's business to be Northern Railway, L. R. 11 Q. B. ^^j^ ^^ ^^ going concern, the cur- Div. 30. rent expenses, wages, etc., being A liquidator is a statutory re- provided for by the plaintiff, ceiver, with enlarged powers con- Makins v. Ibotson (1891), 1 Ch. ferred by Act of Parliament, and 133^ 60 L. J. Ch. 164, 63 L. T. 515; may be appointed generally or for Peek v. Trinsmaran Iron Co., L. R. a special purpose. Re Langham 2 Ch. Div. 115. And it seems that Skating Rink Co., L. R. 6 Ch. Div. gnch a manager will be appointed 102. where it is necessary to preserve In cases of danger or loss the the security though the business court may appoint an interim re- is not mortgaged. Campbell v. ceiver until such time as a re- Lloyd's Bank, 58 L. J. Ch. 424. CHAPTER II. GENEEAL GKOUNDS AND CIRCUMSTANCES IN WHICH A EECEIVER IS APPOINTED. § 6. General Principles Applicable. The rules of law applicable to receiver skips are very similar to the rules followed from time immemorial by courts of equity in dealing with the remedy of injunction, the remedy of a receivership being, however, more dras- tic in its effects upon the defendant in that it takes prop- erty which is in his possession and places it in the hands of a receiver to be administered pending the outcome of some litigation concerning it or its owner. The injunctive character of the remedy consists in the object of the court being to prevent injury to the thing in controversy and to preserve it for the benefit of all the parties to the litigation. The great object of the court in such cases is to secure the property or thing in controversy so that it may be subjected to such order or decree as the court may ultimately make in the case. The possession of the receiver is not adverse to or in hostility to the rights of the defendant. His possession is that of the court. The Supreme Court of Mississippi, in an early case,^ in lay- ing dovra the general rules which should obtain in receivership cases, said: "These principles are: That the plaintiff must show, first, either that he has a clear right to the property itself or that he has some lien upon it, or that the property constitutes a special fund to which he has a right to resort for the satisfaction of his claim ; and, secondly, that the possession of the property by the defendant was obtained by fraud, or that the prop- erty itself, or the income arising from it, is in danger 1 Mays V. Rose, Freem. Ch. (Miss.) 703. (22) GENERAL GROUNDS OF APPOINTMENT. 23 of loss from the iwiglect, waste, misconduct, or insolvency of the defendant." The act of appointing a receiver is in the nature not of an attachment, but a sequestration. It operates pros- pectively upon the rents and profits which may come to the hands of the receiver as a lien in favor of those who may ultimately be found to be entitled to or have priorities in the principal subject out of which the rents and profits issae. In the exercise of this sunmiary and extraordinary jurisdiction, it may be said that a court of equity reverses, in a great measure, its ordinary course of administering justice by beginning at the end and levying upon the property a kind of equitable exe- cution, by which it makes a general instead of a specific appropriation of the issues and profits, and subsecjuently determining w^ho is entitled to the benefits of the prop- erty so sequestrated. Acting, however, as it must of necessity, before the merits of the cause have been fully developed, and not infrequently when the proper parties in interest are not all before the court, it proceeds \\ith much caution and circumspection, in order to avoid dis- turbing unnecessarily or injuriously legal and equitable rights and priorities.^ § 7. General Class of Cases in Which Receiver Is Appointed. There are four general classes of cases in which a court will appoint a receiver, namely : First, where there is no person competent by reason of interest or other- wise to take the custody and management of the prop- erty which constitutes the subject-matter of the litiga- tion; second, where, although all of the parties may be equally entitled to the possession and control of the prop- erty or fund, still it is not proper, owing to the nature of the litigation or of the relation of the parties, that either of them should have such possession or control ; 2 Beverley v. Brooke, 4 Gratt. (Va.) 187. 24 LAW OF RECEIVERS. third, where the person hohling the property occupies a position of trust or quasi-trust relation and is violating his fiduciary duties in that connection by waste, misuse, or misapplication; and, fourth, where, after the rendi- tion of a judgment or decree, the ordinary processes of the court or its legally constituted officers can not effi- ciently act or properly perform the duties required to carry the judgment or decree into effect. The different circumstances illustrating the applica- tion of these different classes of cases will be taken up in detail under their appropriate headings. § 8. Applicability of General Rules of Equity. The appointment of a receiver, on account of the seri- ous consequences arising from an improvident exercise of this power, is hedged with all of the rules formulated by courts of equity as guides in the exercise of the powers which must necessarily be inherent in a court of equity. The similarity of the appeals to the conscience of the court in cases of receiverships and of injunctions has made applicable many of the well known rules which apply to cases in which injunction is sought. As has been already suggested, the principal purpose of a receiver- ship is to preserve and protect the property which is the subject of the litigation for the benefit of the party who will be ultimately found by the court to be entitled to it,^ and the receiver is merely a ministerial officer of the court holding the property in trust for that purpose.^ Such being the main purpose of the remedy, it naturally follows that, in order to warrant the appointment of a receiver over property or a fund in litigation, there must be a showing of a danger that it may become lost, mate- rially injured, or destroyed before the termination of such 1 Sullivan Timber Co. v. Black, - Northern Brewery Co. v. Prin- 159 Ala. 570, 48 So. 870; Blakeney cess Hotel, 78 Or. 453, 153 Pac. 37. V. Dufaur, 15 Beav. 42. GENERAL GROUNDS OF APPOINTMENT. litigation.^ So, also, if it be shown that the property in litigation is in danger of being removed beyond the juris- diction of the court, it is a sufficient ground for the appointment under the general rules applicable to the subject and also under the statutory provisions prevail- ing in most of the states, which are generally mere codifications of the chancery rules.^ In view of the pur- pose of a receivership to prevent the loss or material 3 Smith V. Lusk, 119 Ala. 394, 24 So. 256; Hastings v. Tousey, 106 N. Y. Supp. 639, 121 App. Div. 815; Chase's Case, 1 Bland (Md.) 206, 17 Am. Dec. 277; Lenox v. No- trebe, Hempst. 225, Fed. Cas. No. 8246b; Wilson v. Hawker Lumber Co., 74 W. Va. 65, 81 S. E. 568; White V. Smole, 22 Beav. 73; White V. James, 26 Beav. 191. Under Comp. Laws 1909, § 5772, thus where the rents and profits of land in litigation are being re- moved, a receiver will be ap- pointed without regard to the probable insolvency of the defen- dant. Hughes V. Garrelts, 35 Okla. 321, 129 Pac. 43. A receiver will not be ap pointed over personal property merely for the asking, but facts must be alleged showing a neces- sity therefor in order to render effectual a final judgment in plain- tiff's favor for the relief de- manded in the complaint in the event of his recovery. Ketcham v. Provost, 132 N. Y. Supp. 120, 147 App. Div. 777. And where an insolvent foreign corporation has property in New York which was being attached by resident creditors, and there was danger that it would be wasted and dissipated in litigation, the supreme court may appoint a re- ceiver of its property in order to secure an equitable distribution of its assets in this state among its resident creditors. Popper v. Supreme Council of Order of Chosen Friends, 70 N. Y. Supp. 637, 61 App. Div. 405. The danger of loss of the prop- erty may arise "from neglect, waste, misconduct or insolvency of the defendant." Mays v. Rose, Freem. Ch. (Miss.) 703. If there is no danger to the prop- erty, and no fact is in evidence to show the necessity or expedi- ency of appointing a receiver, a receiver will not be appointed, un- less there be some equity in the case to support the application. Whitworth v. Whyddon, 2 Macn. & G. 55; Wright v. Vernon, 3 Drew. 121; Micklethwaite v. Mickleth- waite, 1 D. & J. 530. But the mere allegation of dan- ger to the property is not suffi- cient, if the court is satisfied that no loss need be apprehended. Whitworth v. Whyddon, 2 Macn. & G. 55. 4 Rappaport v. Otten, 120 N. Y. Supp. 461, 135 App. Div. 386; Po- merantz v. Mintz Realty Co. (Hartman), 126 N. Y. Supp. 649, 141 App. Div. 864; Bond-Reed Hardware Co. v. Walsh (Tex. Civ.), 181 S. W. 248. 26 LAW OF RECEIVERS. change of the condition of the property from that obtain- ing at the time of the litigation, it has been said by Lord Lindley that the appointment of a receiver in itself oper- ates as an injunction.^ But it is the rule, based upon the idea that a receiver will not be appointed except under very necessitous circumstances, that a receiver mil not be appointed when the plaintiff can be awarded an equal protection by the issuance of an injunction and there is no element of fraud or insolvency involved in the mat- ter.^ Following the principles appertaining to equity jurisprudence, it is a fundamental rule that a receiver will not be appointed if the plaintiff has a full and ade- quate remedy at law in respect to his alleged rights,^ or 5 Tyrell v. Painton [1895], 1 Q. B. 206. An order for an injunction is always in a sense included in an order for a receiver. It is not nec- essary, if a receiver be appointed, to go on and grant an injunction in terms; but in cases where per- sons in a fiduciary character have misconducted themselves, the court will often grant an injunc- tion as well as a receiver, not because an injunction is neces- sary to prevent a party from re- ceiving when a receiver is once appointed, but for the purpose of marking its sense of the conduct of the parties who have miscon- ducted themselves. Evans v. Co- ventry, 3 Drew. 82. In a proper case a receiver may be appointed where the applica- tion of the plaintiff was for an injunction. Parker v. Parker, 82 N. C. 165. And it has been held that the appointment of a receiver, when necessary for the preservation of the property, pending an in- junction suit, is a necessary in- cident to the power of this court to grant an injunction. Gray v. Council of Newark, 9 Del. Ch. 171, 79 Atl. 735, 739. 6 Dabney Oil Co. v. Providence Oil Co. of Arizona, 22 Cal. App. 233, 133 Pac. 1155; Cass v. Realty Securities Co., 129 N. Y. Supp. 400, 144 App. Div. 916. 7 Wright v. Wright, 180 Ala. 343, 60 So. 931; Sylvester's Admr. v. Willson's Admrs., 2 Alaska 325; First Nat. Bank v. Superior Court of Lassen County, 12 Cal. App. 335, 107 Pac. 322; Bush v. Mattox, 110 Ga. 472, 35 S. E. 640; Griffin v. Henderson, 116 Ga. 310, 42 S. E. 482; Winkler v. Winkler, 40 111. 179; Coughron v. Swift, 18 111. 414; Carstarphen Warehouse Co. V. Fried, 124 Ga. 544, 52 S. E. 598; Mannos v. Bishop-Babcock- Becker Co., 181 Ind. 343, 104 N. E. 579; Speights v. Peters, 9 Gill (Md.) 472, 473; Rice v. St. Paul & P. R. Co., 24 Minn. 464; Blades v. Billings Mercantile Co., 154 Mo. App. 350, 134 S. W. 579; Sherman V. Clark, 4 Nev. 138, 97 Am. Dec. 516; Wooden v. Wooden, 3 N. J. GENERAL GROUNDS OF APPOINTMENT. 27 where the court can find another and less stringent means for protecting the rights of the parties.^ But a receiver will not be denied on the ground that the plaintiff has an adequate remedy at law unless it also appears that the legal remedy is as equally efficient and effective as that in equity.^ The fact, however, that his remedy at law may be difficult to enforce will not be sufficient ground to aid him in having a receiver appointed,^" and the fact that he has lost his remedy at law by his own laches will not place him in a position to ask for a receiver." He is not, however, required to exhaust his Eq. 429; Mullen v. Jennings, 9 N. J. Eq. 192; Corey v. Long, 43 How. Pr. (N. Y.) 492, 497; Parmly v. Tenth Ward Bank, 3 Edw. Ch. (N. Y.) 395; Morrison V. Buckner, Hempst. 442; Slover v. Coal Creek etc. Co., 113 Tenn. 421, 106 Am. St. Rep. 851, 68 L. R. A. 852, 82 S. W. 1131; Webster v. Couch, 6 Rand. (Va.) 519; Poage V. Bell, 3 Rand. (Va.) 586; Berg- man Clay Mfg. Co. v. Bergman, 73 Wash. 144, 131 Pac. 485; Sollory V. Leaver, L. R. 9 Eq. 22; Orphan Asylum Soc. v. McCartee, Hopk. Ch. (N. Y.) 429. The appointment of a temporary receiver, before a trial, can not be justified merely because plaintiff shows he is apparently entitled to some recovery, especially where the defendant is engaged in a go- ing business, and apparently sol- vent and able to satisfy any judg- ment obtained against him. Jos- eph V. Herzig, 115 N. Y. Supp. 330, 130 App. Div. 707. The fact that notes secured by a deed of trust have been issued ultra vires, is no ground for a recovery since the invalidity of the notes could be set up collat- erally against any sale. Price v. Bankers Trust Co. (Mo.), 178 S. W. 745. The fact that plaintiff has re- covered a money judgment in a simple action at law does not au- thorize the appointment of a re- ceiver under a code section (Rev. Codes, § 6G98) allowing a receivi^r to be appointed to carry judg- ments into effect, as the creditor can take the necessary steps to enforce the judgment. Forsell v. Pittsburg & Montana Copper Co., 113 Pac. 479, 42 Mont. 412. 8 Blades v. Billings Mercantile Co., 154 Mo. App. 350, 134 S. W. 579. Robbins v. Reed, 174 Ind. 291, 91 N. E. 921; Twin City Power Co. V. Barrett, 126 Fed. 302, 61 C. C. A. 288; Columbia etc. Dredg- ing Co. V. Washed etc. Co., 136 Fed. 710. The rule set forth in the text is merely the well known rule applied in injunction suits. 10 Cremen v. Hawkes, 2 Jo. & Lar. 674. 11 Brewery v, Barnes, 3 Russ. 94. 28 LAW OF RECEIVERS. remedies at law before applying for the appointment of a receiver. ^2 § 9. Necessity for Danger of an Irreparable Injury. The appointment of a receiver being a remedy of such a harsh nature, the power of appointment is exercised by the courts only in cases where the failure to do so would place the petitioning party in danger of suffering an irreparable loss or injury.^ This generally means that, 12 It is not requisite that a rarty applying for a receiver should have exhausted his reme- dies at law. Chicago etc. Ry. Co. V. Kenney, 159 Ind. 72, 62 N. E. 26; Sallee v. Soules, 168 Ind. 624, 81 N. E. 587. 1 Randle v. Carter, 62 Ala. 95; Wright v. Wright, 180 Ala. 343, 60 So. 931; Gray v. Council of Town of Newark, 9 Del. Ch. 171, 79 Atl. 739; Price v. Bankers Trust Co. of St. Louis (Mo.), 178 S. W. 745; Aldrich v. Union Bag and Paper Co., 81 N. J. Eq. 244, 87 Atl. 65; Cleveland etc. Ry. Co. v. Jewett, 37 Ohio St. 649; People's Inv. Co. v. Crawford, (Tex. Civ.) 45 S. W. 738. W^here a defendant in fieri facias has delayed the lawful sale of land the subject of the action for seven years, through claims interposed by himself and wife in forma pau- peris without merit, which some- times were withdrawn and some- times were decided against them, and through the interposition by himself of different affidavits of illegality also without merit, dur- ing which time he has remained in possession and received the rents and profits of the land, and the amount of the executions had in- creased by accruing interest, and the value of the land has dimin- ished by the method employed in cultivating it, and there was dan- ger of the interposition of another affidavit of illegality and an excep- tion to an adverse ruling thereon, on affidavit in forma pauperis, a receiver ad interim was held to be properly appointed. Smith v. Zachry, 128 Ga. 290, 57 S. E. 513. A receiver for a building in course of erection is proper, where it appears that it is likely to be the subject of protracted litigation, and unless completed will deteriorate and go into dilapidation. Chicago Title & Trust Co. v. Chapman, 132 111. App. 55. A receiver pending litigation of a going concern should not be ap- pointed, unless it appears that otherwise the interests of the par- ties or at least some of them will be jeopardized. Cohn v. Wahn, 132 App. Div. 849, 117 N. Y. Supp. 633. A receivership being a violent and costly remedy, interfering with the rights of persons in possession, in order to obtain the appointment of a receiver, a plaintiff must show a clear right to the property in litigation or a lien thereon, or a right to resort to it for the satis- faction of a debt, and if the allega- tions of the bill are fully denied by the answer, and not sustained GENERAL GROUNDS OF APPOINTMENT, 29 in order to sLow cause for tLe appointment of a receiver, the petitioner must show either a clear legal rig-ht in himself to the property in controversy, that he has some lien upon it, or that it constitutes a special fund out of which he is entitled to satisfaction of his demand, and it must appear that possession of the property was obtained by defendant through fraud, or that the prop- erty or income from it is in danger of loss from the neg- lect, waste, or misconduct of defendant, and applicant must have a present, existing interest in the property over which he seeks to have the receiver appointed.^ As was said by the Supreme Court of Georgia,^ in dis- cussing this subject: **The high prerogative act of taking property out of the hands of one, and putting it in pound, under the order of a judge, ought not to be taken, except to prevent manifest wrong, imminently impending. ' ' The object of a receivership being to preserve the property for the party who may be ultimately found to be entitled to it at the termination of the litigation, a danger that the property may be wasted, destroyed, dis- sipated, or suffer deterioration or be removed from the jurisdiction of the court is always such a condition of affairs as will bring the matter to the favorable consid- eration of the court.^ In fact, there is no other single by the evidence, the receivership Van Ness, 155 App. Div. 633, 140 should be denied. Suit v. A. Hoch- n. Y. Supp. 1043. stetter Oil Co., 63 W. Va. 317, 61 o Gilbert v. Block, 51 111. App. S- E. 307. 51g. Golden Valley Land etc. Co. Where a plaintiff, suing to set ^ johnstone. 21 N. D. 101, Ann. aside a transfer of property made ^^^ ^^^^^^ ^^^^ ^^^ ^ ^ g^^. by her deceased husband to de- ^^^^^^^^.^^^^ ^^^^^ Co. v. Decker fendant, who is financially irre- ^^^^^ ^^^ ^^^ ^^^ ^^ ^ ^ ^ 3^2. sponsible, showed an interest in ii i r, a (N g ) 152 the property, and that it was in the possession of the defendant, ^ Crawford v. Ross. 39 Ga. 44. and that there was great danger 4 Myers v. Estell, 48 Miss. 372, of a disposition of it pending the 401; Lyon v. United States etc. action, the court will appoint a Co., 48 Mont. 591, Ann. Cas. 1915D receiver pendente lite. Morse v. 1036, 140 Pac. 86; Allen v. Cooley, 30 LAW OF RECEIVERS. ground upon which the appointment of a receiver is more often resorted to and for which the appointment results more beneficially than that of loss or danger to the par- ties in interest, and especiallj^ to the plaintiff who by his action puts the machinery of the court into motion. Where the fund or property constituting the subject of contention is of such nature as to be most likely subject to waste, deterioration, or serious injury if left in the possession of the defendant ; or where the party in pos- session is guilty of careless management, or wantonness ; or where by reason of improper care and attention from any one the property is liable to be lost or damaged from any cause, the court in the exercise of its undoubted right will, by its receiver, take the property or fund into pos- session, and preserve the same until such time as the rights of the litigants are determined. It frequently hap- pens that property and assets are charged mth the pay- ment of debts and equitably belong to creditors who, by reason of inadequacy of common law remedies, or other- wise, are not afforded complete protection, and are in danger of losing the benefit of the security to which in equity they are entitled. In all such cases a receiver is proper.^ Sometimes the plaintiff may have a lien, or an 53 S. C. 414, 31 S. E. 634; Folk v. No. 14402; Buffalo Chemical Works United States, 233 Fed. 177. v. Bank of Commerce, 79 Hun A receiver may be appointed in (N. Y.) 93; Drought v. Percival, 2 a suit by a judgment creditor, over Molloy 502. stock standing in the name of the A receiver should not be ap- debtor's wife, where there is rea- pointed of a fund in the hands of sonable ground to apprehend that the Sheriff, on which a lien is it will be removed beyond the claimed, unless it appears, as re- jurisdiction of the court, or will be quired by Ky. Civ. Code, sec. 298, lost. State Bank v. Gill, 23 Hun that there is danger of its loss (N. Y.) 410. or removal. Combs v. Breathitt The appointment of a receiver County, 20 Ky. L. Rep. 1247, 49 for a railroad will not be made S. W. 2. merely for a default in payment of 5 Hughes v. Hatchett, 55 Ala. 631; interest. Loss must be shown. Ft. Payne Furnace Co. v. Ft. Payne Union Trust Co. v. St. Louis, I. M. Coal & I. Co., 96 Ala. 472, 38 Am. & S. R. Co., 4 Dill. 114, Fed. Cas. Ct. Rep. 109, 11 So. 439; Corcoran v. GENERAL GROUNDS OF APPOINTMENT. 31 equitable claim to the property, or other interest therein, and in either case the right to a receiver is enforced where loss is imminent. The danger of loss here spoken of may be occasioned by the peculiar nature of the subject-matter of the litiga- tion itself, or by reason of the acts or conduct of the per- son in custody or possession. It may also result from the insolvency or bankruptcy of the defendant in pos- session and his inability to financially respond for any damage or loss of the property or funds. It will not be availing, however, if the threatened danger is remote, or if the danger is past.*' Doll, 35 Cal. 476; West v. Chasten, 12 Fla. 315; Harrup v. Winslet, 37 Ga. 655; Powell v. Quinn, 49 Ga. 523; Orton v. Madden, 75 Ga. 83; Baker v. Backus, 32 111. 79 ; Haight V. Burr, 19 Md. 130; Vosbell v. Hynson, 26 Md. 83; Thomson v. Diffenderfer, 1 Md. Ch. 489; Mays V. Rose, Freem. Ch. (Miss.) 703; Rathbone v. Parkersburg Gas Co., 31 W. Va. 798, 8 S. E. 570; Ken- nedy V. St. Paul & P. R. Co., 2 Dill. 448, Fed. Cas. No. 7706; Parkhurst V. Kinsman, 2 Blatchf. 78, Fed. Cas. No. 10760; Peck v. Trimsaran Coal, Iron & S. Co., L. R. 2 Ch. Div. 115. On a bill filed by a stockholder of a company against a director, to take charge of moneys alleged to have been improperly received and retained by such director, no ap- prehension of loss being alleged in the bill, and the answer alleging that the money was loaned to the director by the board of directors, a receiver will be refused. Hager V. Stevens, 6 N. J. Eq. 374. A fund will not be taken from one entitled to its custody and transferred to a receiver, unless there is imminent danger of loss. Rheinstein v. Bixby, 92 X. C. 307; Clark V. Dew, 1 Russ. & M. 103. Pending the litigation, unless there is some evidence that the property is in danger or there is clear proof of fraud in obtaining possession thereof, a receiver will be refused. Willis v. Corlies, 2 Edw. Ch. 281. 6Kean v. Colt. 5 N. J. Eq. 365; Beecher v. Binniger, 7 Blatchf. 170, Fed. Cas. No. 1222. The court in Mays V. Rose, Freem. Ch. (Miss.) 703, say the danger of loss may arise "from neglect, waste, miscon- duct or insolvency of the defend- ant." Courts do not appoint receivers as a punishment for past derelic- tions or because of past dangers. Thus, for instance, in passing upon the appointment of a receiver for a solvent and prosperous corpora- tion, something more must be shown than past misconduct. Orig- inal Vienna etc. Co. v. Heissler, 50 111. App. 406. But the appointment of a re- ceiver is never made on the mere anticipation of something that may 32 LAW OF RECEIVERS. The court lias no power to appoint a receiver merely because under the circumstances of the case it would be a more convenient mode of obtaining satisfaction of a judgment than the usual modes of execution, although otherwise, if there is a threatened fraudulent conveyance to make way with the judgment debtor's property.'^ § 10. Caution and Discretion to Be Exercised by Courts. The power to appoint a receiver is always regarded as a delicate one and should be exercised with great cau- tion and not in doubtful cases,^ and bearing in mind the rule that the injury caused by making the appoint- ment should not be greater than the injury sought to be averted.^ The court before granting the relief should be convinced that the appointment is needful and proper under the circumstances of the case.^ Whether or not happen. Chadron Bkg. Co. v. Ma- honey, 43 Neb. 214, 61 N. W. 594. A receiver will not be appointed because an officer of a corporation is in a position to betray it, where there is no evidence to establish any probability that he will so act. Young V. Rutan, 69 111. App. 513; Dozier v. Logan, 101 Ga. 173, 28 S. E. 612; Boston Invest. Co. v. Pacific Short-Line Bridge Co., 104 Iowa 311, 73 N. W. 839. T Harris v. Beauchamp [1894], 1 Q. B. 801, 63 L. J. Q. B. 480. 1 Whitley v. Bradley, 13 Cal. App. 720, 110 Pac. 596; Lehman v. Trust Co. of America, 57 Fla. 473, 49 So. 502; Crawford v. Ross, 39 Ga. 44; Furlong v. Edwards, 3 Md. 99, 112; Blades v. Billings Mercan- tile Co., 154 Mo. App. 350, 134 S. W. 579; Virginia - Carolina Chemical Co. v. Hunter, 84 S. C. 214, 66 S. E. 177; Chisolm v. Carolina Agency Co.. 88 S. C. 438, 70 S. E. 1035; Bergman Clay Mfg. Co. v. Berg- man, 73 Wash. 144, 131 Pac. 485; Curtiss V. Dean, 85 Wash. 435, 148 Pac. 581; Suit v. Hochstetter Oil Co., 63 W. Va. 317, 61 S. E. 307; Latham v. Chafee, 7 Fed. 525. "The appointment of a receiver is a harsh proceeding and should be resorted to only in extreme cases." Jenks v. Horton, 96 Mich. 13, 55 N. W. 372. 2 Dabney Oil Co. v. Providence Oil Co., 22 Cal. App. 233, 133 Pac. 1155. 3 "The appointment of a receiver is the exercise of a power in aid of a proceeding in equity, and is the subject of sound discretion. The court must be convinced that it is needful and is the appropriate means of securing a proper end. Such an appointment is a strong measure, and not to be exercised doubtingly." Chicago etc. Mining Co. V. United States Petroleum Co., 57 Pa. St. 83. GENERAL GROUNDS OF APPOINTS KNT. 33 the court will appoint a receiver is regarded as a matter within its sound discretion^ subject, of course, to the general rule that such discretion should not be abused,^ 4 Ex parte Walker, 25 Ala. 81, 104; Micou v. Moses, 72 Ala. 439; Ashurst V. Lehman, 86 Ala. 370, 5 ■So. 731; Albritton v. Lott-Black- sher Commission Co., 167 Ala. 541, 52 So. 653; Sylvester's Adm. v. Wilson's Adm., 2 Alaska 325; La Societe Frangaise D'epargenes v. Fifteenth Judicial Dist. Ct., 53 Cal. 495; Reid v. Reid, 38 Ga. 24; Gore V. Illinois Bldg. etc. Assn., 56 111. App. 642; Benneson v. Bill. 62 111. 408; Mays v. Rose, Freem. Ch. (Miss.) 703; Davis v. United States Electric P. & L. Co., 77 Md. 35, 25 Atl. 982; Lowell v. Doe, 44 Minn. 144, 46 N. W. 297; Myers v. Estell, 48 Miss. 372, 404; Bacon v. Eng- strom, 129 Minn. 229, 152 N. W. 264, 537; Brent v. B. E. Brister Sawmill Co., 103 Miss. 876, Ann. Cas. 1915B, 576, 43 L. R. A. (N. S.) 720, 60 So. 1018; Hartnett v. St. Louis Min. etc. Co., 51 Mont. 395, 153 Pac. 437; Syracuse City Bank v. Tallman, 31 Barb. 201; Rider v. Bagley, 84 N. Y. 461; Denike v. New York & R. Lime & C. Co., 80 N. Y. 599; Verplank v. Caines, 1 Johns. Ch. 57; Jacobs v. Gibson, 9 Neb. 380, 2 N. W. 893; Oakley v. Paterson Bank, 2 N. J. Eq. 173; Hamburgh Mfg. Co. v. Edsall, 8 N. J. Eq. 141; Nichols v. Perry Pat- ent Arms Co., 11 N. J. Eq. 126; Hanna v. Hanna, 89 N. C. 68; Chi- cago & A. Oil & Min. Co. v. Unite'^ States Petroleum Co., 57 Pa. 83; Beaumont v. Beaumont, 166 Pa. 615, 31 Atl. 336; Simmons Hard- ware Co. V. Waibel, 1 S. D. 488, 36 Am. St. Rep. 755, 11 L. R. A. 2G7 47 N. W. 814; Pelzer v. Hughes, I Rec. — 3 27 S. C. 408, 3 S. E. 781; Cone V. Paute, 12 Heisk. 506; Mor- rison v. Buckner, Hempst. 442; I>enox V. Notrebe, Hempst. 225; Toomey v. First Mortgage Trust Co., (Tex. Civ.) 177 S. W. 539; Williamson v. Washington City, V. M. & G. S. R. Co., 33 Gratt. 624; Norris v. Lake, 89 Va. 513, 16 S. E. 663; Lyle v. Commer- cial Nat. Bank, 93 Va. 487, 25 S. E. 547; Grantham v. Lucas, 15 W. Va. 425; Sales v. Lusk, 60 Wis. 490, 19 N. W. 362; Lamp v. Home- stead Bldg. Ass'n, 62 W. Va. 56, 57 S. E. 249; Vose v. Reed, 1 Woods 647, Fed. Cas. No. 17011; Milwau- kee & M. R. Co. v. Soutter, 94 U. S, (2 Wall.) 510; Whelpley v. Erie R. Co., 6 Blatchf. 271, Fed. Cas. No. 17504; Williamson v. New Al- bany etc. R. Co., 1 Biss. 198, Fed. Cas. No. 17753; Pullan v. Cincin- nati & C. A. L. R. Co., 4 Biss. 35, Fed. Cas. No. 11461; Tysen v. Wa- bash R. Co., 8 Biss. 247, Fed. Cas. No. 14315; Union Trust Co. v. St. Louis, I. M. & S. R. Co., 4 Dill. 114, Fed. Cas. No. 14402; Owen v. Ho- man, 3 Macn. & G. 378, 20 L. J. N. S. Ch. 314, 15 Jur. 339, affirmed in 4 H. L. Rep. 997; Greville v. Flem- ing, 2 Jones & L. 335 (Sugden's Dec); Skip v. Harwood, 3 Atk. 564; Smith v. Port Dover & L. H. R. Co., 12 Ont. App. 288, 25 Am. & Eng. R. Cas. 639; Farmers' Loan & T. Co. v. Chicago & A. R. Co., 27 Fed. 146; Pennsylvania Co. v. Jacksonville, T. & K. W. R. Co.. 55 Fed. 131 [2 U. S. App. 606]. r. Ex parte Smith, 23 Ala. 94; Wilcoxon Mfg. Co. v. Atkinson, 73 34 LAW OF RECEIVERS. or that the court has not exceeded its jurisdiction in tlio matter.*' The discretion to be exercised by the court must not be arbitrary or absolute; it is a sound and judicial discretion, taking into account all the circumstances of the case, exercised for the purpose of promoting the ends of justice and of protecting the rights of all the parties interested in the controversy and subject-matter, and based upon the fact that there is no other adequate rem- edy or means of accomplishing the desired objects of the judicial proceeding.'^ In other words, the exercise of judicial discretion in the appointment of a receiver is governed by the same general rules applicable to the use of judicial discretion in any other class of cases coming within the domain of equitable jurisdiction. Such discretion is not the mere will or caprice of the chancellor who is called upon to act, but is broader and more comprehensive. It means, in this connection, the judicial action of the chancellor, based upon a careful consideration of the facts and cir- cumstances of the particular case, the rights and interests of the respective parties, and the general principles of equity jurisprudence applicable thereto. Some courts have gone to the extent of holding that the appointment of a receiver rested so largely in the determination of the appointing court that the action was not a matter of re\dew in the upper courts except where there appeared to be an abuse of the discretion. Judicial discretion, in the restricted sense in which it is sometimes used, in its logical results, places the court in a position of respon- Ga. 338; Sanders v. Slaughter, 89 ter Oil Co., 63 W. Va. 317, 61 S. E. Ga. 34, 14 S. E. 873. 307. Though the power of circuit 6 Stone v. Wetmore, 42 Ga. 601: court?Hto appoint receivers is dis- _ _, n t, ■ -„„ t-. i, .1 . . . Tappan v. Gray, 9 Paige o07; Falk V. United States, 233 Fed. 177. cretionary, such discretion is gov- erned as to the exercise thereof by legal and equitable principles, vio- ^ Fort Payne Furnace Co. v. Fort lation of which amounts to an Payne Coal etc. Co., 96 Ala. 472, 38 abuse thereof. Suit v. A. Hochstet- Am. St. Rep. 109, 11 So. 439. GENERAL GROUNDS OF APrOINTMENT. 35 sibility which, in most cases, it will not willingly assume, and in some cases it should not be permitted to assume.^ 8 The discretion is to be governed by a view of the whole circum- stances of the case. Williamson v. Wilson, 1 Bland Ch. 418; Ham- burgh Mfg. Co. v. Edsall, 8 N. J. Eq. 141; Vose v. Reed, 1 Woods 647, Fed. Cas. No. 17011; Perry v. Oriental Hotels Co., L. R. 5 Ch. App. 420; Cookes v. Cookes, 2 DeG. J. & S. 526; Owen v. Homan, 3 Macn. & G. 378, 412 (4 H. L. Cas. 1033). Judicial discretion has been de- fined to be a discretion to be exercised in discerning the course prescribed by the law; never the arbitrary will of the judge. Tripp V. Cook, 26 Wend. 152; Piatt v. Munroe, 34 Barb. 293. According to Coke, "discernere per legem, quid sit justum"; perceiving by or through (or according to) the law what would be just. Anderson's Dictionary, p. 363. Judicial discre- tion as contradistinguished from the private discretion of the judge is wholly different. Of the latter Lord Camden says: "The (private) discretion of a judge is the law of tyrants; it is always unknown; it is different in different men; it is casual, and depends upon constitu- tion, temper and passion. In the best it is oftentimes caprice;- in the worse it is every vice, folly, and passion to which human na- ture can be liable." While the appointment of a re- ceiver rests iu the discretion of the court, yet it is such discretion as will be subject to review by a higher court. La Societe Frangaise D'epargenes v. Fifteenth Judicial Dist. Ct, 53 Cal. 495; Emmons v. Garnett, 7 Mackey 52; Wilson v. Davis, 1 Mont. 98; Grantham v. Lucas, 15 W. Va. 425; Milwaukee & M. R. Co. V. Soutter, 69 U. S. (2 Wall.) 510, 17 L. Ed. 900. In Simpson v. Ottawa & P. R. Co., 1 Ont. Ch. Chamb. 126, the court say: "I agree that where the court can not interpose use- fully it should not interfere at all, and that it should interfere only so far as it can interfere usefully." In Orphan Asylum Soc. v. Mc- Cartee, Hopk. Ch. 435, the court say: "It is said that the appointing of a receiver rests in discretion. This proposition does not teach much. A receiver is proper if the fund is in danger, and this prin- ciple reconciles the cases found in the books. There is no case in which the court appoints a receiver merely because the measure can do no harm. ... As this case now stands before the court the fund appears to be entirely safe in the hands of the trustee." Although such an appointment is to a large extent within the dis- cretion of the chancellor, still there are rules that should be observed in exercising such discretion, which are that the power of ap- pointment is to be exercised with great circumspection, that com- plainant must have title to or a lien upon the property and a re- ceiver must be necessary to its preservation, that a receiver will not be appointed merely because his appointment can do no harm, that fraud or imminent danger must be clearly shown, and that, unless the necessity is of the most 36 LAW OF RECEIVERS. A very safe and sound rule for the appointment of receivers was set forth in an early case'' in Michigan, wherein the court said: ''The appointment of receivers is, like many other judicial functions, governed in part by discretion and in part by rules of right. No court could have unlimited discretion to put private estates into the hands of receivers. There are manv cases of stringent character, a receiver will not be appointed until defendant is heard. Lehman v. Trust Co. ot America, 57 Fla. 473, 49 So. 502. In exercising its discretion the court proceeds with caution, and is governed by a view of all the cir- cumstances of the case. No posi- tive or unvarying rule can be laid down as to whether it will or will not interfere by this kind of in- terim protection of the property. Where the property is as it were in medio, in the enjoyment of no one, the court can hardly do wrong in taking possession. It is the com- mon interest of all parties that the court should prevent a scramble. Such is the case where the receiver of property of a deceased person is appointed pending a litigation as to the right to probate or adminis- tration. No one is in the actual enjoyment of property so circum- stanced, and no wrong can be done to any one by taking and preserv- ing it for the benefit of a success- ful litigant. But where the object of the plaintiff is to assert a right to property of which the defendant is in enjoyment, the case is neces- sarily involved in further ques- tions. The court by taking posses- sion at the instance of the plaintiff may be doing wrong to the defend- ant; in some cases an irreparable wrong. If the plaintiff should eventually fail in establishing his right against the defendant, the court may by its interim interfer- ence have caused mischief to the defendant for which the subse- quent restoration of the property may afford no adequate compensa- tion. In all cases, therefore, where the court interferes by appointing a receiver of property in the pos- session of the defendant, before the title of the plaintiff has been judicially established, it exercises a discretion to be governed by all the circumstances of the case. Where the evidence on which the court is to act is very clear in favor of the plaintiff, there the risk of eventual injury to the de- fendant Is very small, and the court does not hesitate to inter- fere. Where there is more of doubt, there is more of difficulty. The question is one of degree, as to which, therefore, it is impossible to lay down any precise or un- varying rule. Owen v. Homan, 4 L.. L. Cas. 1032, per Lord Cran- worth. 9 Barry v. Briggs, 22 Mich. 201. While the duty of a court of equity to appoint a receiver pen- dente lite to prevent injury to the thing in controversy is a delicate and responsible duty, it should be used unhesitatingly in the proper case. Ellis v. Penn Beef Co., 9 Del. Ch. 213, 80 Atl. 666. GENERAL GROUNDS OF APPOINTMENT. 37 recognized equity jurisprudence where receivers may be appointed at a preliminary stage of the cause on bill and affidavits. But there are also many cases where the appointment of a receiver would be entirely beyond the legitimate power of the court. It would be a very strange thing if, because some such orders of appointment are entirely within the discretion of the court and not appeal- able, the same immunity could be extended to palpable usurpation of power or excess of power. It is one of the fundamental principles of jurisprudence that rights can not be divested without legal authority, and when a right is divested by the order of a court of chancery an appeal lies to determine whether it is legal or unauthorized. ' ' The following principles laid down in an early case in Mississippi have generally been regarded as a concise statement of the general principles to be followed by the courts in the appointment of receivers, namely, that the applicant must show that he has a clear right to the property itself, or that he has some lien upon it, or that the property constitutes a special fund to wliich he has a right to resort for the satisfaction of his claim, but that in addition to these conditions he must show that the possession of the property was obtained by the defendant through fraud or that the property itself, or its income, is in danger of loss or great depreciation.^" § 11. Character of Title to Be Shown by Plaintiff. In order to authorize the appointment of a receiver it is essential that the applicant show either a clear legal right in himself to the property in controversy or that he has some lien upon or property right in it, or that it constitutes a special fund out of which he is entitled to satisfy his demand. He must also show that he lias a present existing interest in the property ;^ and where the 10 Mays v. Rose, Freem. Ch. 720, 110 Pac. 596; State v. Union (Miss.) 703. Nat. Rank, 145 Tnd. 537. 57 Am. St. 1 Whitley V. Bradley, 13 Cal. App. Rep. 209, 44 N. E. 585; Steele v. 38 LAW OP RECEIVERS. question of title is involved in the issue the plaintiff must show in himself a strong presumptive title- or a Aspy, 128 Ind. 367, 27 N. E. 739; Smith V. Wells, 20 How. Pr. (N.Y.) 158. Independently of the Judicature Act, 1873, when a plaintiff has a right to be paid out of a particular fund, the court will appoint a re- ceiver to protect that fund from being dissipated, so as to defeat his rights. Cummins v. Perkins (1899). 1 Ch. 16. Relief by appointment of re- ceiver and granting of an injunc- tion before trial should not be given where petitioner has no lien on, interest in, or claim to the property of the adverse party. Gar- trell V. McCravey, 144 Ga. 249, 86 S. E. 932. See also Atlanta etc. Ry. Co. V. Carolina etc. Cement Co., 140 Ga. 650, 79 S. E. 555. The appointment of a receiver does not affect the title or involve a determination of it, but it can only be made on the application of one having an acknowledged in- terest. But a claim of the whole title is unnecessary to authorize a party to make application for the appointment of a receiver; hence, a widow claiming dower in the premises may make the applica- tion. Chase's Case, 1 Bland (Md.) 206, 17 Am. Dec. 277. Hence a receiver will not be ap- pointed over a mere allowance to the defendant which amounts to a mere gratuity in which he has no property right. Timothy v. Day (1908), 2 L. R. Ir. 26. A bill is insufficient for an in- junction and the appointment of a receiver, if it alleges only that the defendant is indebted to the com- plainants, and that he is disposing of his property, collecting money due him, and secreting the same, with intent to defraud the com- plainants, and that they are in- formed and believe that he intends to abscond and defraud his cred- itors; it does not show that the complainants have any lien as judgment creditors or otherwise upon the defendant's property. Uhl V. Dillon, 10 Md. 500, 69 Am. Dec. 172. 2 Ashurst V. Lehman, 86 Ala. 370, 5 So. 731; Steele v. Aspy, 128 Ind. 367, 27 N. E. 739; Mapes v. Scott, 4 111. App. 268; Cofer v. Echerson, 6 Iowa 502; Elwood v. First Nat. Bank of Greenleaf, 41 Kan. 475, 21 Pac. 673; Cole v. O'Neill, 3 Md. Ch. 174; Clark v. Ridgely, 1 Md. Ch. 70; Vause v. Woods, 46 Miss. 120; Chase's Case, 1 Bland (Md.) 206, 17 Am. Dec. 277; Smith v. Wells, 20 How. Pr. (N. Y.) 158; Willis v. Corlies, 2 Edw. Ch. (N. Y.) 281, 287; Gregory V. Gregory, 1 Jones & S. (N. Y.) 1; Durant v. Crowell, 97 N. C. 367, 2 S. E. 541; Levenson v. Elson, 88 N. C. 182; Horton v. White, 84 N. C. 297; McNair v. Pope, 96 N. C. 502, 2 S. E. 54; Bryan v. Moring, 94 N. C. 694; Twitty v. Logan, 80 N. C. 69; Sobernheimer v. Wheeler, 45 N. J. Eq. 614, 18 Atl. 234; Emer- son's Appeal, 95 Pa. 258; Schlecht's Appeal, 60 Pa. 172; Chicago & A. Oil & Min. Co. v. United States Petroleum Co., 57 Pa. 83; De Walt V. Kinard, 19 S. C. 286; Norris v. Lake, 89 Va. 513, 16 S. E. 663; Beecher v. Bininger, 7 Blatchf. 170, Fed. Cas. No. 1222; Lloyd v. Pass- gener^Uj grounds of appointment. 39 strong presumption against the defendant's title.^ But in such cases there should be also a showing of a danger of loss or injury or insolvency. And where it appears that the title to the property is in dispute and this is an issue in the case, and the rights of all parties therein are threatened, or where the property is in medio, a receiver should be appointed."* But where the case involves simply a dry legal title, a court of equity vdW refuse to interfere and leaves the plaintiff to his remedy at law,^^ and this, too, though tlie property may be vacant.^ ingham, 16 Ves. Jr. 59; Bambrigge V. Boddeley, 3 Macn. & G. 413; Owen V. Homan, 3 Macn. & G. 378, 4 H. L. R. Cas. 997; Lancashire v. Lancashire, 9 Beav. 120; Talbot v. Hope Scott, 4 Kay & J. 96; Parian V. Seddons, L. R. 16 Eq. 34. A receiver pendente lite will not be appointed in an action to re- cover possession of real property, where plaintiff's title is put in issue, in the absence of some spe- cial circumstances rendering such an appointment necessary to pre- serve plaintiff's rights. Sengfelder V. Hill, 16 Wash. 355, 58 Am. St. Rep. 36, 47 Pac. 757. 3 Mapes V. Scott, 4 111. App. 268; Stilwell V. Williams, 6 Madd. 49; Hugnonin v. Bosely, 13 Ves. Jr. 105. 4 Graham v. Fuller Electrical Co., 75 Ga. 878; Hamberlain v. Marble, 24 Miss. 586; Mills v. Pittman, 1 Paige Ch. (N. Y.) 490; Rollins v. Henry, 77 N. C. 467; United States V. Church of Jesus Christ of L.D.S., 5 Utah 361, 15 Pac. 473; Hlawacek V. Bohman, 51 Wis. 92, 8 N. W. 102; Owen v. Homan, 4 H. L. Cas. 997, 17 Jur. 861. Where a dispute exists between members of an unincorporated library association and an incor- porated library association organ- ized by some of the officers and members of the former association, who claim to be its successor, as to which party was entitled to the property of the original associa- tion, an order appointing a receiver without expense pending the deter- mination of the dispute will not be disturbed, where the property and the affairs of the associations were not such that a loss could occur as a consequence of such appoint- ment. Ladies' Library Ass'n of Greenville, Unincorporated, v. La- dies' Library Ass'n of Greenville, Incorporated, 155 Mich. 663, 119 N. W. 1098. 5 Mapes V. Scott, 4 111. App. 268; Lenox v. Notrebe, Hempst. 225, Fed. Cas. No. 8246b. A receiver will be appointed to take possession of property pen- dente lite only where the circum- stances require summary relief or where there is imminent danger of loss without an adequate remedy at law, but not ordinarily where title is merely in dispute. Bacon 40 LAW OF RECEIVERS. The rule lias sometimes been stated as follows : Where the issue is simply a question of title between the plain- tiff and defendant and in the absence of fraud, serious injury, or imminent danger of loss, the court will refuse to interfere until the plaintiff has first established in a common law proceeding his legal rights In other cases the general rule has been stated that to entitle the plain^ tiff to relief he must show a reasonable probability of V. Engstrom, 129 Minn. 229, 152 N. W. 264, 537. The appointment of a receiver for the purpose of preserving the future rents of real property, to abide the result of an action con- cerning the same, is not author- ized where the action proceeds on the assumed ownership by plaintiff of the land and the profits thereof and involves merely legal, as dis- tinguished from equitable, rights. San Jose Safe-Deposit Bank v. Bank of Madera, 121 Cal. 543, 54 Pac. 85. 6 Carrow v. Ferrior, 37 L. J. Ch. 569, L. R. 3 Ch. 719; Talbot v. Hope Scott, 4 Kay & J. 96, 4 Jur. N. S. 1172, 27 L. J. Ch. 273; Lan- cashire v. Lancashire, 9 Beav. 120, 15 L. J. Ch. N. S. 54; Mordaunt v. Hooper, Ambl. 311; Dobbin v. Adams, 8 Ir. Eq. 157; Clark v. Dew, 1 Russ. & M. 103; Knight v. Dii- plessis, 2 Ves. Sr. 360; Toldervy v. Colt, 1 Young & C. 621, 5 L. J. Exch. Eq. 25. 7 West V. Chasten, 12 Fla. 315; Harrup v. Winslet, 37 Ga. 655; Cal- lanan v. Shaw, 19 Iowa 183; Vause V. Woods, 46 Miss. 120; Pignolet v. Bushe, 28 How. Pr. (N. Y.) 9; Kipp V. Hanna, 2 Bland (Md.) 26; Davis V. Reaves, 2 Lea. (70 Tenn.) 649; Lloyd V. Passingham, 16 Ves. Jr. 59; and see specially Talbot v. Hope Scott, 4 Kay & J. 90; Earl of Fingal v. Blake, 2 Moll. 50; Smith V. Smith, 2 Younge & C. 351, 10 Hare Appx. Ixxi; Silver v. Bishop of Norwich, 3 Swanst. 112n. Where the plaintiff had repu- diated the authority of defendants to act for it in making certain contracts and denied liability there- under, and made no claim to own the property acquired by defend- ants under the contracts, it is not entitled to a receiver to hold the property pending a determination of its litigation with other parties to the contracts. Red River Potato Growers' Ass'n v. Bemardy, 126 Minn. 440, 148 N. W. 449. The court will not appoint a re- ceiver at the instance of a person whose right is disputed, where the effect of the order would be to establish the right, even if the court be satisfied that the person against whom the demand is made is fencing off the claim. Greville V. Fleming, 2 J. & L. 335. In an action to recover the pos- session of real property to which the title is disputed and of which both parties claim to be owners in fee, a receiver will not be ap- pointed to take possession of the property from the defendant or to receive the rents and profits thereof. Sengfelder v. Hill, 16 Wash. 355, 58 Am. St. Rep. 36," 47 Pac. 757. GENERAL. GROUNDS OP APPOINTMENT. 41 recovery, based on a strong title in himself, and this must be coupled with imminent danger of loss^ and suit be brought within a reasonable time.^ But the court will not allow a receivership suit to be used as a substitute for that of ejectment. The rule in this respect was very clearly and succinctly set forth by Judge Sanborn, sitting as a Judge of the Circuit Court of Appeals, in a recent case,^" in which he said: "The possession and use of real estate by those actually in possession have always been jealously protected by English and American courts. Strangers without title may not eject those in possession, although the latter have no title. The possessors have the right to a trial of the issue between legal titles by a jury and to con- tinue in possession until the plaintiff by the strength of his own title, not through the weakness of his adver- saries', establishes his right thereto. This suit is a con- fession that the plaintiffs can not recover possession of this land on the strength of their title. If they could they would have an adequate remedy at law and their suit must fail. When a plaintiff brings ejectment on a para- mount legal title and the defendant in possession sues in equity on the ground that he has the superior equity, the established rule and general practice are to stay the 8 Mayo V. McPhaul, 71 Ga. 758; In a suit involving a contest be- Cofer V. Echerson, 6 Iowa 502; tween conflicting titles, a receiver Gregory v. Gregory, 1 Jones & S. can not be appointed to take pos- (N. Y.) 1; Chicago & A. Oil & Min. session from the defendant, when Co. V. United States Petroleum the right is doubtful, and no dan- Co., 57 Pa. 83; and see a clear ger as to the security of the plain- statement of the doctrine of the tiff is alleged, and no special text by Lord Erskine in Hugnonin circumstances are shown. Freer v. V. Basely, 13 Ves. Jr. 105; and see Davis, 52 W. Va. 35, 94 Am. St. Lord Truro In Bainbrigge v. Bad- Rep. 910, 43 S. E. 172. deley, 3 Macn. & G. 414; Owen v. 9 Skinner's Co. v. Irish Soc, 1 Homan, 3 Macn. & G. 378; Fingal Myl. & C. 162; Commissioners etc. V. Blake, 2 Moll. 78; Lloyd v. Trim- v. Lockhart, Ir. R. 3 Eq. 515. leston, 2 Moll. 78; Mordaunt v. m Folk v. United States, 233 Fed. Hooper, Ambl. 311. 177. 42 LAW OF RECEI\'ERS. action at law and hold the defendant in possession until the validity of the defendant's claim in equity is adjudged. And when, as in this case, a plaintiff out of possession brings a suit in equity to avoid the legal title of a defendant in possession which is admittedly supe- rior, it is likemse the general rule and the established practice in equity to refuse to appoint a receiver to deprive the defendant of the possession or of the product of the property until after a full trial of the equitable claim and the legal titles on their merits. *' A court of equity is not without jurisdiction to appoint a receiver of real estate and of its proceeds in the pos- session of a defendant holding under a title regular on its face. But the cases in Avhich it may exercise that power before a trial of the issues on the merits without a departure from the established principles and prac- tice of equity jurisprudence are exceptions to the general rule, and clear proof of the following necessary facts is indispensable to bring such a case within the exceptions : ''First — The fact that there is imminent danger that unless a receiver is appointed the property or its pro- ceeds will be deteriorated in value or wasted during the pendency of the suit. Second — The fact that the plaintiff will suffer irreparable loss from such deterioration or waste. But if the defendant is solvent and abundantly able to respond to any such loss, or if he will give a good bond so to respond, the loss can rarely be irrep- arable, and the general rule is that a receiver should not be appointed. Third — The fact that on the pleadings and preliminary proofs there is a strong probability that the plaintiff will ultimately prevail on the merits. "But courts of equity are extremely averse to any interference with the possession of a defendant claiming real estate under a legal title. They proceed in such a case with extreme caution anrl rarely interfere. If it seems doubtful whether or not the plaintiff will recover at the GENERAL GROUNDS OF APPOINTMENT. 43 final hearing, or whether or not there is imminent danger that the phiintiff will suffer irreparable loss, the appli- cation for a receiver will be denied and in the hearing and decision of such a case all the presumptions are in favor of the defendant in possession under a legal title. A court of equity is sedulous to prevent the successful invocation of its interlocutory injunction, or its appoint- ment of a receiver to perform the function of a success- ful action of ejectment and at the same time to avoid the trial of titles indispensable to such an action. "^^ §12. Receivership Where Recovery Is Doubtful. In order to authorize the appointment of a receiver it is an indispensable rule that the party petitioning for such an appointment must show to the court that there is a reasonable probability that he mil ultimately pre- vail in the litigation,^ and a danger of the property in ^ 11 The court cited the following authorities: Kelley v. Boettcher (C. C), 89 Fed. 125, 129, 19 Morr. Min. Rep. 515; Lancaster v. Ashe- ville St. Ry. Co. (C C), 90 Fed. 129, 133; Sage v. Railroad Co., 125 U. S. 376, 377. 8 Sup. Ct. 887. 31 L. Ed. 694; United States v. Ameri- can Tobacco Co., 221 U. S. 106, 186. 187, 31 Sup. Ct. 632, 55 L. Ed. 663; Bosworth V. Terminal R. R. Ass'n, 174 U. S. 182, 186, 187, 19 Sup. Ct. 625, 43 L. Ed. 941; Ryder v. Bate- man (C. C), 93 Fed. 16, 28, 29, 31; Trust & Deposit Co. v. Spartan- burg Waterworks Co. (C. C), 91 Fed. 324, 325. 326; Worth Mfg. Co. V. Bingham, 116 Fed. 785, 790, 792, 54 C. C. A. 119, 124, 126; Carson v. Allegany Window Glass Co. (C. C), 189 Fed. 791, 795, 796, 797, 798, 800; Higginson v. Chicago, B. & Q. R. R. Co., 102 Fed. 197, 199. 42 C. C. A. 254: Moore v.^'Bank of British Co- lumbia (C. C), 106 Fed. 574, 579, affirmed 125 Fed. 849, 60 C. C. A. 431; High on Receivers (4th ed.) §§ 553, 557, 558. 1 Whitley v. Bradley, 13 Cal. App. 720, 110 Pac. 596; Steele v. Aspy, 128 Ind. 367, 27 N. E. 739; Mead v. Burk, 156 Ind. 577, 60 N.E. 338; Paine v. Mueller, 150 Iowa 340, 130 N. W. 133; Blondheim v. Moore, 11 Md. 365; Mays v. Rose, Freem. Ch. (Miss.) 718; McCarter V. Clavin, 72 N. J. Eq. 642, 66 Atl. 599; Flagler v. Blunt, 32 N. J. Eq. 518; Smith v. Wells, 20 How. Pr. (N. Y.) 158; Goodyear v. Betts, 7 How. Pr. (N. Y.) 187; Leavitt v. Yates, 4 Edw. Ch. (N. Y.) 162; Rheinstein v. Bixbey, 92 N. C. 309; Levenson v. Elson, 88 N. C. 184; Beecher v. Bininger, 7 Blatchf. 170, Fed. Cas. No. 1222: Folk v. United States, 233 Fed. 177; Bainbrigge v. Baddeley, 3 Macn. & G. 413; Owen V. Homan, 3 Macn. & G. 378, 412 (affirmed in 4 H. L. Cas. 997). 44 LAW OF RECEIVERS. controversy being lost or endangered pending the litiga- tion. This is substantially the rule which also obtains in If the ultimate success of the plaintiff in the litigation is a mat- ter of grave doubt, no receiver should be appointed. Hurt v. Hurt, 157 Ala. 126, 47 So. 260. To entitle a plaintiff to the ap- pointment of a receiver, an abso- lute right to recover in the action need not be shown; it is sufficient if the right to a judgment is prob- able. Paine v. Mueller, 150 Iowa 340, 130 N. W. 133. Where, in a petition for the ap- pointment of a receiver, the relief prayed for is that complainant's claim be decreed a prior lien on all the insolvent's assets, and such re- lief can not be granted, a receiver should not be granted. Bank of Florence v. United States Sav. & L. Co., 104 Ala. 297, 16 So. 110. The general rule of equity is also set forth in the statutory provis- ions relative to the matter. Thus under Rev. Stats., art. 1465, which provides that a receiver may be appointed in certain cases on the application of any party whose right to or interest in the property is probable, it is held that, in order to authorize the appointment of a receiver in an action for the recov- ery of an interest in real estate before final hearing, the one seek- ing such relief must show that he will probably succeed in estab- lishing his right. Hardy Oil Co. V. Burnham (Tex. Civ. App.), 124 S. W. 221. Where a farming contract con- tained no provisions for rescission, forfeiture, or re-entry for a breach of it, the court will not appoint a receiver to farm the land in a suit by the landowner charging the ten- ant with bad husbandry and with breaches of different covenants and the tenant denied the allega- tions and the plaintiff had delayed for months after an attempted re- scission and had allowed the ten- ant to put in and partially harvest crops, and the inconveniences aris- ing from the receivership would also be very great. Conover v. Tansey, 73 N. J. Eq. 562, 67 Atl. 1013. Where the owner of timber land made a contract with the owners of a sawmill to remove their mill and set it up on such land, and saw the timber thereon, at certain prices, but the timber owner to have the right, on notice and pay- ment of a bonus, to terminate the contract, and the mill was affixed to the soil in the ordinary way for such mills, the mill owners, in the absence of provisions to the con- trary in the contract, were entitled on termination of the contract to remove the mill, since it was not a part of the land and hence the grantee of the land owner had no such interest or probable interest in the mill as to entitle him to a receiver for the mill under Rev. Stats. 1895, art. 1465, on breach of the contract by the mill owners. J. A. Wotring & Son v. Indemnity Imp. Co., 47 Tex. Civ. App. 300, 100 S. W. 358. In an action by a father, after commencement of proceedings, by his children, without his knowl- edge, under the statute, to have a guardian appointed for him, where the children had no interest GENERAL GROUNDS OF APPOINTMENT. 45 cases where injunctive relief is sought.- In other words, if the evidence is conflicting or the legal questions involved are doubtful in respect to the ultimate deter- mination, the application should be refused as in a fore- closure proceeding where the right to foreclose is doubt- ful or in a proceeding involving the legal construction of deeds. It is, of course, likewise essential that it is probable that the property over which a receiver is sought will be lost or will sustain injury during the pen- dency of the suit if left in the possession of the defendant, or, if^it be a business, that it will be mismanaged by defendant if left under his control.^ ~ The court must be satisfied that a receiver is necessary to preserve the property and thereby adequately protect the riglits of in the property, the appointment of a receiver of the property of the father and the granting of an in- junction against interference with the property in the receiver's hands is improper. Gartrell v. Mc- Cravey, 144 Ga. 249, 86 S. E. 932. Parties who have acquiesced in the enjoyment of the property against their rights can not have a receiver appointed. Gray v. Chap- lin, 2 Russ. 147; Sltinner's Co. v. Irish Society, 1 My. & Cr. 162. 2 Weis V. Goetter, 72 Ala. 259 (see statute) ; Ashurst v. Lehman, 86 Ala. 370, 5 So. 731; Lovett v. Slocumb, 109 N. C. 110, 13 S. E. 893; Pelzer v. Hughes, 27 S. C. 408, 3 S. E. 781; Norris v. Lake, 89 Va. 513, 16 S. E. 663; Davenport v. Davenport, 7 Hare 217; Outcalt v. Disborough, 3 N. J. Eq. 214; Hill V. Thompson, 3 Meriv. 622; Pills- worth V. Hopton, 6 Ves. Jr. 51; Smith V. Collyer, 8 Ves. Jr. 89; Norway v. Rowe, 19 Ves. Jr. 144. "The authority of the court to preserve the property the subject of litigation pending the action until final judgment and then apply it, as justice may require, is too manifest to admit of question, and such authority should be exercised when it appears that there is rea- sonable ground to believe that the plaintiff may recover, and the in- terference of the court is neces- sary to protect the property in question pending the controversy." Craycroff v. Morehead, 67 N. C. 422; Morris v. Willard, 84 N. C. 293; Levenson v. Elson, 88 N. C. 182. If the defendant demands affirmative relief he must show an apparently good title, either not controverted or not unequivocally denied. Lovett v. Slocumb, 109 N. C. 110, 13 S. E. 893; McNair v. Pope, 96 N. C. 502, 2 S. E. 54; Bryan v. Moring, 94 N. C. 694; Oldham v. First Nat. Bank, 84 N. C. 304; Wilkinson v. Dobbie, 12 Blatchf. 298, Fed. Cas. No. 17670. 3 Ogden City v. Bear Lake & River Waterworks & Irrig. Co., 16 Utah 440, 41 L. R. A. 305, 52 Pac. 697; Vose v. Reed, 1 Woods 647, Fed. Cas. No. 17011. 46 LAW OF RECEIVERS. the litigants.'' There must be a legal or equitable right in property reasonably clear and free from doubt and attended with danger of loss. The preservation of the 4 Whitley v. Bradley, 13 Cal. App. 720, 110 Pac. 596; Chase's Case, 1 Bland (Md.) 206, 213, 17 Am. Dec. 277; Walker v. House, 4 Md. Ch. 39; Bloodgood v. Clark, 4 Paige (N. Y.) 574; Orphan Asylum Soc. V. McCartee, Hopk. Ch. (N. Y.) 429. The chancellor in Clark v. Ridgely, 1 Md. Ch. 70, said: "In- deed, it is believed the authority and duty of the court to appoint, or not appoint, a receiver de- pends upon the question w^hether the property is or is not in danger in the hands of the party who may at the time be in possession. . . . There is no case in which the court appoints a receiver merely because the measure can do no harm." The Chief Justice in Blond- heim v. Moore, 11 Md. 365, laid down as a rule that should govern the court in the appointment of a receiver the following: "That fraud or imminent danger if the interme- diate possession should not be taken by the court must be clearly proved." "There should, however, be a concurrence upon two grounds — a reasonable probability of success on the part of complainant, and that the subject-matter in contro- versy is in danger." Ashurst v. Lehman, 86 Ala. 370, 5 So. 731; Norris v. Lake, 89 Va. 513, 16 S. E. 663; Skinner v. Maxwell, 66 N. C. 45; Flagler v. Blunt, 32 N. J. Eq. 518. Waste on the part of the party in possession is sufficient to justify the ajipointment. Vose v. Reed, 1 Woods 647, Fed. Cas. No. 17011. A receiver of book accounts as- signed by a debtor to one of his creditors will not be appointed pending a suit by another creditor to set aside the assignment as fraudulent, where the assignee has put in an answer denying the alle- gations of fraud and asserting his right to the security, and it ap- pears that he has abundant means to respond in any amount for which he may be held liable. Wae- ber v. Rosenstein, 6 App. Div. 447, 39 N. Y. Supp. 593. A receiver should never be ap- pointed over a mortgagee of chat- tels in possession, where there is a balance due him. Bayaud v. Fel- lows, 28 Barb. (N. Y.) 451. In the absence of fraud, and where a corporation has parted with all its property and used the same in payment of debts, a re- ceiver will not be appointed. Hale- Berry Co. v. Diamond State Iron Co., 94 Ga. 61, 22 S. E. 217. And where rents are applied to the payment of the mortgage debt and necessary expenses in the management and care of the prop- erty, a receiver will not be ap- pointed. Myton V. Davenport, 51 Iowa 583, 2 N. W. 402. Receiver not appointed where administrator has power to pro- tect property. Veret v. Duprez, L. R. 6 Eq. 329. An order appointing a receiver pendente lite, in a proceeding under 3 How. (Mich.) Ann. Stat. § 8749o, providing for the appoint- ment of a receiver at the instance of persons having preferred claims GENERAL GROUNDS OF APPOINTMENT. 47 subject of the controversy for the benefit of the party who will ultimately be decreed to have the right thereto is the object of committing it to the custody of the receiver.^ It must, however, be borne in mind that unless under a voluntary assignment, is improvident, if not an absolute nul- lity. Hall V. Wayne Circuit Judge, 111 Mich. 395, 69 N. W. 643. Because the husband of an ex- ecutrix was in the West Indies, and not amenable to the process of court in case his wife as executrix should commit waste or refuse to pay, a receiver was appointed. De- cided by the Lord Chancellor of England in 1741. Taylor v. Allen, 2 Atk. 213. In Lloyd v. Passingham, 16 Ves. Jr. 59-70, Lord Eldon said: "The court must not only be satisfied of the existence of fraud, but it must be morally sure that upon the hearing of the cause the party would upon the circumstances be turned out of possession, and not only that, but it must see some danger to the immediate rents and profits." 5 Fort Payne Furnace Co. v. Fort Payne Coal & I. Co., 96 Ala. 472, 38 Am. St. Rep. 109, 11 So. 439; Hughes V. Hatchett, 55 Ala. 631; Handle v. Carter, 62 Ala. 95; Skin- ner V. Maxwell, 66 N. C. 45. In actions at law property will not be taken from a party in pos- session, claiming in good faith the right to it, without first exacting from him at whose suit it is done ample security for the protection of his adversary against injury. In actions of detinue and attach- ment for the seizure of property an adequate bond with good sure- ties is required to indemnify the defendant against loss. Injunctions and equitable attachments are al- lowed only on the same conditions. In actions for the appointment of receivers ordinarily no indemnify- ing bonds are required, and the consequences that may follow from wresting from the defendant of the property in litigation, are such that the granting of a receiver should, in all cases, be attended with great care and circumspection. Briar- field Iron Works Co. v. Foster, 54 Ala. 622. The appointment of a receiver is unnecessary where the property is a decree of court, of which the receiver could not take possession, it being virtually in the hands of the court. Matthews (Scruggs) v. Memphis & C. R. Co., 108 U. S. 368, 27 L. Ed. 756, 2 Sup. Ct. 780. A receiver pendente lite should not be appointed unless there is a probable right to a permanent re- ceiver. Party seeking the appoint- ment of a receiver pendente lite must show a probable interest in the property involved and danger of loss or misappropriation of same unless receiver is appointed. Whit- ley V. Bradley, 13 Cal. App. 720, 110 Pac. 596. Where there is no danger to the property in controversy and no other reason for a receiver, none will be appointed. Beaumont v. Beaumont, 166 Pa. St. 615, 31 Atl. 336. The danger of loss must be of an immediate character and not past or remote. Kean v. Colt, 5 N. J. Eq. (1 Halst. Ch.) 365. 48 LAW OF RECEIVERS. the power to appoint a receiver is exercised with clue cau- tion property may be illegally taken from its rightful owner. If property is properly placed in tJie hands of a receiver the remedy becomes a shield and protection, whereas if improperly placed in the hands of a receiver, the remedy may be a great hardship and method of harassment. The necessity for caution in its exercise is also shown by the fact that the ultimate rights of the litigants are necessarily prejudged to a certain extent by the probabilities of the petitioner's right to recover. V In other words, when, from all the facts before the court, it is a question of grave doubt whether the plain- tiff will ultimately be entitled to recover, the court may in the exercise of its discretion refuse to appoint a receiver.*^ And in certain classes of cases such as quasi- public corporations, wdiicli furnish service to the public in the shape of water, light, transportation, and the like, the court will not only scrutinize the rights of the moving party and the injuries which may result to the defendant, but also the effects of the appointment of a receiver upon the public whom the corporation serves and upon the numerous employees engaged in the public service.''' In all cases, however, the question of the probability of plaintiff ultimately recovering is necessarily one which can not be defined, and the question of such probability in such circumstances is one of degree, which in each par- ticular case must practically be determined by the dis- cretion of the court exercised in view of all of the equi- table rules applicable to the subject. Bank of Florence v. United 97 N. W. 613 ; Wilkinson v. Dobbie, States Sav. etc. Co., 104 Ala. 297, 12 Blatchf. 298, Fed. Cas. No. 16 So. 110; Builders' etc. Supply 17670; Kelley v. Boettcher, 89 Fed. Co. V. Lucas, 119 Ala. 202, 24 So. 125; Lancaster v. Asheville St. Ry. 416; Hayes v. Jasper Land Co., Co., 90 Fed. 129; Owen v. Homan, 147 Ala. 340, 41 So. 909; Vila v. 3 Macn. & G. 378. Grand Island etc. Co., 68 Neb. 222, 7 Wabash R. Co. v. Dykeman, 133 110 Am. St. Rep. 400, 4 Ann. Cas. Ind. 56, 32 N, E. 823. 59, 63 L. R. A. 791, 94 N. W. 136, GENERAL GROUNDS OF APPOINTMENT. 49 § 13. Whether Existence of Property Must Be Shown. It is not necessary to show that there is property to come into the hands of the receiver as a prerequisite to the appointment.^ But where it does not appear that any advantage will be gained by the appointment of a receiver none will be appointed.- And where it is showTi that there are no assets which could be distributed by the receiver the court will not perform an idle act by appointing one.=* And likewise where existing mortgages upon the property will consume the entire property no receiver will be appointed.^ Nor will a receiver be appointed where it appears that the plaintiff has parted with his interest in the property over which a receiver is sought, even where it otherwise w^ould have done so.^ So also courts are averse to appointing a receiver where the property in controversy is of trifling value.^ And a court will not appoint a receiver over property outside of its jurisdiction.' 1 Button V. Thomas, 97 Mich. 93, 56 N. W. 229; Rankin v. Roths- child, 78 Mich. 10, 43 N. W. 1077. That the debtor does not appear to have property is no ground for refusal to appoint; but where it appears that the only property is a trust fund under a devise which the debtor is willing to apply upon demand, the appointment will be refused. DeCamp v. Dempsey, 10 N. Y. Civ. Proc. Rep. 210. The answer in a creditors bill, that defendant has not property to the amount of $100, is not a suffi- cient reason for refusing to ap- point a receiver. Fuller v. Taylor, 6 N. J. Eq. 301, Fitzburgh v. Ever- ingham, 6 Paige Ch. (N. Y.) 29. That there is no other property than an equity of redemption is I Rec. — 4 not a defense. Bailey v. Lane, 15 Abb. Pr. (N. Y.) 373, note. 2 Grandfalls Mut. Irr. Co. v. WTiite (Tex. Civ.), 131 S. \V. 233; Mercantile Investment etc. Co. v. River Platte Trust etc. Co., L. R. [1892] 2 Ch. 303. A receiver will not be appointed after a judgment debtor has be- come a bankrupt. Ryan v. Lefroy, 3 Ir. Ch. Rep. 351. 3 Burton v. Enterprise Loan etc. Ass'n, 114 Ind. 226, 5 Am. St. Rep. 608, 16 N. E. 486. 4 Collins V. Myers, 68 Ga. 530. 5 Smith V. Wells, 20 How. Pr. (N. Y.) 158. 6 Whitworth v. Whyddon, 2 Macn. & G. 52. 7 Baltimore etc. Loan Ass'n v. Alderson, 90 Fed. 142, 32 C. C. A. 542. 50 LAW OF RECEIVERS. § 14. Necessity for Pendency of a Suit. In effect the appointment of a receiver is not unlike a statutory attachment so far as the seizure and preser- vation of the property are concerned and the ultimate right of the successful party relates back to the date of the appointment. The appointment of a receiver amounts to a sequestration of the property of the defendant in advance of a hearing and adjudication of his rights. Hence it is apparent that the appointment, save in a few exceptional cases, is an incident to the litigation itself and not the main purpose of the litigation. Consequently it is a well established rule that in order to authorize the appointment of a receiver it is essential that there shall be at the time of the appointment a suit pending in which relief other than the mere appointment of the receiver is sought.^ The exceptions to the general rule 1 Harwell v. Potts, 80 Ala. 70; Crowder v. Moone, 52 Ala. 220; Baker v. Backus' Admr., 32 111. 79; State V. Union Nat. Bank, 145 Ind. 537, 57 Am. St. Rep. 209, 44 N. E. 585; Guy v. Doak, 47 Kan. 236, 366, 27 Pac. 968; Merchants etc. Nat. Bank v. Kent, Circuit Judge, 43 Mich. 292, 5 N. W. 627; Jones v. Schall, 45 Mich. 379, 8 N. W. 68; Hardy v. McClellan, 53 Miss. 507; Barber v. Manier, 71 Miss. 725, 15 So. 890; Jones v. Schaff Bros. Co., 187 Mo. App. 597, 174 S. W. 177; State V. Ross, 122 Mo. 435, 23 L. R. A. 534, 25 S. W. 947; Lyon v. United States Fidelity etc. Co., 48 Mont. 591, Ann. Cas. 1915D, 1036, 140 Pac. 86; Vila v. Grand Island etc. Co., 68 Neb. 222, 110 Am. St. Rep. 400, 4 Ann. Cas. 59, 63 L. R. A. 791, 94 N. W. 136, 97 N. W. 613; Mann v. German-Am. etc. Co., 70 Neb. 454, 97 N. W. 600; In re Hancock, 27 Hun (N. Y.) 575; Mabon v. Ongley etc. Co., 156 N. Y. 196, 50 N. E. 805; Martin v. Har- nage, 26 Okla. 790, 38 L. R. A. (N. S.) 228, 110 Pac. 781; Repub- lic Trust Co. V. Taylor (Tex. Civ.), 184 S. W. 772; Popp v. Daisy Gold Min. Co., 27 Utah 83, 74 Pac. 426; Rainey v. Freeport etc. Co., 58 W. Va. 424, 52 S. E. 528; Baltimore Bargain House v. St. Clair, 58 W. Va. 565, 52 S. E. 660; Robinson V. W. Va. Loan Co., 90 Fed. 770; In re Brant, 96 Fed. 257; Ex parte Mountfort, 15 Ves. Jr. 445; Ex parte Whitfield, 2 Atk. 315; Anon., 1 Atk. 489, 578; Ex parte Peillon, 2 Thomson (Nova Scotia) 405; Young V. Wright, 8 P. R. (New Brunswick) 198; Salter v. Salter, L. R. [1896] Prob. Div. 291. In this connection see also note to Ann. Cas. 1912B, 236. The filing of the petition in an action between partners is a pre- requisite to the appointment of a receiver by the district court, under Tex. Rev. Stat. 1895, art. GENERAL GROUNDS OF APPOINTMENT. 51 o-cur in matters relative to the preservation of the estates of insane persons, infants, and estates of decedents where there does not appear to be any one who has a legal right to deal with the property.^ The resort to receivership in such cases is more often done in England than in this country/^ At one time in Ireland it was the practice of the chancery court m cer- tain specified cases to appoint receivers where no bill •was pending, but this exceptional practice grew out of the statute known as 4 & 5 Wm. IV, chap. 78, § 7 ; o & 6 Wm. IV, chap. 55, § 31. The pending action must be one for such relief as can be litigated between the parties even if the application for the appointment be denied.^ Hence if the sole object 1465. Webb v. Allen, 15 Tex. Civ. App. 605, 40 S. W. 342. A suit is necessary to the ap- pointment of a receiver, and the party whose property is to be taken from him and placed in the hands of a receiver must be a party to the pending suit. Wil- kinson V. Lehman-Durr Co., 136 Ala. 463, 34 So. 216; Baker v. Backus' Admr., 32 111. 79; Ex parte Williams, 17 S. C. 396; McLean v. Lafayette Bank, 3 McLean 503, Fed. Cas. No. 8887 (16 Fed. Cas. 262). A suit which has for its sole ob- ject the appointment of a receiver will not authorize such an appoint- ment. Continental Trust Co. v. Brown (Tex. Civ. App.), 179 S. W. 939. A motion for the appointment, where the order to show cause against the appointment is served before the commencement of the suit, is irregular. Kattenstroth v. Astor Bank, 2 Duer. (N. Y.) 632. A receiver will not be appointed on a petition, but only on a bill. Rice V. Tonnele, 4 Sandf. Ch. (N. Y.) 568. 2 Price V. Bankers Trust Co. (Mo.), 178 S. W. 745; Style v. Lan- trip (Tex. Civ.), 171 S. W. 786; Jones V. Bank of Leadville, 10 Colo. 464, 17 Pac. 272; Hardy v. McClellan, 53 Miss. 507; Davis v. Flagstaff S. U. Co., 2 Utah 74, 91, 2 Morr. Min. Rep. 660. Except in certain statutory cir- cumstances, the only instances in the English practice in which a receiver will be appointed without a suit being pending is that of the appointment of a receiver in the case of a lunatic. Ex parte Whit- field, 2 Atk. 315. 3 For the cases on this subject, see the treatment of the subject under estates of that character. 4 Houston etc. Ry. Co. v. Hughes (Tex. Civ.), 182 S. W. 23; Hart- nett v. St. Louis Min. etc. Co., 51 Mont. 395, 153 Pac. 437; Mann v. German-American etc. Co., 70 .Neb. 454, 97 N. W. 600. 52 LAW OF RECEIVERS. of the suit is the appointment of a receiver, the court will not take jurisdiction in the absence of statutory provi- sions allowing such suits.^ The court must have jurisdic- tion to entertain the cause of action to Avhich the appoint- ment of the receiver would be ancillary and have power to grant the relief demanded in the action,^ for if the court has no jurisdiction over the subject-matter it has no authority to appoint a receiver, since it is fundamental that there is no such proceeding in equity as a plain receivership action, in which the appointment of a re- ceiver is the only desideratum."^ The action must, of course, be one which comes within the equitable juris- 5 Hermann v. Thomas (Tex. Civ. App.), 143 S. W. 195; Price v. Bankers Trust Co. of St. Louis (Mo.), 178 S. W. 745; Hartnett v. St. Louis Min. & Mill. Co. of Mon- tana, 51 Mont. 395, 153 Pac. 437. One who alleges himself a cred- itor of the corporation can not apply for the appointment of a re- ceiver without making a principal demand. Van Vleet v. Evangeline Oil Co., 127 La. 919, 54 So. 286. The appointment is not the ulti- mate end and object of the suit, but is merely a provisional rem- edy or auxiliary proceeding. Sheri- dan Brick Works v. Marion Trust Co., 157 Ind. 292, 87 Am. St. Rep. 207, 61 N. E. 666; State ex rel. Merriam v. Ross, 122 Mo. 435, 23 L. R. A. 534, 25 S. W. 947. A bill which has for its sole object the appointment of a re- ceiver will not be entertained. Con- tinental Trust Co. v. Brown (Tex. Civ. App.), 179 S. W. 939. c Red River Potato Growers' Ass'n v. Bernardy, 126 IV.Mnn. 440, H8 N. W. 449. Thus a bill for the appointment of a receiver merely asking for time in which to pay an indebted- ness does not state sufficient ground for the appointment. Con- tinental Trust Co. V. Brown (Tex. Civ. App.), 179 S. W. 939. 7 Condon v. Mutual Reserve etc. Ass'n, 89 Md. 99, 73 Am. St. Rep. 3 69, 44 L. R. A. 149, 42 Atl. 944; Hartnett v. St. Louis Min. etc. Co., 51 Mont. 395, 153 Pac. 437; Zuber V. Micmac Gold Min. Co., 180 Fed. 625. A very clear and concise dis- cussion of this subject was ren- dered by Mr. Presiding Justice Paris in Price v. Bankers Trust Co. (Mo.), 178 S. W. 745. Equity has no jurisdiction, under Code 1899, ch. 133, § 28 (Code 1906, 4031), authorizing the appointment of a receiver, in an action where there is danger of loss or misap- propriation of the subject-matter of the action, to appoint a special receiver, unless there be equity jurisdiction independent of the ap- plication for such receiver. Ward V. Hotel Randolph Co., 65 W. Va. 721, 63 S. E. 613. GENERAL GROUNDS OF APPOINTMENT. 53 diction of the court, '^ and the relief prayed for must be of such a character as to be germane to the cause of action set up.^ In order to constitute a suit as pending within the above rule it is necessary that the complaint or bill shall state a cause of action against the defendant.^" The complaint may, however, be one in the nature of a cross-bill filed by the defendant. ^^ Under statutes which provide that a suit is not commenced until a summons has been issued in the case or other conditions complied with, a receiver can not be appointed before such a summons has been issued, even though the complaint has been filed,^^ but the action will be deemed as pending for this purpose 8 A receiver will not be ap- pointed in a proceeding in quo warranto. Stone v. Wetmore, 42 Ga. 601. 9 Davis V. Alton, J. & P. Ry. Co., 180 III. App. 1; Hartnett v. St. Louis Min. etc. Co., 51 Mont. 395, 153 Pac. 437. 10 Hartnett v. St. Louis Min. etc. Co., 51 Mont. 395, 153 Pac. 437; Price v. Bankers Trust Co. (Mo.), 178 S. W. 745; Mann v. German- American etc. Co., 70 Neb. 454, 97 N. W. 601; Pullis v. PuUis Bros. Iron Co., 157 Mo. 565, 57 S. W. 1095; Cantwell v. Columbia Lead Co., 199 Mo. 1, 97 S. W. 167; For- est Oil Co. V. Wilson (Tex. Civ. App.), 178 S. W. 626; Houston etc. Ry. Co. v. Hughes (Tex. Civ. App.), 182 S. W. 23; Republic Trust Co. v. Taylor (Tex. Civ. App.), 184 S. W. 772. A liberal construction will be given to a complaint in determin- ing its sufficiency so far as it re- lates to the appointment of a tem- porary receiver pending the action, but it must state a cause for such appointment; and if the applica- tion is made without notice, the cause for an appointment without notice must appear either in the verified complaint or by affidavit, under Ind. Rev. Stat. 1894, § 1244, providing that a receiver shall not be appointed without notice of the application to the adverse party, except upon sufficient cause shown by affidavit. Sullivan Electric Light & P. Co. V. Blue, 142 Ind. 407, 41 N. E. 805. 11 Russell V. Mohr-Weil Lumber Co., 102 Ga. 593, 27 S. E. 699. 12 Guy V. Doak, 47 Kan. 236, 366, 27 Pac. 968; Dixon v. Dixon, 119 Md. 413, 86 Atl. 1042; Hardy v. Mc- Clellan, 53 Miss. 507; Barber Bros. V. Manier, 71 Miss. 725, 15 So. 890; Dwelle V. Hlnde, 8 Ohio C. D. 10, 18 Ohio Ct. 618. Where the summons was not de- livered to the serving officer until the next day after the filing of the complaint and appointment of the receiver, the appointment was made before the action was com- menced, and hence while the court had no jurisdiction. Marshall v. Matson, 171 Ind. 238, 86 N. E. 339. 54 LAW OF RECEIVERS. where the notice or service is merely defective.^^ And where, under the statutory pro^dsions in force, a suit is deemed to be commenced upon the serving of notice of the pendency of the action, it has been held that the appointment of a receiver was not premature, although made before the actual filing of the petition, but subse- quent to the service of the notice.^^ And in another instance it was held where the receiver was appointed by a judge in chambers, while in another district, upon the presentation of the bill and answer which had not been filed, but the appointment was not to take effect until the pleadings and order of appointment had been filed, the appointment was valid.^^ In accordance with the rules above set forth, an appointment of a receiver in advance of the pendency of a proper suit is held to be void,^'^ and the subsequent filing of the bill will not vali- date such an appointment.^^ Where at the time of making the original appointment, no suit Avas pending before the court, but after the proper filing of the suit the court confirms the original appointment, such confirmation will be regarded as an original appointment and be valid from the date of confirmation.^^ If the controversy, which is the subject-matter of the litigation, is settled during the pendency of the suit, the court loses jurisdiction to appoint a receiver,^'^ or if one 13 Hellebrusn v. Blake, 119 Ind. 379, 8 N. W. 68; Hardy v. McClel- 349, 21 N. E. 976. Ian, 53 Miss. 507. 14 Paine v. Mueller, 150 Iowa 340, ^g Anderson v. Riddle, 10 Wyo. 130 N. W. 133. 277, 68 Pac. 829. I'jHorn V. Pere Marquette R. ^ -IC1 -c. ^ coc 19 Christoffel V. Lee, 153 111. App. Co., 151 Fed. 626. 16 Howell V. Harris-Cortner Co., 395. 168 Ala. 383, Ann. Cas. 1912B 234, The jurisdiction of a court to 52 So. 935; Bank of Meadville v. appoint a receiver should always Hardy, 94 Miss. 587, 48 So. 731. follow the jurisdiction of the 17 Harwell v. Potts, 80 Ala. 70; action upon which the receivership Gold Hunter Min. & S. Co. v. Holle- is sought to be ingrafted. Price v. man, 3 Ida. 99 (2 Ida. 839), 27 Bankers Trust Co., (Mo.) 178 S. W. Pac. 413; Jones v. Schall, 45 Mich. 745. GENERAL GROUNDS OF APPOINTMENT. OO has been appointed the only jurisdiction remaining in the court is to settle the receiver's accounts.^" Likewise where judgment is rendered in favor of the defendant such judgment operates as a termination of the receivership where the receiver was appointed for the purpose of pre- serving the property during the pendency of the action.-^ The same result happens where a judgment in favor of the plaintiff is reversed on appeal.-- § 15. Right of Court to Refuse Appointment on Condition of Defendant Furnishing a Bond, ^here a court is of the opinion that the plaintiff is enti- tled to have a receiver appointed to take charge of the property or fund in litigation but nevertheless feels that the plaintiff could be made secure in respect to the outcome of the litigation in the event of his recovery by the furnishing of a bond by the defendant to secure any such recovery, it is within the discretion of the court to make an order refusing to appoint a receiver upon condition that the defendant furnish such a bond.^ The 20 Decker Bros. v. Berner's Bay bond to pay plaintiff his eventual Mining Co., 3 Alaska 280. condemnation money in case said .. ^ , . nronertv or any part thereof is 21 Wiencke v. Bibby, 15 Cal. App. Properiy or a y ^^ „ -r. cnr T, „r„+^^ ,r -c^ p found subject to plaintitt s juag 50, 113 Pac. 876; Brewster v.RG. where the defendant had Brewster Co.. 130 N. Y. Supp. 654. -ent-^ ^^ ^^^ ^^^^^ ^^^^ ^^^^^^ ^ 145 App. Div. 812. ^^^j^^^ ^gg ^^ ^^4^ rj^ g J, ;l076. 22 Co-operative Sanitary Baking j^^ ^ow v. Holmes, 2 C. E. Green Co. v. Shields, (Fla.) 70 So. 937. ^-^ -j^ j ^^^ 143^ the court re- 1 Baker v. Bartol, 7 Cal. 551; fused to appoint a receiver over Davis V. Leonard, 66 Fla. 351, 63 property in possession of one ten- So. 584; Clyatt v. Taylor, 136 Ga. ant in common, in a suit for parti- 774, 71 S. E. 1076; Conquest v. Na- tion, where he offered to give tional Bank, 97 Ga. 500, 25 S. E. adequate security for the rents 343; Parsille v. Brown, 188 Mich. and profits pending the litigation. 485, 154 N. W. 569; Mead v. Orr- a reasonable time may be al- ery, 3 Atk. 235; Haigh v. Grattan, i>(jwed within which the defendant 1 Beav. 201. may file a bond to secure the plain- It is not an abuse of discretion tiff in the event of his recovery, to appoint a receiver conditioned Barclay v. Quicksilver Min. Co.. on defendant's failure to give 9 Abb. Pr. N. S. (N. Y.) 283. 56 LAW OF RECEIVERS. making of such an order is merely another way of saying that a receiver should be appointed in the case, but making it optional mth the defendant to submit to the appointment or furnish a bond if he prefer to do that rather than have a receiver appointed, but such a choice should only be offered by a court in a case wherein the appointment of a receiver would be proper. At first sight in such a case it would appear that the court was exact- ing a bond from the defendant in advance of trial to secure the payment of any judgment which might be recovered against him, but such is not the case since the order for the furnishing of the bond is not mandatory but merely presented in the alternative and allows the defen- dant to refuse to furnish the bond if he desires. The rea- sons for the practice in such case were well stated in an early case in California,- wherein the court said : ''It is true that the court had no power to compel the defendant to execute the bond in question, but it undoubtedly had the power to appoint a receiver, and if the defendant chose to execute a bond rather than pay the money over to the officer of the court, it was a volun- tary act upon his part, and the bond was good as a com- mon law bond. In this respect he is not to be considered as a receiver or officer of the court, but as a party who, for a personal accommodation, has assumed a legal Where the character of the prop- Hence in cases of partnership erty involved is such that it is not dissolution and accounting where likely to be injured if a receiver is losses to the partnership business not appointed, and the defendant ^jj^ assets can be avoided by the is solvent, it has been held that furnishing of a bond to make a the court should allow the defend- ^^^^ accounting, the courts will ant the alternative of giving a gj^^ ^^e defendant the privilege of bond for the protection of plaintiff ^^^^^ ^^^^ ^ ^^^^ Cary Bros. or having a receiver appointed. , ^ , „ -.n^ tt, ^ ro^. „ , ^ f^ V Dolhoff etc. Co., 126 Fed. 584 Stillwell V. Savannah Grocery Co., v. i^ui u et . ' 88 Ga. 100, 13 S. E. 963; Cordele Mann v. Gaddie, 158 Fed. 42, 88 Ice Co. v. Sims, 120 Ga. 428, 48 C. C. A. 1. S B 12. 2 Baker v. Bartol, 7 Cal. 551, GENERAL GROUNDS OF APPOINTMENT. 57 responsibility, and, after receiving its benefits on liis part, shonld be estopped from denying its legality." The court in such cases knows the circumstances sur- rounding the case and adopts the remedial relief so as to reach the ends of substantial justice without unduly injuring the rights or interest of any party to the liti- gation. The provisional remedy, being merely auxiliary to the ultimate relief, should not usurp or anticipate the office and effects of a trial on the merits.=^ Where a fund which is in litigation is placed in the custody of the court, a receiver will not, of course, be appointed to take charge of it.* In some states statutory provisions exist which pro- vide that a receiver should not be appointed in a case if the defendant offers to furnish a bond to protect the plaintiff in the event of his recovery and, of course, under such statutes, no receiver will be appointed if the statu- tory bond is forthcoming.^ § 16. Effect Where an Injunction Would Serve Same Purpose. An injunction, of course, does not have the effect of taking the possession away from the enjoined party, although it may restrict him in the exercise of his pos- session while the appointment of a receiver takes the entire management and control of the property from the defendant. The object of both an injunction and receiver- ship proceeding is the preservation of the property pend- ing the litigation, and both remedies are frequently exercised in the same litigation, but the court will not nec- 3 In Popper v. Scheider, 7 Abb. court vacated its order of appoint- Pr. N. S. (N. Y.) 56, which was an ment on condition of a bond being action to dissolve a partnership, given to pay plaintiff any sum the existence of which was denied found due on a final settlement of bv defendant, the court had ap- the alleged partnership, pointed a receiver, hut upon mo- 4 Curling v. Townshend, 19 Ves. tion of the defendant and his Jr. 628. showing that the business would 5 Roberts v. Pipkin, 63 S. C. 252. be injured by the receivership, the 41 S. E. 300. 58 LAW OF RECEIVERS. essarily appoint a receiver merely because the plaintiff has shown sufficient grounds for the granting of an injunction.^ Where, however, the granting of an injunction will pro- tect the rights of the plaintiff in the event of his recovery, the court will not resort to the more drastic remedy of a receivership w^hereby the defendant will be deprived of the possession of the property in controversy.^ § 17. Insolvency as a Ground for Receivership. Mere insolvency of the defendant without any other ground being stated as a cause of action will not be suffi- cient for the appointment of a receiver by a court of equity in the absence of a statute allowing the appoint- ment upon a showing of insolvency or imminent danger of such a condition.^ Insolvency is, however, most frequently one of sev- eral reasons for the appointment of a receiver, but insol- vency as a ground for the appointment of a receiver is predicated upon the general doctrine of probable loss. Hence there must be coupled with an allegation of insol- 1 Rawnsley v. Trenton Mut. etc. 2 Empire Hotel Co. v. Main, 98 Ins. Co., 1 Stockt. (9 N. J. Eq.) Ga. 176, 25 S. E. 41.3; Tarvin v. 347; Oakley v. Paterson Bank, 1 Walker's Creek etc. Co., 109 Ky. Green Ch. (2 N. J. Eq.) 173. It 5^9^ go g ^ 155 does not follow that because an ^ prudential etc. Co. v. Three injunction may be granted to stay ^^^^^ ^^^ ^^ ^^ ^^^^^ ^^.^ irreparable damage by the defend- ^^^ ^^^ Virginia-Carolina ant until decision respecting title . , ^ tt » can can be reached, a receiver will be Chemical Co. v. Hunter, 84 S. C. appointed to deprive one in pos- 214, 66 S. E. 177; Galvin v. Mc- session under color of title of his Connell, 53 Tex. Civ. 4S6, 117 S. W. advantage and more especially 211; Floore v. Morgan, (Tex. Civ.) allow the receiver to work his 175 S. W. 737; Continental Trust land, and charge it with a lien for Co. v. Brown, (Tex. Civ.) 179 S. W. expenditures. Freer v. Davis, 52 939; Houston etc. Ry. Co. v. W. Va. 35, 94 Am. St. Rep. 910, Hughes, (Tex. Civ.) 182 S. W. 23. 43 S. E. 172. GENERAL GROUNDS OF APPOINTMENT. 59 voncy additional allegations showing tlie plaintiff's right of recovery or probability of recovery, and that such recovery will be wholly or substantially lost or impaired by reason of the insolvency.- Insolvency is most fre- quentlv one of the grounds of application for a receiver in cases of insolvent banks,=^ corporations,^ mortgages,^ fraudulent conveyances,*^ matters involving trusts,^ part- 2 Cofer V. Eclierson, 6 Iowa 502; Chase's Case, 1 Bland Ch. (Md.) 206, 17 Am. Dec. 277; Cox v. Peters, 13 N. J. Eq. 39 ; Gregory v. Gregory, 1 Jones & S. (N. Y.) 1; Rollins V. Henry, 77 N. C. 467; Mc- Nair v. Pope, 96 N. C. 502, 2 S. E. 54; Lawrence Iron Works Co. v. Rockbridge Co., 47 Fed. 755; Trust & Deposit Co. V. Spartanburg etc. Co., 91 Fed. 324; Ryder v. Bate- man, 93 Fed. 16; Owen v. Homan, 4'h. L. Cas. 997, 3 Macn. & G. 378; Commissioners etc. v. Lockhart, Ir. Rep. 3 Eq. 515. While mere insolvency is not sufficient ground for appointment of a receiver, if a debtor adopts a course of conduct which shows a fraudulent intent to delay or hin- der his creditors, an equity court will appoint a receiver. Virginia- Carolina Chemical Co. v. Hunter, 84 S. C. 214, 66 S. E. 177. An auxiliary petition was filed for the appointment of a receiver to protect the property and im- pound the rents, on the ground of the defendant's insolvency and the insufficiency of the property to discharge the balance due on the purchase price. There was no abuse of discretion in making such appointment. Adams v. Foster, 143 Ga. 701, 85 S. E. 834. 3 Hill V. Western & A. R. Co., 86 Ga. 284, 12 S. E. 835; Attorney General v. Bank of Columbia, 1 Paige (N. Y.) 511. 4 Nichols v. Perry Patent Arms Co., 11 N. J. Eq. 126; Middlesex County Board of Chosen Freehold- ers V. State Bank at New Bruns- wick, 30 N. J. Eq. 311; North Carolina S. C. C. R. Co. v. Drew, 3 Woods 691, Fed. Cas. No. 17434; Buck V. Piedmont & A. L. Ins. Co., 4 Fed. 849, 4 Hughes 415; White- water Valley Canal Co. v. Vallette, 62 U. S. (21 How.) 414, 16 L. Ed. 154; Evans v. Coventry, 5 DeG. M. & G. 911. 5 Hart V. Respess, 89 Ga. 87, 14 S. E. 910; McMahon v. North Kent Ironworks Co., [1891] 2 Ch. 148; Reynolds v. Quick, 128 Ind. 316, 27 N. E. 621; Merritt v. Gibson, 129 Ind. 155, 15 L. R. A. 227, 27 N. E. 136; Hill V. Robertson, 24 Miss. 368; Quincy v. Cheeseman, 4 Sandf. Ch. 405. G Tufts V. Little, 56 Ga. 139; Gunby v. Thompson, 56 Ga. 316; Chappell V. Boyd, 56 Ga. 578; Pen- dleton Bros. v. Johnson, 85 Ga. 840, 11 S. E. 144; Flagler v. Blunt, 32 N. J. Eq. 518; Ahlhauser v. Doud, 74 Wis. 400, 43 N. W. 169. 7 Bowling V. Scales, 2 Tenn. Ch. 63; Drlskill v. Boyd, (Tex. Civ.) 181 S. W. 715. 60 LAW OF RECEIVERS. nersliips,^ judgment debtors,^ executors and administra- tors/^ joint tenants/^ and matters relating to dower.^- In respect to the question when a person or corporation is insolvent reference must be had to the general deci- sions on the question irrespective as to whether they refer to questions of receivers or not, since different courts view the question from different angles, some bas- ing insolvency upon inability to pay debts as they become due in the usual course of business, while others base it on a deficiency of assets over liabilities. It is obvious that the same rule should not be applied to a railroad com- pany or large manufacturing concern as should be applied to a bank. In a general sense, however, and as generally used in bankruptcy and insolvent laws, insolvency means an inability to pay debts as they mature. ^^ A receiver may, however, be appointed in a proper case notwithstanding that the defendant is perfectly sol- vent. ^^ s Bard v. Bingham, 54 Ala. 463 Barnard v. Davis, 54 Ala. 565 Boyce v. Burchard, 21 Ga. 74 C. 414; Sandford v. Ballard, 30 Beav. 109. 12 Chase's Case, 1 Bland Ch. 206. Williamson v. Wilson, 1 Bland Ch. 13 The fact that a defendant can (Md.) 418; Heathcot v. Ravens- not pay its current obligations as croft, 6 N. J. Eq. 113; Randall v. they mature, and is unable in the Morrell, 17 N. J. Eq. 343; People's ordinary course of its business to Bank v. Fancher, 21 N. Y. Supp. pay its liabilities, is a proper and C45. sufficient allegation of insolvency McCord V. Weil, 33 Neb. 868, in a suit in equity. American Can 51 N. W. 300; Shannon v. Hanks, Co. v. Erie Preserving Co., 171 88 Va. 338, 13 S. E. 437; Dunlap v. Fed. 540. Hedges, 35 W. Va. 287, 13 S. E. See discussion of the subject in 657; Ogden v. Chalfant, 32 W. Va. Sill v. Kentucky Coal etc. Co., 559, 9 S. E. 879. (Del. Ch.) 97 Atl. 617. 10 Williams v. Jenkins, 11 Ga. 1 4 Mead v. Burk, 156 Ind. 577, 60 595; Johns v. Johns, 23 Ga. 31; N. E. 338; Fink v. Montgomery, Jenkins v. Jenkins, 1 Paige 243. 162 Ind. 424, 68 N. E. 1010; Man- 11 Bryan v. Moring, 94 N. C. 694, nos v. Bishop-Babcock-Becker Co., 699; Street v. Anderton, 4 Bro. C. 181 Ind. 343, 104 N. E. 579. GENERAL GROUNDS OF APPOINTMENT. 61 § 18. What Constitutes a Bar to Relief by Receivership. Following the analogy of the rules applicable to injunc- tional relief, long acquiescence in the perpetration of the wrongs or injuries complained of as ground for the appointment of a receiver A\ill be regarded by the courts as a bar to the appointment of a receiver,^ So, also, the appointment of a receiver has been refused where the plaintiff applying for the receiver was a monopoly engaged in the conduct of transactions in restraint of trade.^ § 19. Right of Court to Exact Security for Receivership Expenses. The receiver and those who render services in respect to the receivership are entitled to be compensated for their services as well as those who furnish funds or mate- rial during the pendency of the receivership. Ordinarily payment and reimbursement for services and expenses nmst be sought from out of the property constituting the receivership fund, but sometimes it may be doubtful whether the receivership fund will be sufficient to meet such expenses. This may be the result of the fluctuating value of the business over which a receiver is sought or because of the bulk of the receivership property being in the nature of a chose in action, the recovery of which and adding to the fund may be doubtful. Sometimes the receivership may suffer unforeseen losses in its assets 1 Skinners Company v. Irish So- where the question was raised on ciety, 1 Myl. & Cr. 162. a writ of prohibition whether After forty years undisturbed stockholders in a corporation possession the court will not ap- which had forfeited its charter be- point a receiver. Gray v. Chaplin, cause of being conducted as a 2 Russ. Ch. 126. monopoly and over which the trial 2 American Biscuit etc. Co. v. court had appointed a receiver, Klotz, 44 Fed. 721. were in a position to object to In this connection see also the such an appointment, but the ap- case of Havemeyer v. Superior pellate court held that under the Court, 84 Cal. 327, 18 Am. St. Rep. statutes in force no receiver could 1:12, 10 L. R. A. 627, 24 Pac. 121, be appointed. 62 LAW OF RECEIVERS. and thus be unable to pay its expenses from out of the fund, but where at the time of the making of the appoint- ment it is known that it is doubtful whether the assets of the receivership will be sufficient to meet the reason- able anticipated expenses of the receivership the question arises as to the practice to be followed by the court in the circumstances. ''No court," as was well said by the Supreme Court of Oregon,^ ''is bound or ought to engage or continue in the operation of a railroad or any other enterprise without the ability to promptly discharge its obligations, and unless it can do so it should keep out or immediately go out of the business." Hence cases may arise in wdiich by reason of the spe- cial circumstances it is equitable to require the parties commencing the receivership proceedings to meet the expenses in the event that the receivership funds prove to be inadequate for that purpose.- The proper practice for a court to follow in a case where it appears probable at the time of making the appointment of a receiver that the property which is about to be placed under a receiver will be inadequate to meet the expenses of the receivership is to require the moving parties to furiiisli a guaranty or security for the payment of the expenses to be incurred in the event that the property belonging to the receivership proves to be inadequate for that pur- pose.^' A distinction will be seen between cases where such security is required by the court as a condition of making the appointment and cases where the appoint- 1 Farmers Loan etc. Co. v. Ore- Pac. 706; Chapman v. Atlantic gon etc. Co., 31 Or. 237, 65 Am. Trust Co., 119 Fed. 257, 56 C. C. A. St. Rep. 822, 38 L. R. A. 424, 48 61. Pac. 706. In this connection see also 2 Atlantic Trust Co. v. Chapman, Farmers Nat. Bank v. Backus, 74 208 U. S. 360, 13 Ann, Cas. 1155, Minn. 264, 77 N. W. 142; Atlantic 52 L. Ed. 528, 28 Sup. Ct. 406. Trust Co. v. Chapman, 208 U. S. 3 Farmers Loan etc. Co. v. Ore- 360, 13 Ann. Cas. 1155, 52 L. Ed. pon etc. Co., 31 Or. 237, 65 Am. 528, 28 Sup. Ct. 406. Et. Rep. 822, 38 L. R. A. 424, 48 GENERAL GROUNDS OP APPOINTMENT. 63 ment is made without such conditions, as mil be more fully discussed when we consider the questions relating to the payment of receivership expenses. The court cer- tainly has a right to withhold the remedy of a receiver- ship or impose conditions upon its duration if it appears probable that the fund will not be sufficient to meet the legitimate expenses and thereby bring the court into dis- repute on account of exacting or accepting services for which it can not compensate. After a receiver has been appointed, however, it is his duty to keep the court ad\ised as to the condition of the estate and the parties to the litigation can not be held liable. A receiver as soon as he is appointed and qualifies is brought under the sole direction of the court to which he owes his appointment. The contracts which he makes or the trans- actions into which he enters, from time to time, under the order of the court are in a substantial sense the contracts and transactions of the court. The liabilities which he incurs are liabilities chargeable upon the property in the possession and control of the court and not liabili- ties of the parties to the pending cause since they have no authority over him and can not control his acts.* § 20. Appointment of Receiver With Consent of Parties. It is, of course, axiomatic that the parties to a litiga- tion can not by consent confer jurisdiction to a court of a case over which it otherwise would not have jurisdic- tion. Hence an appointment of a receiver in a case in which the pleadings do not state a cause for such an appointment will not be validated by the fact that the litigants have consented to it.^ Where the pleadings show 4 Atlantic Trust Co. v. Chapman, Rep. 400, 4 Ann. Cas. 59, 63 L.R. A. 208 U. S. 360, 13 Ann. Cas. 1155, 52 791, 94 N. W. 136, 97 N. W. 613. L. Ed. 528, 28 Sup. Ct. 406. An agreement between the par- 1 Elliott V. Superior Court, 168 ties to a suit can not confer juris- Cal 727 145 Pac. 101. diction to appoint a receiver, Vila V. Grand Island etc. Stor- where such power does not other- age Co., 68 Neb. 222, 110 Am. St. wise exist. Scott v. Hotchkiss, li-l LAW OF RECEIVERS. a proper case for tlie appointment of a receiver, it is no objection to such an appointment that the defendant con- sented thereto instead of putting the plaintiff to the neces- sity of determining the matter by means of a contest, pro- vided, of course, that such consent was not the result of fraud or collusion on the part of the litigants.^ 115 Cal. 89, 47 Pac. 45; Baker v. Varney, 129 Cal. 564, 79 Am. St. Rep. 140, 62 Pac. 100; Browning v. Sire, 56 App. Div. 399, 67 N. Y. Supp. 798; Whelpley v. Erie Ry. Co., 6 Blatchf. 271, Fed. Cas. No. 17504; Hutchinson v. American Palace Car Co., 104 Fed. 182. In Atlantic Trust Co. v. Chap- man, 208 U. S. 360, 13 Ann. Cas. 1155, 52 L. Ed. 528, 28 Sup. Ct. 406, a receiver for a canal and irriga- tion company was appointed in a suit to foreclose a mortgage secur- ing bonds, with the consent of the mortgagor. In Pennsylvania Steel Co. v. New York City R. Co., 157 Fed. 440, the court said: "There is no collusion apparent in any legal sense. It is of course manifest that complainants and defendants were entirely in accord, and ar- ranged together that the suit should he brought to the federal court, and that the averments of the bill should be admitted by the answer. But there was no color- able assignment of some claim to a citizen of another state, nor any misrepresentation or distortion of facts to mislead the court. On the contrary, examination of the books shows that the financial situation is precisely such as was averred in the comjilaint." The fact that a receiver is ap- pointed by a consent decree does not render his authority subject to collateral attack in another juris- diction. Jenkins v. Purcell, 29 App. D. C. 209, 9 L. R. A. (N. S.) 1074. While consent of parties can not confer jurisdiction on the courts of the United States, yet the parties may admit the existence of facts which show jurisdiction and the courts may act judicially upon such an admission. Railway Co. v. Ram- sey, 22 Wall. 322, 22 L. Ed. 823. Where the court has no statu- tory jurisdiction to appoint a re- ceiver, authority to do so can not be conferred by consent or a stipu- lation of parties. First Nat. Bank V. Superior Court, 12 Cal. App. 335, 107 Pac. 322. 2 Guaranty Trust Co. v. Interna- tional Steam Pump Co., 231 Fed. 594, 145 C. C. A. 480. An intervener coming into the case after the appointment of a receiver can not challenge the jur- isdiction of the court to make such appointment in a creditor's suit against a corporation asking the appointment of a receiver, where the defendant appeared and ad- mitted the averments of the bill, which sufficiently alleged insol- vency, and no collusion is charged. Cincinnati Equipment Co. v. Deg- nan, 184 Fed. 834. 107 C. C. A. 158. GENERAL GROUNDS OF APPOINTMENT. 65 In fact, it is a well established practice in the case of large corporations which are hopelessly insolvent or con- fronted with an unusual financial crisis, to have a receiver appointed upon a bill and ans^^ er in which the defendant admits the jurisdictional facts warranting the appoint- ment of a receiver and joins in the prayer asking for such appointment.^ Of course, the court in such circum- stances must be astute in its consideration of the case so as to be certain that it is not one in which fraud and collusion exist.-* It generally happens, however, that in such cases the facts constituting the ground for the appointment of a receiver are easily ascertained and often of such notoriety that the court could almost have judicial knowledge of their existence. One of the leading cases on this subject is that of the Metropolitan Rail- way Receivership,^ decided by the United States Supreme Court, in which it was contended that a collusive con- troversy was raised with the consent of the parties in order to confer jurisdiction upon the federal court to appoint a receiver. The case involved both the question whether there was a dispute or controversy between the parties by reason of the answer of the defendant admit- ting the allegations of the complaint and whether the facts showed collusion on the part of the litigants, but Mr. Justice Peckham in rejecting these contentions laid down the rules in such cases with great clearness. He said: ''Although the amount involved in the suit in the Circuit Court was sufficient, it is insisted now that there was no- dispute or controversy in that case mthin the 3 Ex parte Equitable Trust Co., pending cause, or on a bill and an 231 Fed 571. 145 C. C. A. 457. answer by the defendant joining A federal judge, in the exercise in the prayer for such appoint- of his general equity powers as a ment. Horn v. Pere Marquette R. chancellor, and those prescribed Co., 151 Fed. 626. by Rev St 638, U. S. Comp. St. 4 In re Reisenberg, 208 U. S. 90, 1901 p 519, and equity rule 3, has 52 L. Ed. 403, 28 Sup. Ct. 219. authority at chambers to make an r. See case of Gutterson v. Leba- order appointing a receiver in a non Iron etc. Co., 151 Fed. 72. I Rec. — 5 66 LAW OF RECEIVERS. meaning of the statute, because the defendant admitted the indebtedness and the other allegations of the bill of complaint, and consented to and united in the applica- tion for the appointment of receivers. Notwithstanding this objection, we think there was such a controversy between the parties as is contemplated by the statute. In the bill tiled there was the allegation that a demand of payment of a debt due each of complainants had been made and refused. This was not denied, and had not been. There was therefore an unsatistied demand made by complainants and refused by defendants at the trme of the filing of the bill. We think that where there is a justifiable chiim of some right made by a citizen of one state against a citizen of another state, involving an amount named in the statute, which claim is not satisfied by the party against whom it is made, there is a con- troversy, or dispute, between the parties wdthin tiie mean- ing of the statute. It is not necessary that the defendant should controvert or dispute the claim. It is sufficient that he does not satisfy it. It might be that he could not truthfully dispute it, and yet, if from inability or, mayhap, from indisposition, he fails to satisfy it, it can not be that because the claim is not controverted the fed- eral court has no jurisdiction of an action brought to enforce it. Jurisdiction does not depend upon the fact that the defendant denies the existence of the claim made, or its amount or validity. If it were otherwise, then the Circuit Court would have no jurisdiction if the defendant simply admitted his liability and the amount thereof as claimed, although not paying or satisfying the debt. This would involve the contention that the federal court might be without jurisdiction in many cases where, upon bill filed, it was taken pro confesso, or whenever a judgment was entered by default. These are propositions which, it seems to us, need only to be stated to be condemned." And continuing, the learned justice in answering the contention that the parties had collusively presented the GENERAL GROUNDS OF APrOlNTMEXT. 67 case in the federal court instead of connnencing it in the state court, said: "We can find no evidence of col- lusion, and the Circuit Court found there was none. It does appear that the parties to the suit desired that the administration of the railway affairs should be taken in hand by the Circuit Court of the United States, and to that end, when the suit was brought, the defendant admitted the averments in the bill, and united in the request for the appointment of receivers. This fact is stated by the Circuit Judge; but there is no claim made that the averments in the bill were untrue, or that the debts named in the bill as owing to the complainants did not in fact exist ; nor is there any question made as to the citizenship of the complainants, and there is not the slightest evidence of any fraud practiced for the purpose of thereby creating a case to give jurisdiction to the fed- eral court. That the parties preferred to take the subject-, matter of the litigation into the federal courts, instead of proceeding in one of the courts of the state, is not wrongful. So long as no improper act was done by which the jurisdiction of the federal court attached, the motive for bringing the suit there is unimportant."^ § 21. Effect of Statutory Provisions on the Subject. It would be, of course, impracticable in a book intended for general use in the different states to attempt to dis- cuss in detail the various statutory provisions relating to the subject of receivers. Such statutory provisions insofar as they are disclosed by the decisions will be con- sidered as they arise. There is a great degree of simi- larity between the statutory provisions of the different 6 The court cited the following 448, 457, 24 Sup. Ct. Rep. 269; cases: Dickerman v. Northern Blair v. Chicago, 201 U. S. 400-448, Trust Co., 176 U. S. 181-190, 44 50 L. Ed. 801-821, 26 Sup. Ct. Rep. L. Ed. 423-430, 20 Sup. Ct. Rep. 427; Smithers v. Smith, 204 U. S. 311; South Dakota v. North Caro- 632, 644, 5i L. Ed. 656, 661, 27 Sup. lina, 192 U. S. 286, 311, 48 L. Ed. Ct. Rep. 297. 68 LAW OF RECEIVERS. states, and in many cases sncli provisions, or at least the greater part of them, are merely declaratory of the gen- eral rules respecting the subject prevailing in the courts of equity prior to the statutory declarations.^ The great- 1 In Price v. Bankers Trust Co., (Mo.) 178 S. W. 745, the court said: "In tliis view we are mindful of tlie statute (section 2018, Rev. Stats. 1909) which relegates the appoint- ment of a receiver to the discretion of the judge or court nisi, by pro- viding that such court or judge 'shall have power to appoint a receiver, whenever such appoint- ment shall be deemed necessary.' This statute is but declaratory of the rule and practice which had long prevailed in equity, before the enactment of the statute. The discretion thus lodged in the courts or judges is a sound judicial dis- cretion 'to be exercised for the pro- motion of justice where no other adequate remedy exists' (High on Receivers, 7), and not an arbi- trary or capricious liberty bounded by no rules and limited only by the varying temperaments of the ephemeral incumbent of the judi- cial office. No one will contend that a power more comprehensive than the analogous attachment at law ought to be committed to the courts without any rule by which to measure discretion except the 'length of the chancellor's foot.' " In Jones v. Schaff Bros. Co., 187 Mo. App. 597, 174 S. W. 177, the court said: "The appointment of a receiver is not the ultimate end and object of a suit. The court can not appoint a receiver upon the ex parte application of the cor- poration itself. There must be a proceeding pending. State ex rel. V. Ross, 122 Mo. 4.35, loc. cit. 456, 461, 25 S. W. 947, 23 L. R. A. 534; State ex rel. v. Reynolds, 209 Mo. 161, loc. cit. 185, 107 S. W. 487, 15 L. R. A. (N. S.) 963, 123 Am. St. Rep. 468, 14 Ann. Cas. 198. This is clearly recognized by every statute authorizing the appointment of a receiver of which we have any knowledge. They are sections 1081, 1171, 2018, 2196, 2197, 2323, 2533, 3012, 3153, 3365, 3429, 3444, 3492, and 7923, Rev. St. Mo. 1909. There may possibly seem to be two exceptions to the above state- ment, that of section 3492 and sec- tion 3429, the former of which pro- vides that a receiver may be ap- pointed on the application of a shareholder of a bond investment company, and the latter that a receiver may be appointed for a co-operative company upon the ap- plication of the supervisor of build- ing and loan associations. But sections 3494 and 3430 provide, in these two cases, for a proceeding to be instituted by the Attorney Gen- eral and for process to be issued as in other actions. Sections 2996- 2999, Rev. St. Mo. 1909, provide a means whereby a corporation may have itself dissolved and its affairs wound up by the directors under the supervisory control of the court, but these have no refer- ence to the appointment of a re- ceiver, and even they require notice to all creditors and others interested before the court has power to finally act. So that there GENERAL GROUNDS OF APPOINTMENT. 6J> est variations in statntory pro\asions on the subject of receivers will be found to be among those touching the appointment of receivers for corporations^ a subject is no known statutory authority given a court to appoint a receiver upon the mere ex parte application of an insolvent corporation to take charge of and manage its affairs. And a court of equity has no in- herent power to appoint such re- ceiver except as an incident to and in a pending suit. Whitney v. Hanover National Bank, 71 Miss. 1009, 15 So. 33, 23 L. R. A. 531; Jones V. Bank of Leadville, 10 Colo. 464, 17 Pac. 272; Mann v. German- Am'. Inv. Co., 70 Neb. 454, 97 N. W. 600; Texas etc. R. Co. v.' Gay, 86 Tex. 571, 26 S. W. 599, 25 L. R. A. 52; 34 Cyc. 29. There may be exceptions to this rule, but, if there are, they do not come within the purview of the facts involved herein." Code provisions do not as a gen- eral rule alter the equitable juris- diction of the court to appoint. Skinner v. Maxwell, 66 N. C. 45. Equity has power to appoint a receiver on the grounds prescribed by Rev. Codes, sec. 4329, subds. 2, 5, 6, to take charge of the prop- erty and to care for and protect same. Commercial Trust Co. v. Idaho Brick Co., 25 Idaho 755, 139 Pac. 1004. Iowa Code, sec. 3822, by its ex- press' provisions, authorizes the appointment of a receiver by a judge in vacation, on petition of either party, where he shows that he has a probable right to or inter- est in the property in controversy, and that the property is in danger of being lost, materially injured, or impaired. McKee v. Murphy, 138 Iowa 322, 113 N. W. 499. Iowa Code, sec. 3822, authorizing the appointment of a receiver, does not authorize the appointment of a receiver where no equitable ground for appointment as a prin- cipal foundation for the relief asked for appears. Stockholders of Jefferson County Agricultural Ass'n v. Jefferson County Agricul- tural Ass'n, 155 Iowa 634, Ann. Cas. 1914B, 63, 136 N. W. 672. 2 In the case of Havemeyer v. Superior Court, 84 Cal. 327, 24 Pac. 121, 18 Am. St. Rep. 192, 10 L. R. A. 627, the court said: "In the ab- sence of any statute regulating the matter, a court of equity would have undoubted right, in a proper proceeding instituted by a creditor or a stockholder, to appoint a re- ceiver to administer the property. But in many of the states, stat- utes have been passed expressly providing for the appointment of receivers, or trustees exercising the same functions, though some- times called by other names. In all cases it is made their duty to collect the assets, pay the debts, and distribute the surplus pro rata to the stockholders. As this is precisely what a court of equity would have done in the absence of a statute, it is to be inferred that the motive of such legislation has been to accomplish some other ob- ject—some object, that is to say, for which express legislation was necessary. This inference is fully justified and amply borne out by reference to the different statutes. 70 LAW OF RECEIVERS. which will be considered when discussing the subject of corporations. As has been shown before, the jurisdiction of the Court of Chancery of England to appoint receivers was exer- cised for the purpose of enforcing justice in cases in which it was shown that the remedies to be found in the courts of ordinary jurisdiction were inadequate for the purpose. The exercise of the right was one founded on the inherent function of a court of equity.^ This inherent power of a court of equity is like that of any power which is essential to the exercise of a certain func- They seem to have been enacted with the object, in some instances, of abrogating the old law of for- feiture, and reversion; in others, of committing the administration to other courts than courts of equity; in others to provide uni- form rules of procedure, as to giv- ing notice to creditors, etc., to take the place of rules of court and specific orders to be made by the chancellor in each particular case; in others, to keep the matter out of courts altogether, as by allowing the dissolved corporation to continue its existence for a term for purposes of liquidation, but for no other purpose. The whole mass of this legislation seems to be per- vaded by the one idea of simplify- ing, expediting, and cheapening the means of accomplishing the one object of transferring to the stockholders of a defunct corpora- tion their full share of its surplus assets. There is, from beginning to end, no suggestion of added pen- alties or punishment after death. In New York, as we have seen, there was no other provision, and the appointment of a receiver was made obligatory in all cases of dis- solution, whether voluntary or in- voluntary. That was the rule, to which there was no exception. Under our codes, on the contrary, the rule is not to appoint a re- ceiver, but to leave the whole matter of liquidation and distribu- tion to the exclusive control of the directors of the corporation in office at the date of dissolution. The appointment of a receiver is the exception, not the rule, and is not to be made unless some party interested, either a creditor or a stockholder, can show that for the protection of his rights the ap- pointment of a receiver and the administration of the assets under the control and superintendence of a court of equity is necessary; and even then no receiver will be appointed upon his ex parte appli- cation without requiring ample security by his undertaking with sufficient sureties for all damages that may be caused by the appoint- ment if it shall turn out that it was made without sufficient cause." 3 Hopkins v. Worcester etc. Canal, L. R. 6 Eq. 447; Cupit v. Jackson, 13 Price 734. GENERAL GROUNDS OF APPOINTMENT. 71 tion. It is implied from the very nature of a court of equity. Hence it is laid down as a rule that the power to appoint receivers is inherent to courts of equity.^ The power of a court of equity to appoint a receiver in cases which come within those principles which make its duty inherent is exercised without the necessity for statutory authority,^ and is in fact independent of statutes.*^ In the well known English work of Mr. Kerr on Receivers, in stating the rule in England, he says; "The courts of common law had not, under the former procedure, juris- diction to appoint a receiver. But by the Judicature Act of 1873, 36 & 37 Vict., chap. 66, sec. 16, all the jurisdiction of the Court of Chancery was transferred to the High Court of Justice ; and by sec. 25, subsec. 8 of that act it is declared that a receiver may be appointed by an interloc- utory order of the court in all cases in which it shall appear to the court to be just and convenient that such order should be made ; and that any such order may be made either unconditionally, or upon such terms and con- ditions as the court shall think fit. The effect of the sub- section is to enlarge very much the powers Avhich the Court of Chancery formerly possessed." Under this 4 Bitting V. Ten Eyck, 85 Ind. dental to the jurisdiction of tlie 360; Folsom v. Evans, 5 Minn. 418; chancery court. It did not depend Miller v. Perkins, 154 Mo. 629, 55 upon statute and was not affected S. W. 874; Decker V. Gardner, 124 by the character of the parties N. Y. 334,' 26 N. E. 814, 11 L. R. A. before it, whether an individual or 480; Skinner V. Maxwell, 66 N. C. corporation or by the nature of 47- Barbour V. National Ex. Bank, the property. Decker v. Gardner, 45' Ohio St. 133, 12 N. E. 5; Chi- 124 N. Y. 334, 11 L. R. A. 4S0, 26 cago etc. Oil Co. v. United States N. E. 814. , Petroleum Co., 57 Pa. St. 83; Smith 6 State v. Farmers etc. Ins. Co.. V Butcher, 28 Graft. (Va.) 144. 90 Neb. 664, 134 N. W. 284, Ann. 5 Hillsborough Grocery Co. V. In- Cas. 1913B, 643; Slover v. Coal galls, 60 Fla. 105, 53 So. 930: Bank Creek Coal Co., 113 Tenn. 421, 43o, of Mississippi v. Duncan, 52 Miss. 106 Am. St. Rep. 851, 68 L. R. A. 740; Murphy v. Fidelity Mut. etc. 852, 82 S. W. 1131. Co ' 69 Neb 489, 95 N. W. 1022; 7 Citing: "Anglo-Italian Bank v. Battle V. Davis, 66 N. C. 252. Davies, 9 Ch. Div. 275, at p. 286. The power of appointing a re- per .lersel. M. R.; ib. at p. 293, per ceiver pendente lite was one inci- Cotton, L. J." 72 I>AW OF RECEIVERS. enactment there is no limit to the power of the court to appoint a receiver on an interlocutory application, except that such power is only to be exercised where 'just or con- venient.'^ The words 'just and convenient' must, how- ever, be construed with reference to the existing law of the country. They only empower the court to appoint a receiver in aid of existing rights.'' The act does not empower the court to appoint a receiver in cases where prior to the act it had no jurisdiction to do so.^^ It relaxed certain inconvenient rules, but it did not alter the principles on which the jurisdiction of the Court of Chancery rested. ^^ The court will not appoint a receiver where the appointment might prejudice existing rights. "^^ The primary purpose in all circumstances in which a re- ceiver is appointed is to protect and safeguard the prop- erty which is the subject-matter of the litigation where there is no other adequate method of doing so in order that the work of the court in determining the litigation will not be an idle ceremony.^^ Hence a receivership pro- ceeding implies the exercise of equitable powers which a common law court does not possess. ^^ Consequently when- ever a common law court appoints a receiver it is because of some statutory authority to do so,^^ and in most of 8 Citing: "Gawthorpe v. Gaw- 12 Citing: "Re Wells, 45 Ch! thorpe, W. N. [1878] 91, per Jersel, Div. 5G9." M. R.; Coney v. Bennett, 29 Ch. i:! See Battle v. Davis, 66 N. C. Div. 993; see Real and Personal 252. Advance Co. v. Macarthy, 27 W. R. i4 Oehme v. Rucklehaus, 50 N. J. 706; Oliver v. Lowther, 28 W. R. L. 84, 11 Atl. 145. 381." ir. Myres v. PYankenthal, 55 111. 9 Citing: "Philipps v. Jones, 28 App. 390; Murphy v. Fidelity Mut. Sol. J. 360." etc. Co., 69 Neb. 489, 95 N. W. 10 Citing: "Holmes v. Millage 1022; Miller v. Perkins, 154 Mo. [1893], 1 Q. B. 551; Harris v. Beau- 629; 55 S. W. 874. champ [1894], 1 Q. B. 801." In the absence of statutory aii- n Citing: "Lindley, L. J., in thority, a common law court will Holmes v. Millage [1893], 1 Q. B. not appoint a receiver. Walmsley 557." v. Mundy, 13 Q. B. Div. 812. GENERAL GROUNDS OF APPOINTMENT. 73 such cases it will be found that the statutory provisions have simply enlarged the circumstances under which a receiver mil be appointed. It will generally be found that statutory provisions upon the subject, in addition to giving statutory expression to the rules which have immemorially existed in chancery practice, have added some provisions for the appointment of a receiver after the rendition of judgment in order to carry the judgment into effect,^*' or provided for the appointment of a receiver in circumstances which do not constitute a pending suit, such as a special proceeding to forfeit a charter or fran- chise or dissolve a corporation.^' Sometimes such statu- tory provisions are merely regulatory of the manner in which the appointment should be made for the purposes of protecting the rights of the defendant,^ « as, for 10. Rev. Codes, section 6698, pro- viding for the appointment of a receiver after judgment to carry the judgment into effect, does not authorize the appointment of a re- ceiver when a money judgment has been recovered in a simple action at law, since the creditor can himself take the necessary steps to enforce the judgment. For- sell V. Pittsburg & Montana Cop- per Co., 42 Mont. 412, 113 Pac. 479. The power of a court to appoint a receiver exists only in cases pro- vided by statute; hence a statute providing for such appointment "after judgment to carry the judg- ment into effect" applies only to cases where the judgment affects specific property, and has no appli- cation to a simple money judg- ment, which can be enforced by a writ of execution. White v. White, 130 Cal. 597, 80 Am. St. Rep. 150, 62 Pac. 1062. IT People V. Washington Ice Co., 18 Abb. Pr. (N. Y.) 383; East Line etc. Ry. Co. v. State, 75 Tex. 434, 12 S. W. 690; Texas Trunk R. Co. V. State, 83 Tex. 1, 18 S. W. 199. An interesting case of statutory discussion in a case of this char- acter is that of the case of Have- meyer v. Superior Court, 84 Cal. 327, 18 Am. St. Rep. 192, 10 L. R. A. 627, 24 Pac. 121, in which compari- sons were made between the code provisions of California and those of New York in reference to receivers for corporations, from whence the California statute was derived, though varied in phrase- ology. IS Where by statute the court must sanction the filing of a bill in equity praying extraordinary re- lief, it has implied authority, in order to preserve the status upon allowing such bill, to appoint a temporary receiver of the property involved in the litigation. Young V. Hamilton, 135 Ga. 339, 69 S. E. r,93, Ann. Cas. 1912A, 144, 31 L. R. A. (N. S.) 1057. 74 LAW OF RECEIVERS. instance, in requiring certain bonds to be furnished by the plaintiff as a condition for the making of an ex patte appointment or upon the part of the receiver himself ;^^ while in other instances they enlarge the jurisdiction of the court to appoint receivers in a general way.-^ Some- times the statutory provisions on the subject are framed with a view to allowing the appointment of a receiver whenever justice requires such a remedy, regardless of the form of the action.^^ In some states the statutes on the subject after making specific provisions for the appointment of receivers in certain cases and in certain circumstances contain a provision that a receiver may be appointed ''in all other cases w^here receivers have here- tofore been appointed by the usages of the courts of equity,"-^ or phrases of like import, and under such stat- 19 Lee V. Stevens, 22 Ida. 670, 127 Pac. 680; Staar v. Moy Tong Koon, 145 111. App. 341. 20 John L. Roper Lumber Co. v. Wallace, 93 N. C. 22. 21 See section 1222 of the code. Hellebush v. Blake, 119 Ind. 349, 21 N. E. 976. 22 In Ward v. Inter-Ocean Oil etc. Co.. (Okl.) 153 Pac. 115, the court, in construing the effect of such a clause, said: "In this state, while we have a statute (section 4979. Rev. Laws 1910), in specific terms, authorizing the appoint- ment of a receiver in certain cases, yet the same statute au- thorizes their appointment 'in all other cases where receivers have heretofore been appointed by the usages of the courts of equity.' And so, after all, in deciding ques- tions arising under this head, the court must look for guidance to the established usages and cus- toms heretofore prevailing in the courts of equity. In such courts it is well established that in order to invoke this extraordinary rem- edy — the appointment of a receiver — the court must have before it facts, proven or admitted by the pleadings, sufficient to satisfy it that the property can be man- aged and preserved more advan- tageously to the interested parties by the court, through its agent, the receiver, than by the litigants or either of them. In this case, how- ever, it seems to us that, taking the facts as they stand established by the averments of the petition, together with the admissions of the answer, that the court acted properly in putting a receiver in charge. Neither this court nor the court below, when passing upon the necessity of a receiver, was trying the title, as between these two claimants, to the land in- volved. That was a question in the original suit; the one necessary and pivotal point to be determined in it. When the court came to con- GENERAL GROUNDS OF APPOINTMENT. 75 iitory provisions it is Leld that tlit^ appointment must be made under the autliority of some one of tlie specific cases sider the question of a receiver- ship, it then became its duty to (1) inquire whether, from the in- formation before it, plaintiff ap- peared to have a valid interest in the property involved; and (2) if so, whether the property was being used in such a way as to probably result in irreparable loss to plaintiff, in case he should finally prevail, or whether or not a receiver, if appointed, could pre- serve the property during the pendency of the litigation, so as to deliver it to the successful party at the end thereof, better and more surely than to leave it in the hands of the defendant." So also in Shaw v. Shaw, 51 Tex. Civ. 55, 112 S. W. 124, under Rev. St. 1895, art. 1465, 1-3, which pro- vides for the appointment of re- ceivers in certain specified cases, but in another section provided for the appointment in all other cases where receivers have heretofore been appointed by the usages of the court of equity, the court held that the latter language was not a limitation on the right given by the preceding sections, but an ex- tension of it, and when the facts in a particular case justify the appointment under the other sec- tions, the right is a legal one, and not dependent upon the general rules of practice in courts of equity. Under Code Civ. Proc, section 564, subd. 6, providing for appoint- ment of receivers in all cases where receivers have been ap- pointed by usages of courts of equity, receiver can not be ap- pointed in a partnership case in- volving merely legal rights on a mere showing that defendants were largely indebted and their property would be better con- served by appointment of receiver. First Nat. Bank v. Lassen County Superior Court, 12 Cai. App. 335, 107 Pac. 322. Where the complaint for the ap- pointment of a receiver was within one of the preceding subdivisions of Code Civ. Proc, sec. 564, the ap- pointment could not be justified under Subd. 6, which authorized the appointment in cases where receivers had previously been ap- pointed in equity. Dabney Oil Co.^ V. Providence Oil Co. of Arizona, 22 Cal. App. 233, 133 Pac. 1155. And where such a statute pro- vides that a receiver may be appointed "whenever such appoint- ment shall be deemed necessary," it is held that the statute is merely declaratory of the rule and prac- tice which had long prevailed in equity. Price v. Bankers Trust Co., (Mo.) 178 S. W. 745. The New York Code of 1848 had a provision authorizing the ap- pointment of receivers "in such other cases as are now provided by law or may be in accordance with the existing practice except as otherwise provided in this act." The court held that the inherent power of chancery courts to ap- point receivers in mortgage fore- closures continued as theretofore. It was also held that the intention of the code was not to abolish the old practice in such respects and was not exclusive, but permissive 76 LAW OF RECEIVERS. or circumstances mentioned in the statute or placed under the general chancery rules, in which case the appoint- ment ^vill then be dependent upon the principles of equi- table jurisprudence established by courts of chancery in the making of such appointments. It will be observed that the courts in proceeding under the authority of the statutory pro^dsions in force construe such provisions with reference to the decisions of the courts on the gen- eral subject and inject the spirit of the chancery rules in their construction of the statutes.^^ and declaratory. Hollenbeck v, Donnell, 94 N. Y. 342. In Colwell V. Garfield Nat. Bank, 119 N. Y. 409, 23 N. E. 739, the court said: "We need not deter- mine in this case whether the jur- isdiction of the Supreme Court to appoint receivers can be exercised only in the cases and under the circumstances prescribed by sec- tion 713 or by other statutes. But in cases where the provisions of section 713 are applicable and the statutory provisions furnish an adequate remedy, the power of the court is, we think, limited by that section, and it must proceed in the manner pointed out thereby or else its orders will be void." In Idaho the statute also pro- vides: "In all other cases where receivers have heretofore been ap- pointed by the usages of courts of equity." Commercial Trust Co. v. Idaho Brick Co., 25 Ida. 755, 139 Pac. 1004. Similar provisions in Washing- ton. Oleson V. Bank of Tacoma, 15 Wash. 148, 45 Pac. 734. 2.3 See Hartnett v. St. Louis Min. etc. Co., 51 Mont. 395, 153 Pac. 437. The discretion as to the appoint- ment of a receiver pursuant to Civ. Code, sec. 298, providing that it "may" be done on motion of a party to an action who shows a right to the property involved, and that it is in danger of being lost or removed, is not unlimited, and so where the remedies provided by sections 180-184, by claim and delivery and by special attach- ment, are open to plaintiff, and it is not shown that defendant is insolvent, or some other reason exists, rendering the other reme- dies inadequate, the appointment of a receiver in such case is un- authorized. McClure v. McGee, 32 Ky. Law. Rep. 1318, 108 S. W. 341. It is a well settled rule that where a new remedy is given by statute other than to enforce a new right, it is cumulative unless there is something in the law con- ferring it clearly indicating the contrary. Morgan v. South Mil- waukee Lake View Co., 100 Wis. 465, 76 N. W. 354. In North Carolina it is held that the code provisions do "not materially alter the equitable jur- isdiction" of the courts. Skinner V. Maxwell, 66 N. C. 45. Rev. Stats. 1909, § 2018, is merely declaratory of the equitable rule that a judge has sound judicial discretion to appoint a receiver GENERAL GROUNDS OF APPOINTMENT. 77 Perhaps the greatest statutory innovations in respect to receiverships have occurred in connection witli the appointment of receivers for corporations, and laws relating to such appointments have sometimes been con- fusing, on account of being in conflict with other statu- tory provisions providing for the dissolution of corpora- tions. Consequently where the effect of the receiversliip is the winding up of the corporation, particular attention must be observed to see that the proceeding is not one covered by the ordinary dissolution statutes, and if a receiver is sought some facts must exist which appeal to the chancery side of the court or specifically bring it within the statutory provisions. It is our opinion that although a statute may add circumstances in which a receiver may be appointed, it can not take away the power to make such appointments in cases where the facts warrant a receiver under the general rules of equitable jurisprudence, at least in any state where it is recognized that courts have the powers generally accorded to courts of equity. To take away the power of appointment in such cases would be to deprive a court of equity of one of the powers essential to its existence as such a court. We do not doubt, however, that it is within the power of such statutory provisions to regulate the exercise of the power, but with a regard to the dis- tinction between mere regulation and a destruction of the power. The matter is somewhat similar to the inherent power of a court to protect the exercise of its inherent functions by a resort to contempt proceedings. There are certain kinds of receivership proceedings which are not the exercise of chancery powers but merely appointments by courts of law as successive steps in an only for the promotion of justice, power in the court. Price v. Bank- where no other adequate remedy ers' Trust Co., (Mo.) 178 S. W. exists, and does not vest arbitrary 745. 78 LAW OF RECEIVERS. action at law irrespective of equitable considerations such as in supplementary proceedings and the like.-^ 24 Pacific Bank v. Robinson, 57 Cal. 520, 40 Am. Rep. 120; Habe- nicht V. Llssak, 78 Cal. 351, 12 Am. St. Rep. 63, 5 L. R. A. 713, 20 Pac. 874; Kimbrough v. J. K. Orr Shoe Co., 98 Ga. 537, 25 S. E. 576; Flint V. Zimmerman, 70 Minn. 346, 73 N. W. 175; Tvedt v. Mackel, 67 Minn. 24, 69 N. W. 475; Colton v. Bigelow, 41 N. J. L. 266; Rodman V. Henry, 17 N. Y. 482; Strong v. Epstein, 14 Abb. N. C. (N. Y.) 322; Ward V. Petrie, 157 N. Y. 301, 68 Am. St. Rep. 790, 51 N. E. 1002; Corbin v. Berry, 83 N. C. 27; Sparks v. Davis, 25 S. C. 381; Sec- ond Ward Bank v. Upmann, 12 Wis. 499. Where the assets of a debtor were about to be placed beyond a creditors reach, his right to a re- ceiver does not rest alone in equity, but also exists under the express provision of Vernon's Sayles's Ann. Civ. St. 1914, art. 2128. Bond-Reed Hardware Co. v. Walsh (Tex. Civ. App.), 181 S. W. 248. A receiver may be appointed in a law action if such appointment is authorized by statutory provis- ions. Paine v. Mueller, 150 Iowa 340, 130 N. W. 133. In respect to a case of an ordi- nary action at law for the recovery of a money judgment, the power to appoint a receiver, if it exists at all in any given case, exists by virtue of some statutory enact- ment. Miller v. Perkins, 154 Mo. 629, 55 S. W. 874. Civ. Code 1895, § 2716, authorizing a receiver for an insolvent trader at the instance of a creditor with- out lien or judgment, is in deroga- tion of the common law and must be strictly construed. Farmers' Union Warehouse Co. v. Coweta Fertilizer Co., 133 Ga. 132, 65 S. E. 291. The fact that Code Pub. Gen. Laws 1904, art. 16, § 192, provides that the court may at any stage of the cause, or matter concern- ing real or personal property, on its own motion, or on application, pass such order as it may see fit with regard to the possession of the property pendente lite, or the receipt of the income of the same, and gave a right of appeal as pro- vided in section 191, which author- ized an appeal in such manner and on such terms as is allowed in the case of injunction, and that sec- tion 190 provides that the court can at any stage of a cause or matter on its own motion, or on application, order a mandate or injunction as therein provided, does not abolish the rules relating to the appointment of receivers, and it is only when there is enough shown in the proceedings to authorize such appointment that the court can act on its own motion, or where the proceedings and application are sufficient for that purpose. Baker v. Baker, 108 Md. 269. 129 Am. St. Rep. 439, 70 Atl. 418. GENERAL GROUNDS OF APPOINTMENT. 79 § 22. Effect of Combining Legal and Equitable Powers in One Court. Where the same court possesses both legal and equi- table powers, the exercise of the power to appoint a re- ceiver is regarded as an exercise of its equitable juris- diction.i And under the uniform procedure acts allowing a plaintiff to seek both legal and equitable relief in one action, the appointment of a receiver can not be sought under circumstances where it would not have been made prior to such act.^ The fact that the appointment of a receiver in an action at law is authorized by a statute will not prevent a court which has both legal and equitable jurisdiction from exercising its equitable jurisdiction in a case which sets up facts furnishing ground for the appointment of a chancery receiver.^ § 23. Appointment of Receiver by Executive Officers. The appointment of a receiver has been held to be properly made by a governor under a statute allowing him to appoint a receiver for a certain specified insolvent bank. Such a statute was held not to constitute a vio- lation of the constitutional limitations respecting the province of the different departments of the government inasmuch as such an appointment of a receiver did not constitute a decree or judgment affecting property inter- ests nor decide any judicial rights.^ 1 Folsom V. Evans, 5 Minn. 418; v. Provident Sav. Life Assur. Soc, Sloan V. Moore. 37 Pa. St. 217. 126 Ga. 50. 54 S. E. 929. Courts invested with the power 3 Washington Iron Works v. Jen- of both courts of equity and law sen, 3 Wash. 584. 28 Pac. 1019. have an inherent power to appoint i In Carey v. Giles, 9 Ga. 253, an a receiver in all cases pending in appointment of a receiver by the such courts of equitable cogni- governor of the state, under the zance. Cox v. Volkert, 86 Mo. 505; provisions of an act of the legisla- Miller v. Perkins, 154 Mo. 629, 55 ture authorizing the governor to S W 874. appoint a receiver of a certain 2 Virginia-Carolina Chemical Co, named insolvent bank, was aus- 80 LAW OP RECEIVERS. The appointment of a receiver of a national bank b)- the Comptroller is also an instance of the appointment of a receiver by an executive officer and without the inter- position of a court. The appointment of the receiver by the Comptroller under such circumstances is a depart- mental and not a judicial act and the courts have no con- trol over the making of such an appointment. The right of the Comptroller to make the appointment is the result of an act of Congress.^ § 24. Right to Appoint Receiver Without Resorting to a Court. Sometimes a person is appointed a receiver of prop- erty ^dthout resorting to a court as the result of an agreement made at the time of the appointment or as a result of some prior contract providing for his appoint- ment under certain circumstances. Such a receiver or liquidator, as he is sometimes called, occupies no official position and must yield to a receiver appointed by a court and render an accounting to him.^ Such a receiver, tained. It was conceded that if the 2 Bushnell v. Leland, 164 U. S. appointment of a receiver was a 684, 41 L. Ed. 598, 17 Sup. Ct. 209; judicial act, the act of the legisla- Price v. Abbott, 17 Fed. 506; ture was unconstitutional. The Washington Nat. Bank v. Eckels, court in so holding said: "It was 57 Fed. 870. not a case of controversy between 1 Liquidators of an insolvent party and party; nor is there any bank appointed by the stockhold- decree or judgment affecting title ers occupy no ofRcial position, and to property; it determines no receivers subsequently appointed right, legal or equitable. The re- are the proper persons to main- ceiver is merely to collect, hold tain actions against them for an and disburse the assets of the accounting. Leidigh-Dalton Lum- bank for the benefit of all con- her Co. v. Houck, 138 La. 159, 70 cerned; and it is in the power of So. 72. the courts to direct and control The appointment of a receiver him in the proper execution of his of a national bank by the comp- duties." troller is also an instance of a non- A law allowing the governor to judicial appointment of a receiver, appoint a receiver to collect cer- See section 23. supra, tain taxes is adverted to in Loague In re Henry Pound, Son & Hutch- v. Brownsville Taxing Dist., 29 ins, 42 Ch. D. 402, it was held that Fed. 742. but no argument is made the court would not interfere with in regard to the question. the right of debenture holders to GENERAL GROUNDS OF APPOINTMENT. 81 who may properly be called a contractual receiver, is merely an agent of the parties appointing him.- The practice of making such appointments is quite common in England and is often provided for m voluntary disso- lution proceedings respecting a partner ship,=* and par- ticularly in connection with mortgages * and other inden- tures in which the rights of the parties to property or a fund are not terminated.^ In fact, the right of the parties to a mortgage to provide for such a receiver is expressly recognized by statute in England,*' but where he is ap- pointed under the terms of the statute, the terms of the statute are the limits of his authority in the same manner as if the statute was written into the mortgage or other instrument.^ appoint the receiver provided for under the terms of this security. The receiver to be appointed under such circumstances is lim- ited to the purposes of the con- tract under which he is appointed. Re Masltelyne British Type Writer [1895], 1 Ch. 133. 2 Jefferys v. Dicl^son, L. R., 1 Ch. 183; Law v. Glen, L. R., 2 Ch. G34; Owen & Co. v. Cronk [1895], 1 Q. B. 265; Gosling v. Gaskell [1897], A. C. 575; In re Vimbos [1900], 1 Ch. 470. Where a trust deed, executed to secure the debentures of a com- pany, authorizes the trustees to appoint a receiver in certain cir- cumstances, such receiver is re- garded as the agent of the company and is not held personally respon- sible for the expenses incurred by the receivership. Owen & Co. v. Cronk [1895], 1 Q. B. 265; Gos- ling V. Gaskell [1897], A. C. 575. 3 Prior V. Bagster W. N. [1887], 194, 57 L. T. 761. 4 Houldsworth v. Yorkshire etc. I Rec. — 3 Ass'n [1903], 2 Ch. 284; Tilings- worth v. Houldsworth [1904], A. C. 355; Craghan v. Maffett, 26 L. R. Ir. 671; Re Hale-Lilley v. Foad [1899], 2 Ch. 107. For forms of mortgages provid- ing for such receivers, see 2 Key & Elphinstone's Precedents, 8th ed., pp. 53, 167 and 251; also Palmer's Company Precedents, part 3, 9th ed., pp. 243, 285, 295, 402 and 403. 5 Cradock v. Scottish Provident Institutions, W. N. [1893] 146, W. N. [1894] 88, in connection with an agreement to pay an an- nuity. 6 23 and 24 Vict., ch. 145; 44 and 45 Vict, ch. 41. 7 Where the receiver is provided for in the mortgage merely in the terms of the conveyancing act of 1881, his duties and powers are limited by the terms of the act. White V. Metcalf [1903], 2 Ch. 567; In re Delia Rocella's Estate, 29 L. R. Ir. 464; Woolston v. Ross [1900], 1 Ch. 788. 82 LAW OF RECEIVERS. §25. Effect of Defendant Offering to Furnish Security to Protect Plaintiff. As we have shown before,^ it is within the power of the court to refuse to appoint a receiver on condition that the defendant furnish a bond to secure the plaintiff in the event of his recovery and also in cases where the receivership fund is of doubtful value to require a bond to secure the payment of the expenses of the receivership, but cases arise in which the defendant without being so required offers to furnish a bond to secure the plaintiff. In some states the right to furnish such a bond is given by statute and it naturally follows that where the defend- ant in such states brings himself clearly within the statu- tory provisions, no receiver should be appointed.- Re- gardless of statutory provisions allowing such a bond, it is quite clear that if it appears to the court that the rights of the plaintiff will be amply protected by the furnishing of such security, or in other words that there is no great probability of the plaintiff suffering any irreparable injury by the failure of the court to appoint a receiver, the court will refuse to appoint one.^ The matter is one resting in the discretion of the court and must be decided in view of the circumstances of each case. The question frequently arises in controversies between partners or in cases in which a partnership is claimed by one party and denied by the other.^ 1 See sections 15 and 16, supra, in lieu of appointing a receiver. 2 Roberts v. Pipkin, 63 S. C. 252, Valentine v. Muir, 121 N. Y. Supp. 41 S. E. 300. 704. 3 Where it is sought to appoint A receiver should not be ap- a receiver of crops which are pointed for property in the hands about to be harvested, such ap- of a trustee for creditors, who pointment should be refused where offers to file a bond in double the the defendant offers to give a bond value of the property, to in- to fully secure the plaintiff from demnify all persons interested, any loss. Stephens v. Kaga, 142 Branch v. Ward, 114 N. C. 148, Ind. 523, 41 N. E. 930. 19 S. E. 104. It is within the power of the ^ Likewise where the existence court to allow a bond to be given of a partnership is denied and the GENERAL GROUNDS OF APPOINTMENT. 83 Of course it must be remembered in cases of this sort tliat a receiver may be appointed regardless of the fact that the defendant is perfectly solvent where elements of irreparable injury are probable,^ or other circum- stances exist which make the appointment of a receiver proper under the general principles of the law appli- cable to the subject of receivers. defendant offers to produce secu- rity to pay any sum found to be due to the plaintiff, it is proper to discharge the receiver upon the filing of such security, since the rights of the parties will be prop- erly safeguarded. Popper v. Schei- der, 7 Abb. Pr. (N. S.) (N. Y.) 56, 38 How. Pr. (N. Y.) 34. Where partnership assets were sold by one partner to one who was solvent, and the nonconsent- ing partner sued to set the sale aside and asked the appointment of a receiver, and the purchaser offered to give a sufficient bond to obey the orders of the court in the matter and satisfy any judgment rendered against him, and it was not clear that the sale was fraud- ulently made, it is improper to appoint a receiver. Saverios v. Levy, 40 Hun 639, 1 N. Y. St. Rep. 758. In a suit between partners, where one partner offers to give adequate security against loss, there is insufficient ground for the appointment of a receiver. Bu- chanan V. Comstock, 57 Barb. (N. Y.) 568. 5 Mead v. Burk, 156 Ind. 577, 60 N. E. 338; Mannos v. Bishop-Bab- cock-Becker Co., 181 Ind. 343, 104 N. E. 579. CHAPTER III. GENERAL, EFFECT OF THE APPOINTMENT OF A RECEIVER AND DUTIES THEREUNDER. §26. Status of the Receiver Respecting Receivership Prop- erty. The appointment of a receiver pending the litigation does not in any way determine the rights of the parties to the litigation.^ He is but the arm of the court to take care of and administer the property placed under his charge as receiver as the court may from time to time direct.- Property in his hands is in custodia legis 1 Chicago Title & Trust Co. v. Chapman, 132 111. App. 55; Howell V. Hough, 46 Kan. 152, 26 Pac. 436; Harman v. McMullin, 85 Va. 187, 7 S. E. 349. The mere appointment deter- mines no right existing at the time. Chase's Case, 1 Bland (Md.) 206, 17 Am. Dec. 277. The appointment terminates no right as between the parties, nor does it affect the title. The court proceeds to determine the rights of the parties upon the same prin- ciples as if no change of posses- sion had occurred. Davis v. Bon- ney, 89 Va. 755, 17 S. E. 229. 2 International Trust Co. v. Decker Bros., 152 Fed. 78, 82, 81 C. C. A. 302, 11 L. R. A, (N. S.) 152. A receiver appointed upon the application of a secured creditor has no right to the custody of funds not arising from the prop- erty which has been pledged as security, and which may be ap- plied upon the claims of general unsecured creditors, if any. The possession in such case is co- extensive with the rights or lien of the plaintiff, and as to the owner of the property or creditors can not go beyond that. Wormser V. Merchants' Nat. Bank, 49 Ark. 117, 4 S. W. 198. The right of custody extends only to the property which is the subject-matter of the litigation. In a proceeding under a general creditors' bill of course the re- ceiver is entitled to the entire property, as in the case of bank- ruptcy and insolvency, or pro- ceedings to wind up banks, etc. Noyes v. Rich, 52 Me. 115. But in case of a mortgage foreclosure the right to possession extends only to the property mortgaged. Idem. He is but an arm of the court to take care of and administer the property, assets, and estate in suit, to do with it as the law may direct (84) EFFECT OF APPOINTMENT AND DUTIES. 85 and the court in the event that it determines that it had no jurisdiction to appoint the receiver^' still has juris- for the benefit of the parties con- cerned. While in theory he can do nothing without the court's order or sanction, he has, however, in matters of management and manner of disposition of the es- tate, a large discretion. Coy v. Title Guarantee & Trust Co., 198 Fed. 275. Whatever he does under order of the court regarding the property in his hands is the act of the court. His possession is not altered by an order vacating the appoint- ment of the receiver and substi- tuting another person in that posi- tion. State ex rel. Sullivan v. Reynolds, 209 Mo. 161, 15 L. R. A. (N. S.) 963, 123 Am. St. Rep. 468, 14 Ann. Cas. 198, 107 S. W. 487, 492. The order of appointment not only creates the office of receiver, but fills the office so created. In fact neither the office nor the ap- I ointee can exist in this particular class of offices without the other. Thurber v. Miller, 11 S. D. 124, 75 N. W. 900. A judgment appointing a re- ceiver never terminates a cause. It remains the duty of the court to make whatever orders may be necessary from time to time to settle the rights of all the parties claiming an interest in the estate, and any such order, if final in its nature, as to the particular parties and matters affected by it, may be the subject of a separate appeal. Barber v. International Co., 74 Conn. 652, 92 Am. St. Rep. 246, 51 Atl. 857. In a legal sense, property placed by a court in the hands of a re- ceiver is not in the receiver's pos- session, but in the court's through such receiver as its officer. McKin- non-Young Co. v. Stockton, 55 Fla. 708, 46 So. 87. He holds the funds in his hands subject to the orders of the court, having supervision over the receiv- ership, and all persons dealing with him are chargeable with knowledge thereof. Stone v. St. Louis Union Trust Co., 183 Mo. App. 261, 166 S. W. 1091. He is an officer of the court that appoints him, and derives his au- thority from its orders, and is accountable to it alone for the faithful performance of his office. City Bank of Wheeling v. Bryan, (W. Va.) 86 S. E. 8. .•! Beardsley Co. v. V. E. Ash- down & Co., 73 W. Va. 132, 80 S. E. 128. Property in the actual or con- structive possession of a receiver is in custodia legis, and can not be interfered with without leave of court. Pelletier v. Greenville Lumber Co., 123 N. C. 596, 68 Am. St. Rep. 837, 31 S. E. 855. Property placed in the hands of a receiver is in custodia legis, and in the exclusive control of the court appointing him. City Bank of Wheeling v. Bryan, (W. Va.) 86 S. E. 8. Money or property in the receiv- er's hands is in custodia legis. Delany v. Mansfield, 1 Hogan 234. A mere order that a receiver shall be appointed to take charge of the goods of defendant does not place such goods in custodia legis. Dutcher v. Culver, 24 Minn. 581. 86 LAW OF RECEIVERS. diction to restore the property to the owner or person having the legal title to it. He is a person indifferent as between the parties to the litigation and holding the property for the benefit of all of them, but his possession is really that of the court.^ The title to the property- does not change by reason of his appointment ^ and he The control of all controversies affecting the property after the appointment of a receiver lies in the court. Howell v. Hough, 46 Kan. 152, 26 Pac. 436. Possession is not essential to place the exclusive right to control the property in the power of the court appointing the receiver. Re- genstein v. Pearlstein, 30 S. C. 192, 8 S. E. 850. A "receiver"' is an oflficer of the court that appoints him, and de- rives his authority from its orders, and is accountable to it alone for the faithful performance of his office. City Bank of Wheeling v. Bryan, (W. Va.) 86 S. E. 8. 4 Green v. Coast Line R. Co., 97 Ga. 15, 54 Am. St. Rep. 379, 33 L. R. A. 806, 24 S. E. 814. State v. Norfolk & S. R. Co., 152 N. C. 785, 21 Ann. Cas. 692, 26 L. R. A. (N. S.) 710, 67 S. E. 42. Ordinarily the appointment of a receiver does not vest in him any title to the property involved, but only the right of possession. Gates V. Smith, 176 Ala. 39, 57 So. 438. nCrine v. Davis, 68 Ga. 138; Southern Bank of Kentucky v. Ohio Ins. Co., 22 Ind. 181; Ellis v. Boston etc. R. Co., 107 Mass. 1; Bell V. American Protective League, 163 Mass. 558, 47 Am. St. Rep. 481, 28 L. R. A. 452, 40 N. E. 857; First Nat. Bank of Detroit v. E. T. Barnum Wire etc. Works, 60 Mich. 487, 27 N. W. 657; Maynard V. Bond, 67 Mo. 315; Heiman v. Fisher, 11 Mo. App. 275; Owen v. Kellogg (Owen v. Homeopathic Mut. L. Ins. Co.), 56 Hun (N. Y.) 455, 10 N. Y. Supp. 75; Pringle v. Woolworth, 90 N. Y. 502; Attorney General v. Atlantic etc. Ins. Co., 100 N. Y. 279, 3 N. E. 193; Ex parte Dunn, 8 S. C. 207; Beverley V. Brooke, 4 Grat. (Va.) 187; Mur- tey V. Allen, 71 Vt. 377, 76 Am. St. Rep. 779, 45 Atl. 752; State v. Su- perior Court of Snohomish County, 7 Wash. 77, 34 Pac. 430; State v. Superior Court of Chehalis County, 8 Wash. 210, 25 L. R. A. 354, 35 Pac. 1087; Wiswall v. Sampson, 14 How. (55 U. S.) 52, 14 L. Ed. 322; Union Nat. Bank v. Bank of Kan- sas City, 136 U. S. 223, 34 L. Ed. 341, 10 Sup. Ct. 1013; Pennsylva- nia Steel Co. v. New York City R. Co., 198 Fed. 721, 117 G. C. A. 503, reversing decrees (C. C.) ; In re New York City R. Co., 188 Fed. 339, and (C. C.) Pennsyl-'^ania Steel Co. V. New York City R. Co., 188 Fed. 343; modifying decrees (C. C.) Pennsylvania Steel Co. v. New York City R. Co., 189 Fe':l. 661, 190 Fed. 609, and (D. C.) 189 Fed. 661, 194 Fed. 543. As a rule the receiver takes no title to the property. Matthews v. Cooper, 49 N. Y. St. Rep. 792, 796, 21 N. Y. Supp. 71. The appointment does not in any manner change the title to or right of possession of the prop- EFFECT OF APPOINTMENT AND DUTIES. 87 consequently obtains no greater rights to a fund in the hands of a third person than has the party for whom he is receiver,^ but he has the same rights wliich erty, but merely places in the receiver its custody for the bene- fit of the party ultimately found to be entitled to it. Union Nat. Bank v. Bank of Kansas City, 136 U. S. 223, 34 L. Ed. 341, 10 Sup. Ct. 1013; Owen v. Kellogg, 56 Hun 4.55. 10 N. Y. Supp. 75. The receiver is the hand of the law and the law conserves and en- forces rights — never desti'oys them. His appointment determines no right and in no way affects the title of any party to the property in litigation. Von Roun v. San Francisco Superior Court, 58 Cal. 358. He holds the property sub- ject to all liens of every kind. While property is in the hands of a receiver, or under the control of the court, no execution can be levied upon it; but the fi. fa. cre- ates a lien thereon. Davis v. Bon- ney, 89 Va. 755, 17 S. E. 229. A receiver is an officer of the court, but his appointment deter- mines no right, nor does it affect the title of the property in any way; it will not prevent the run- ning of the statute of limitations. His holding is the holding of the court for him from whom the pos- session was taken. He is appointed on behalf of all parties and if any loss arises from deficiency in his accounts the estate must bear it. Ellicott V. United States Ins. Co., 7 Gill (Md.) 307. If the appointment of a receiver interferes with the rights of a stranger to the suit, he may apply to the court for the protection of his rights, though he can not have the benefit of the receivership. Howell v Ripley, 10 Paige (N. Y.) 43. A receiver of the effects of an insolvent auctioneer was ap- pointed. The auctioneer had sold goods for a party and with his knowledge and consent deposited the money arising therefrom to his general account at the bank. After the appointment and notice thereof to the bank, the auctioneer drew a check in favor of this principal for the amount due him and gave him an assignment of an amount on demand equal to the amount of the check. Held, that the principal thereby gained no right to the moneys on deposit, nor of action against the bank. All title to the moneys passed to the receiver on the day of his appointment and by virtue thereof. Levy v. Cavanagh, 2 Bosw. (N. Y.) 100. ' The appointment of a receiver in a suit to foreclose a mortgage against a lessee will not deprive the lessor of the right to obtain possession of the premises under the forcible entry and detainer statute. Woodward v. Winehill, 14 Wash. 394, 44 Pac. 860. A receiver holds the property coming into his hands by the same right as the person for whose property he is the receiver. Law- son V. Warren, 34 Okl. 94. Ann Cas. 1914C, 139, 42 L. R. A. (X. S.) 183, 124 Pac. 46. McBride v. American Ry. etc. Co., 60 Tex. Civ. App. 226, 127 S. W. 229. The general rule is well estab- 88 LAW OF RECEIVERS. such party has in it. In other words, a receiver holds the property coming into his hands by the same right lished that a receiver takes the title of the corporation or individ- ual whose receiver he is and that any defense which would have heen good against the individual or corporation may be asserted against the receiver. Republic Life Ins. Co. v. Swigert, 135 111. 150, 12 L. R. A. 328, 25 N. E. 6S0; Hyde v. Lynde, 4 N. Y. 387; Hig- gins v. Gillesheiner, 26 N. J. Eq. 308. But to this rule there is a well recognized exception which per- mits a receiver of an insolvent individual or corporation in the interest of creditors to disaffirm dealings of the debtor in fraud of their rights, but as we have seen elsewhere, this rule Is de- pendent upon statutory powers and not upon the inherent equity powers of the court. Pittsburg Carbon Co. v. McMillin, 119 N. Y. 46, 7 L. R. A. 46, 23 N. E. 530; Gillet V. Moody, 3 N. Y 479; Por- ter V. Williams, 9 N. Y. 142, 59 Am. Dec. 519; Curtis v. Leavitt, 15 N. Y. 9, 108. Under the Michigan voluntary assignment law the receiver gets no better title than the assignee had. In general the rights and powers of the person or corpora- tion over whose property the re- ceivership extends, measures the rights and powers of the receiver in his relation to third parties, and all causes of action, or de- fenses, existing in favor of the former are available to the latter. Wisconsin Marine & F. Ins. Co. Bank v. Manistee Salt & L. Co., 77 Mich. 76, 43 N. W. 907; Farring- ton V. Sexton, 43 Mich. 454, 5 N.W. 654; Lentz v. Flint & P. M. R. Co., 53 Mich. 444, 19 N. W. 138; Byles v. Kellogg, 67 Mich. 318, 34 N. W. 671. Under Pub. Laws 1905, ch. 85, 3, receiver held to succeed only to the rights of the defendant in the receivership suit, and not to the rights of creditors. Folsom v. Smith, 113 Me. 83, 92 Atl. 1003. A receiver occupies the position of the debtor so far as the pro- ceeds of the fund or property are concerned. Crine v. Davis, 68 Ga. 138. Seizure of a debtor's property as property of another by third person is ineffectual as against owner's receiver. Generotzky v. Barnay Hotel Co., 85 N. J. Eq. 63, 95 Atl. 865. A court may appoint a receiver to take possession of property, whether the property is in the im- mediate possession of the defen- dant or his agent, and may order the agent or employees of defen- dant, though not parties to the record, to deliver the specified property to the receiver. Severns V. English, 19 Okl. 567, 101 Pac. 750. A subcontractor of a firm of con- tractors for a courthouse for a county in Wisconsin, who brings suit as authorized by statutes, against the county and the firm more than a month before the filing of a bill for the dissolution of the firm and an accounting, ac- quires priority over other creditors in the fund, and he may prosecute the action to judgment and enforce EFFECT OP APPOINTMENT AND DUTIES. 89 and title as the person for whose property he is receiver, A subject to all liens, priorities, and equities existing at/ the time of his appointment^/ From his position as the his priority. Rickman v. Rickman, 180 Mich. 224, Ann. Cas. 1915C, 1237, 146 N. W. 609. The receiver of an insolvent bank acquired no greater rights to funds deposited with a third party for the bank's benefit than the bank had. McBride v. American Ry. & Lighting Co., 60 Tex. Civ. App. 226, 127 S. W. 229. 7 Hoffman v. Schoyer, 143 111. 598, 28 N. E. 823; Mulcahey v. Strauss, 151 111. 70, 37 N. E. 702; Chicago Title & Trust Co. v. Smith, 158 111. 417, 41 N. E. 1076; Bates V. Wiggin, 37 Kan. 44, 1 Am. St. Rep. 234, 14 Pac. 442; Rickman v. Rickman, 180 Mich. 224, Ann. Cas. 1915C, 1237, 146 S. W. 609; Cox v. Volkert, 86 Mo. 505; Kirkpatrick v. McElroy, 41 N. J. Eq. 539, 7 Atl. 647; Gere v. Dibble, 17 How. Pr. (N. Y.) 31; VanAlstyne v. Cook, 25 N. Y. 489; Becker v. Torrance, 31 N. Y. 631; Davenport v. Kelly, 42 N. Y. 193; Commercial Pub. Co. v. Beckwith, 167 N. Y. 329, 60 N. B. 642; Ard- more Nat. Bank v. Briggs Ma- chinery etc. Co., 20 Okla. 427, 129 Am. St. Rep. 747, 16 Ann. Cas. 133, 23 L. R. A. (N. S.) 1074, 94 Pac. 533; Lawson v. Warren, 34 Okla. 94, Ann. Cas. 1914C, 139, 42 L. R. A. (N. S.) 183, 124 Pac. 46; Hays v. Lycoming Fire Ins. Co., 99 Pa. 621; Central Trust Co. v. Wabash, St. L. & P. R. Co., 46 Fed. 26; Adams v. Spokane Drug Co., 57 Fed. 889, 23 L. R. A. 334; Lowen- berg v. Jeffries, 74 Fed. 385; Black V. Manhattan Trust Co., 213 Fed. 692; Kneeland v. American Loan & T. Co., 136 U. S. 89, 34 L. Ed. 379, 10 Sup. Ct. 950; Scott V. Armstrong, 146 U. S. 499, 36 L. Ed. 1059, x3 Sup. Ct. 148. "A receiver by his appointment as such acquires no greater or su- perior right or interest in the property coming into his hands than the debtor had, and in this relation may be said to stand in the shoes of the debtor; and, fur- thermore, as a general rule the receiver takes the property in the same plight and condition, and subject to the same equities and liens, as he finds it in the hands of the person or corporation out of whose hands it is taken. 34 Cyc. 191, 193." Black v. Manhattan Trust Co., 213 Fed. 692. A receiver takes the debtor's property subject to the legal and equitable rights of third persons. Gage Lumber Co. v. McEldowney, 207 Fed. 255, 124 C. C. A. 641, reversing decree (D. C.) ; In re Clairfield Lumber Co., 194 Fed. 181. A receiver can not place the creditors having an equity in a worse condition and the creditors having no equity in a better con- dition than they occupied before his appointment. American etc. Bank v. McGettigan, 152 Ind. 582, 71 Am. St. Rep. 345, 52 N. E. 793. A receiver to sequestrate the property of a corporation and ap- ply it to the payment of corporate debts can not question the validity of a mortgage executed by the cor- poration to secure the debt of its president, where none of the cred- itors represented by him were 90 LAW OF RECEIVERS. representative of the court he is said to represent both the clebl.Dr and the creditors, although he is not their such at the execution of the mort- gage. Osborn v. Montelac Park, 89 Hun 167, 35 N. Y. Supp. 610. A receiver's possession is sub- ject to all valid and existing liens upon the property at the time of his appointment, and does not de- rest a lien previously acquired in good faith. Chicago Title & T. Co. V. Smith, 158 111. 417, 41 N. E. 1076. • A transfer of a trustee of ac- counts belonging to a corporation, duly made and noted on the books of the corporation under authority of the board of directors and ac- cepted by the trustee in writing, with notice from him to the par- ties whose accounts are assigned, and also to the persons for whom he is acting as trustee, is sufficient to vest in the trustee the right to the money derived from the ac- counts, although on the same day, but subsequent to such transfer, a bill was filed for the appoint- ment of a receiver and the winding up of the affairs of the corpora- tion. Chicago Title & T. Co. v. Smith, 158 111. 417, 41 N. E. 1076. The right of the assignee in bankruptcy of a firm to bring any and all suits which concern the estate or trust is not affected by the appointment of a receiver of the property of an individual hold- ing assets of the firm in trust, and the passing of the legal title to such receiver. Shainwald v. Da- vids, 69 Fed. 687. The lien of encumbrances is not alTected by the appointment of the receiver. Bryant v. Bull, L. R., 10 Ch. Div. 153. As a ge/ieral rule a receiver can not maintain an action on an ob- ligation which the original party to whom it ran could not have maintained. Hollander v. Heaslip, 222 Fed. 808, 137 C. C. A. 1. The appointment of a receiver for a debtor's property in an action by a creditor will not affect vested rights or interests of third per- sons therein. Albien v. Smith, 24 S. D. 203, 123 N. W. 675. Nor has a liquidator power to recover in an action by him where the company itself could not have recovered. Waterhouse v. Jamie- son, L. R. 2 H. L. (Sc.) 29. As a general rule the appoint- ment of a receiver does not affect vested rights or interests of third persons in the receivership prop- erty, or disarrange the order of priority of existing liens, particu- larly where the lienors have not been made parties nor intervened. Hulings V. Jones, 63 W. Va. 696, 60 S. E. 874. Defenses available against the holder of a note are available against a receiver appointed under a decree of court to collect the note. Hutchins v. Langley, 27 App. D. C. 234. Under the code provisions, prop- erty of a harvester company, left in the storehouses of a hardware company, as its agent, behind sign of latter, is the property of the hardware company as to creditors, of which the receiver of the hard- ware company is entitled to pos- session, notwithstanding replevin by harvester company before ap- pointment of receiver. Payne Hard- ware Co. V. International Harves- ter Co., 110 Miss. 783, 70 So. 892. EFFECT OF APPOINTMENT AND DUTIES. 91 agent.^ His possession, liowevfcr, is not adverse to either tJie plaintiff or the defendant of the litigation in The effect of the appointment of a receiver is not to oust any per- son of his right to the possession of the property, but merely to re- tain it for the benefit of the party who may ultimately appear to be entitled thereto. In re John L. Nelson & Bros. Co., 149 Fed. 590. Where attorneys have been em- ployed to foreclose a mortgage, and pending the foreclosure pro- ceedings a receiver is appointed over the property of the mort- gagee, although the receiver takes the mortgage or its proceeds, he does so subject to the lien of the attorneys for the payment of their fees for services in the foreclosure proceedings. They can not assert against the mortgage fund, how- ever, any claim for other services performed in other matters for the mortgagee. Bowling Green Sav. Bank v. Todd, 64 Barb. (N. Y.) 146. The appointment does not re- lease the property from the effect of prior existing liens, but it af- fects, however, the manner and time of their enforcement. Hoff- man V. Schoyer, 143 111. 598, 28 N. E. 823; Dann Mfg. Co. v. Park- hurst, 125 Ind. 317, 25 N. E. 347; Arnold v. Weimer, 40 Neb. 216, 58 N. W. 709; Cherry v. Western Washington Ind. etc. Co., 11 Wash. 586, 40 Pac. 136; Kneeland v. American Loan etc. Co., 136 U. S. 89, 34 L. Ed. 379, 10 Sup. Ct. 950. While property is in the posses- sion of a receiver, the right to enforce liens against it is gener- ally suspended, for the reason that it is in the custody of the court. Dann Mfg. Co. v. Parkhurst, 125 Ind. 317, 25 N. E. 347; State v. Superior Court, 7 Wash. 77, 34 Pac. 430; State v. Superior Court, 14 Wash. 324, 44 Pac. 542. A power of attorney to collect rents and apply them to a debt, which was given as security for a loan, is not revoked by the ap- pointment of a receiver for the grantor's property. Abbot v. Strat- ton, 3 Jo. & Lat. 603. s A receiver appointed to take possession of property involved in the litigation during the pendency of the suit, who does not stand as the representative of any of the parties, nor file any pleadings in the case, is not a necessary or proper party in a proceeding in error brought to review the judg- ment rendered in such suit. Grand De Tour Plow Co. v. Rude Bros. Mfg. Co., 60 Kan. 145, 55 Pac. 848. A receiver does not act as agent of the company of which he is ap- pointed receiver, or on its behalf alone, but is appointed to preserve property pending litigation, or to wind up the affairs of an insolvent, reduce its property into cash, and distribute it among its creditors. Rochester Tumbler Works v. Mitchell Woodbury Co., 215 Mass. 194, 102 N. E. 438. The effect on the creditor of the taking over by a receiver of the general assets of the debtor is to substitute for the right of action, in personam, theretofore existing, a right to a proportional share of the impounded assets, together with a right to receive such a part thereof as his total proved demand bears to the total of all demands, unaffected by the fact that he 92 LAW OF RECEIVERS. which he has been appointed.^ The position of the receiver in respect to the court appointing him is some- what analogous to that of the Sheriff in respect to a court of law.^" The general principles of law which gov- ern the relation of the court, acting through its receiver, in relation to the receivership property was well stated by the Court of Appeals of New York in a well considered case,^^ in wdiich the court said: ''No principle has been more frequently asserted or is so well established as thjt where a court of equity has jurisdiction over a ca-ase for any purpose, it may retain the cause for all purposes and proceed to a final determination of all the matters at holds security for a part or all ot his debt. In re E. Bemenfs Sons (Detroit Trust Co. v. State Bank of Michigan), 150 Mich. 530, 114 N. W. 327, 14 Detroit Leg. N. 672; In re E. Bement's Sons (Detroit Trust Co. V. Old Nat. Bank), 150 Mich. 530, 114 N. W. 327, 14 De- troit Leg. N. 672; In re E. Be- ment's Sons (Detroit Trust Co. v. Michigan Sav. Bank), 150 Mich. 536, 114 N. W. 329, 14 Detroit Leg. N. 784. A receiver appointed by the court in the progress of litigation acts as receiver for all the parties interested; but he is not the agent for the parties in the sense that each of the parties interested in the litigation is personally sever- ally responsible for his wrongful or negligent acts. City Savings Bank v. Carlon, 87 Neb. 266, 127 N. W. 161. The receiver of a corporation represents both the creditors and stockholders and may assert their rights when affected by the fraud- ulent or illegal acts of the corpora- tion. Gillct V. Moody, 3 N. Y. 479. A receiver represents both the creditors and their debtor, he being the trustee of both and bound to serve both, but his right to represent the creditors in op- posing a contract entered into by the debtor is generally limited to questions of fraud, though he may be heard individually when he as- serts a personal right, although precluded from being heard as a receiver. In re Pleasant Hill Lum- ber Co., 126 La. 743, 52 So. 1010. 9 Wilkinson v. Lehman-Durr Co., 136 Ala. 463, 34 So. 216; Mays v. Rose, Freem. Ch. (Miss.) 703. 10 In re Merchants Ins. Co., 3 Biss. 162, 165, Fed. Cas. No. 9441. Although the appointment of a receiver operates very much as an equitable execution, it reaches only the actual interest of the debtor in the property covered by the receivership. Longfellow v. Barnard, 58 Neb. 612, 76 Am. St. Rep. 117, 79 N. W. 255. 1 1 McGean v. Metropolitan Ele- \ated Ry. Co., 133 N. Y. 9, 30 N. E. 647. EFFECT OF APPOINTMENT AND DUTIES. 93 issue. To sucli an extent has the doctrine been carried ^y^ that it has been declared that if the controversy contains an equitable feature, or requires any purely eqaitable relief belonging to the exclusive jurisdiction of equity, or pertaining to the concurrent jurisdiction of equity and law, and a court of equity thus acquires a partial cognizance of an action, it may go to a complete adjudi- cation and establish purely legal rights and grant legal remedies which would otherwise be beyond the scope of its authority." Some confusion has arisen in respect to the character of the rights of the receiver over property belonging to the receivership because of a loose way of using the term *' title" in speaking of the relation of the receiver toward the receivership property. The term -title" is often used in this connection in the sense of the rights of con- trol of the receiver rather than in that of ownership. The receiver's title has reference more particularly to the right to the possession and control of the property, real or personal, for the time being, rather than to the ownership thereof. There are cases in matters of insol- vency and wunding up proceedings where the absolute legal title becomes vested in the receiver, and not unfre- queutly in the earlier practice the owner was required to execute and deliver to the receiver a formal conveyance of the property owned by him at the date of granting the receivership. In other cases the receiver is the mere custodian for the time being of the property of the debtor, charged with the duty of caring for the same, collecting the rents in case of real estate, and the income and profits in case of personal property, and transferring the title as an officer of and as ordered by the court. In tliis latter case the receiver, strictly speaking, has no title to the property, and where the title of such a receiver is referred 94 LAW OF RECEIVERS. to it has reference solely to Ms right of possession under the order of court, and as an officer of the court, the scope of his authority in all cases being measured by the order of his appointment, having reference to the character of the property, and the rights therein of the plaintiffs at whose instance he is appointed, and the owner over whose property he is placed in custody. In many cases the actual manual possession of the property is not intended to be placed in the receiver, but he is only charged with the collection of the rents and profits, and in such case his possession is only constructive, and rights so far as third parties are concerned are largely dependent on the doctrine of lis pendens}" 12 In Union Nat. Bank v. Bank of Kansas City, 136 U. S. 223, 34 L. Ed. 341, 342, 10 Sup. Ct. 1013, Mr. Justice Gray says: "A re- ceiver derives his authority from the act of the court appointing him and not from the act of the parties at whose suggestion or by whose consent he is appointed; and the utmost effect of his ap- pointment is to put the property from that time into his custody as an officer of the court for the ben- efit of the party ultimately proved to be entitled, but not to change the title or even the right of pos- session in the property." Skip v. Harwood, 3 Atk. 564; Anon., 2 Atk. 15; Wiswall v. Sampson, 55 U. S. (14 How.) 52, 14 L. Ed. 322; Ellis V. Boston, H. & E. R. Co., 107 Mass. 1; Maynard v. Bond, 67 Mo. 315; Heiman v. Fisher, 11 Mo. App. 275. In Yeager v. Wallace, 44 Pa. 294, it was held that a re- ceiver of partnership effects could not maintain trover for the con- verted assets of the firm before the appointment, on the ground that the receiver does not become the legal owner of the property which he is required to take in charge. The appointment does not transfer to the receiver the legal rights of the partnership in any of their choses in possession or in action. Wilson v. Allen, 6 Barb. (N. Y.) 545. In Mann v. Pentz, 2 Sandf. Ch. (N. Y.) 257, it was held that the effect of the order was to vest the property in the receiver as effectually in equity as if an assignment had been made in due form. The prop- erty is transferred by operation of law by means of the order of the court; and equity looking at the substance will hold the trans- fer accomplished which has been decreed. In re Eagle Iron Works, 8 Paige (N. Y.) 386; Eldred v. Hall, 9 Paige (N. Y.) 640. In a foreclosure proceeding in Harland V. Bankers & M. Teleg. Co., 32 EFFECT OF APPOINTMENT AND DUTIES. 95 Fed. 305, it was held that a re- ceiver ptndente lite is a mere castodian ot the mortgaged prop- er^^^y, and not being appointed under a statate acquired no title to the property which belonged to the mortgagee. In Union Trust Co. v. Weber, 96 111. 34G, it is said: "VVa are aware of no rule of law or any adjudged 'case independent of a statute that holds the appointment of a re- ceiver transfers the title of real or personal property to the person thus appointed. Nor do we con- ceive by what means such an ap- pointment can have that effect. That officer by his appointment is authorized to take and hold pos- session of property under the con- trol and direction of the court." In Atty. Gen. v. Atlantic Mut. L. Ins. Co., 100 N. Y. 279, 3 N. E. 193, it was held that under the New York statute (Act 1869, § 7) the title to real estate of the debtor be- came vested in the receiver by his appointment, as well as per- sonal property. And if this were not true the receiver is the holder of the equitable title accompanied by possession, and a conveyance could be ordered by the court if necessary. See, also. Decker v. Gardner, 124 N. Y. 334, 11 L. R. A. 480, 26 N. E. 814; Wing v. Disse, 15 Hun (N. Y.) 190; Osgood v. Maguire, 61 N. Y. 524; Owen v. Smith, 31 Barb. (N. Y.) 641; Atlas Bank v. Nahant Bank, 23 Pick. (Mass.) 480. The power of the court to invest the receiver with the legal as well as the equitable title would seem to be unques- tioned. Atty. Gen. v. Atlantic Mut. L. Ins. Co., 100 N. Y. 279, 3 N. E. 193; Chautauque County Bank v. Risley, 19 N. Y. 369. 75 Am. Dec. 347; Hoyt v. Thompson, o N. Y. 320; Scott V, Elmore. 10 Hun (N. Y.) 68; Union Trust Co. v. Weber, 96 111. 348; Adams v How- ard, 22 Fed. 656, 23 Blatchf. 27; Wilmer v. Atlanta & R. Air Lino R. Co., 2 Woods 409, Fed. Cas. No. 17775; Noyes v. Rich, 52 Me. 115; Ellis v. Boston, H. & E. R. Co., 107 Mass. 1. In Coates v. Cun- ningham, 80 111. 467, the court say: "The appointment of a re- ceiver does not determine any rights nor affect the title of either party in any manner whatever. He is the officer of the court, and his holding is the holding of the court for him, from whom the pos- session was taken. He is ap- pointed on behalf of all parties, and his appointment is not to oust any party of his rights to the possession, but merely to retain it for the benefit of the party ulti- mately entitled; and where he is ascertained the receiver will be considered as his receiver." EUi- cott V. Warford, 4 Md. 80; Re Col- vin, 3 Md. Ch. 280; Porter v. Wil- liams, 9 N. Y. 142, 59 Am. Dec. 519. Real estate is vested in the re- ceiver only by a conveyance to him. St. Louis & S. Coal & M. Co. V. Sandoval Coal & M. Co., Ill 111. 32; Chautauque County Bank v. Risley, 19 N. Y. 369, 75 Am. Dec. 347; In re Colvin, 3 Md. Ch. 278; Williamson v. Wilson, 1 Bland. (Md.) 418. In Tillinghast v. Champlin, 4 R. I. 173, 67 Am. Dec. 510, it was held that a receiver of a dissolved copartnership appointed by a court of equity is invested with the whole equitable title to the partnership property, without 96 LAW OF RECEIVERS. § 27. Relation of the Receiver to Pending Litigation. The appointment of a receiver does not operate as an abatement of actions pending against the defendant ^ in an assignment; and in Fincke v. Funke, 25 Hun (N. Y.) 616, it was held that a receiver in a partner- ship case pendente lite has no powers except such as have been conferred upon him by the order, and is a common law receiver whose duty it is to merely pro- tect the fund pending litigation. The order appointing him makes no change in the title. Keeney V. Home Ins. Co., 71 N. Y. 396, 27 Am. Rep. 60. In proceedings sup- plementary to execution, however, and in cases of embarrassed or insolvent corporations, and statu- tory proceedings, his powers are greater. 1 Alabama Terminal R. Co. v. Bonus, 189 Ala. 590, 66 So. 589. Steinhauer v. Colmar, 11 Colo. App. 494, 55 Pac. 291; American Nat. Bank v. Robinson, 141 Ga. 78, 80 S. E. 555, and see Citizens Bank of Georgia v. Hubbard, 70 Ga. 411; Toledo W. & W. Ry. Co. v. Beggs, 85 111. 80, 28 Am. Rep. 613; Mer- cantile Ins. Co. V. Jaynes, 87 111. 199; Manker v. Phoenix Loan Assoc, (Iowa) 96 N. W. 982; Wei- gen V. Council Bluffs Ins. Co., 104 Iowa 410, 73 N. W. 862; O'Mara v. Newton etc. R. Co., 156 Iowa 701, 137 N.'W. 942; Hunt v. Columbian Ins. Co.. 55 Me. 290, 92 Am. Dec. 592; Kittredge v. Osgood (Page v. Supreme Lodge etc.), 161 Mass. 384, 37 N. E. 369; American En- gine Co. V. Crowley, 105 Minn. 233, 117 N. W. 428; Heath v. Missouri etc. Ry. Co., 83 Mo. 617; St. Louis etc. Ry. Co. v. Holladay, 131 Mo. 440, 33 S. W. 49; Cooper v. Phila- delphia Worsted Co., (N. J.) 57 Atl. 733; compare Morton v. Stone Harbor Imp. Co., (N. J.) 44 Atl. 875; Tracy v. Selma First Nat.. Bank, 37 N. Y. 523; Fleischauer v. Dittenhoefer, 49N. Y. Super. Ct. 311; Wilson v. Wilson, 1 Barb. Ch. (N. Y.) 592; Parry v. American Opera Co., 12 Civ. Proc. Rep. 194, 9 N. Y. St. Rep. 536; People v. Commercial Alliance Life Ins. Co., 5 App. Div. 273, 39 N. Y. Supp. 117; People V. Troy Steel etc. Co., 82 Hun 303, 31 N. Y. Supp. 337. See also Waverly Co. v. Worthington Co., 4 Misc. Rep. 447, 24 N. Y. Supp. 331; Monnett v. Columbus etc. Ry. Co., 26 Ohio Cir. Ct. Rep. 469; Wagner v. Keystone Mut. Ben. Assoc, 8 Pa. Dist. Ct. 231; Van Dusen v. Blake. 20 Wkly. Notes Cas. (Pa.) 45; Gadsden v. Whaley, 14 S. C. 210; Kansas City etc Ry. Co. v. State, (Tex. Civ.) 155 S. W. 561; Mercantile Trust Co. V. Pittsburgh etc R. Co., 29 Fed. 732; Pine Lake Iron Co. v. La Fayette Car Works, 53 Fed. 853; Wilder v. New Orleans, 87 Fed. 843, 58 U. S. App. 109, 31 C. C. A. 249; Bowker v. Haight etc. Co., 147 Fed. 923. "The appointment of a receiver is not a bar to suits brought against the corporation before the bill in this case was filed, nor do such suits abate in consequence of such appointment. The re- ceiver can appear in and defend such suits if the interests he rep- resents render it proper or neces- A EFFECT OF APPOINTMENT AND DUTIES. 97 the receiversliip proceeding. If the parties to the pend- ing suit prefer to proceed with the suit and obtain the reHef sought in that proceeding, thoy will not, however, obtain by their judgment or decree any priority over other claimants to the receivership property.^ Where the pending proceeding is one for the benefit of the receivership estate, such as an action to set aside cer- tain transfers as having been in fraud of creditors, it is proper for the court to stay the further prosecution of the pending action upon the commencement of a simi- lar action by the receiver.^ Ordinarily, however, the practice is to allow the pending action to proceed to judgment regardless of the receivership proceedings.* The receiver does not by reason of his appointment be- come substituted as a party to suits pending against the defendant in the receivership proceedings. In order to make him a party to such pending suits he should be sary. Whether the claims of the defendants are such that actions at law can he maintained on them is a question we can not consider in this proceeding. If they are, we see no reason why the defen- dants should not proceed to judg- ment, if they desire to do so. Whether judgments rendered after the bill was filed can be proved before the receiver, or whether the proof should be the original de- mands as they existed at the time the bill was filed, made up in the same manner as other claims of the same kind, and what the effect of obtaining such judgments would be upon the right to make proof of the original demands, are ques- tions not now before us." Kitt- redge v. Osgood (Page v. Supreme Lodge etc.), 161 Mass. 384, 37 N. E. 369. The act of a creditor in filing his claim with a receiver is not such I Rec. — 7 an election of remedies as to bar the prosecution of a suit for the same debt which was pending when the receiver was appointed. Pine Lake Iron Co. v. LaFayette Car Works, 53 Fed. 853. See Tay- lor v. Gray. 59 N. J. Eq. 621, 44 Atl. 668, to the same effect. 2 Blair v. St. Louis etc. R. Co., 25 Fed. 2. The court in this case very pertinently observed: "The parties preferred to proceed in the state court without the leave of this court, and they must lie in the bed which they have made. This court will not help them." 3 Attorney-General v. Guardian Mut. Life Ins. Co., 77 N. Y. 272. 4 Steinhauer v. Colmar, 11 Colo. App. 494, 55 Pac. 291; Kelley v. Union Pac. Ry. Co., 58 Kan. 161, 48 Pac. 843; Tracy v. Selma First Nat. Bank, 37 N. Y. 523; Speckart V. German Nat. Bank, 85 Fed. 12. 93 LAW OF RECEIVERS. substituted by an order of the court in wliicli the suit is pending,^ but the making of such order lies in the discretion of the court,*' although it is the ordinary j)ractice to allow such a substitution upon application by the receiver.' It is not incumbent upon the plaintiff in the pending suit to seek to substitute the receiver as a party to the suit. If the receiver desires to be made a party he should seek to be substituted as a party upon his own motion.'^ The receiver ought not, however, to be substituted as a party unless the pending suit spe- cifically affects property in his possession.^ "Of course, 5 Tracy v. Selma First Nat. Bank, 37 N. Y. 523; Gadsden v. Whaley, 14 S. C. 210. 6 Patrick v. Eells etc., 30 Kan. 680 2 Pac. 116; St. Louis etc. Ry. Co. V. Holladay, 131 Mo. 440, 33 S. W. 49. 7 Andrews v. Steele City Bank, 57 Neb. 173, 77 N. W. 342; Willink V. Morris Canal etc. Co., 4 N. J. Eq. 377; State v. District Court, 37 Utah 418, 108 Pac. 1121; Perry v. Godbe, 82 Fed. 141. s Mercantile Ins. Co. v. Jaynes, 87 111. 199; Mercantile Trust Co. V. Pittsburgh etc. R. Co., 29 Fed. 732. 9 Decker v. Gardner, 124 N. Y. 334; 11 L. R. A. 480, 26 N. E. 814. On a disclosure by a garnishee that it was in the possession of money which it did not know who owned, plaintiffs filed supplemen- tary complaint, alleging, among other things, that the fund be- longed to defendant in the action. Defendant, however, answered dis- claiming ownership and alleging that the money belonged to a third person, who subsequently inter- vened and asserted ownership. Thereafter plaintiffs commenced supplementary proceedings, in which a receiver was appointed of all the property and effects of de- fendant with the usual power to recover, take possession of, and to convert the same into money to satisfy plaintiffs' judgments. Or the issues presented in the gar nishment proceedings coming on for trial, defendant and intervener moved to dismiss the same for the reason that by the appointment of a receiver the right to maintain the same passed from plaintiffs to the receiver, and that the latter had the sole right to litigate the question of ownership of the money. The court held that the motion was properly denied, and that the remedy was not by mo- tion for dismissal, but for substi- tution, under Rev. Laws 1905, § 4064, providing that an action shall not abate by transfer of plaintiffs' interest therein, and that where a transfer has taken place, pending the action and be- fore trial, plaintiffs' successor may be substituted. American Engine Co. V. Crowley, 105 Minn. 233, 117 N. W. 428. EFFECT OF APPOINTMENT AND DUTIES. 99 if it appears as if the pending suit is a collusive arrange-\ ment between the parties for the purpose of procuring an improper liability as against the receivership funds, it is eminently proper that the receiver be substituted as a party to the proceeding so as to properly protect the receivership estate.""^^ -; " - /'."•, , ^ § 28. Relation (if R-^ceiver to Garnishments, Atta'chments, and Other JLiens. The effect of 'he apriointjneafcf' a "receiver is to vest in him the title "to tlie personal property, choses in action, and equitable interests of the debtor, over which the receivership extends without a formal assignment.^ This principle, of course, has particular application to creditor's proceedings, and not to mortgage foreclosures or other proceedings relating to specific property. In some cases the defendant is permitted to remain in pos- session pending the receivership and the receivership is extended to the rents and profits only. But one in possession under a prima facie title can not be deprived of such possession by a receiver at the suit of creditors of the debtor unless a showing is made of danger of the property being lost, or materially injured, or that the sale to the defendant is frau Butler v. Wendell, 57 Mich. 62, 58 Am. Rep. 329, 23 N. W. 460. Receivers appointed by a court of chancery are not subject to at- tachment in an action at law, since, in the absence of statutory authority, a court of chancery will not permit interference with its operations by proceedings at law. Central Trust Co. v. Wheeling & L. E. R. Co., 189 Fed. 82: Adams V. Haskell, 6 Cal. 113, 65 Am. Dec. 491; Richards v. People, 81 111. 106 LAW OF RECEIVERS. ent exceptions to the rule arising from the circumstance 551; Hazelrigg v. Bronaugh, 78 Ky. 62; Hagedon v. Bank of Wiscon- sin, 1 Finn. (Wis.) 61, 39 Am. Dec. 275; Clark v. Bacorn, 116 Fed. 617, 54 C. C. A, 73. If a receiver has lawfully ac- quired possession of property within the jurisdiction of the court which appointed him, and in the course of his duties takes it in another state, it still remains in his possession as a receiver and will not be subject to an attach- ment by creditors residing in the latter state. Pond v. Cooke, 45 Conn. 126, 26 Am. Rep. 668; Jen- kins V. Purcell, 29 App. D. C. 209, 9 L. R. A. (N. S.) 1074 : Chicago etc. Ry. Co. v. Keokuk Northern Line Packet Co., 108 111. 317, 48 Am. Rep. 557; Somerset Coal Co. V. Diamond etc. Co., 224 Pa. St. 217, 132 Am. St. Rep. 775, 73 Ati. 442; Caglll v. Wooldridge, 8 Baxt. (67 Tenn.) 580, 35 Am. Rep. 716. But see to the contrary effect: Humphreys v. Hopkins, 81 Cal. 551, 15 Am, St. Rep. 76, 6 L. R. A. 792, 22 Pac. 892; Grogan v. Eg- bert, 44 W. Va. 75, 67 Am. St. Rep. 763, 28 S. E. 714. The appointment of a receiver may be made on the filing of the bill asking therefor, or at any time thereafter during the pendency of the suit, and can not be assailed by a third party under an attach- ment filed after the receiver was in charge under process issued on the bill. Benjamin v. Staples, 93 Miss. 507, 47 So. 425. The legislature may, under the constitution, require the dissolu- tion of attachments on the ap- pointment of a receiver of the propert.^ attached jnly when the property can be held under the laws of the state for the benefit of creditors who prove their claims here. Consequently, under Rev. Laws, ch. 167, section 126, which provides that an attachment of property on mesne process shall be dissolved by the appointment by "any court of competent juris- diction in this commonwealth" of a receiver to take possession of the property, etc., and section 127, which provides that, when an at- tachment has been so dissolved, the proceedings for the appoint- ment of a receiver shall not there- after be dismissed, and the re- ceiver discharged, until all the assets which have come into his hands as receiver have been fully distributed, or the claim upon which the attachment was made has been fully paid and discharged, it is held that the words "any court of competent jurisdiction in this commonwealth," means any court which is subject to the legis- lation of the commonwealth, and the act does not apply to receivers appointed by federal courts. Prior to the enactment of these statu- tory provisions attachments in force at the time of the appoint- ment of a receiver were not dis- solved by the mere fact of his appointment. Reynolds v. Enter- prise Transportation Co., 85 N. E. 110, 198 Mass. .590; Borden v. En- terprise Transportation Co., 85 N. E. 110, 198 Mass. 590. A court, in appointing a receiver for cattle to protect the interest of one who is to receive a portion of their sale price for caring for them, acquires jurisdiction of such interest to the extent that it is EFFECT OF APPOINTMENT AND DUTIES. 107 of tiie receiver being appointed by a court of another ) not subject to attachment by a creditor in another state in which the receiver sells the cattle. Jen- kins V. Purcell, 29 App. D. C. 209, 9 L. R. A. (N. S.) 1074. Even though a receiver ap- pointed in one state has not re- duced all of the funds belonging to the receivership into his posses- sion, a citizen within the jurisdic- tion of the court appointing him can not attach funds Jn another state without leave of the appoint- ing court, since the receiver is in the constructive possession of all of the funds. Sercomb v. Catlin, 128 111. 556, 15 Am. St. Rep. 147, 21 N. E. 606. The property of a nonresident defendant can not, while in the hands of a receiver appointed in another state, be seized under at- tachment, when brought within the state for a lawful purpose. Woodhull V. Farmers' Trust Co., 11 N. D. 157, 95 Am. St. Rep. 712, 90 N. W. 795. A nonresident creditor, who at- taches and sells property of an estate after the estate has been placed in the hands of a receiver, and with equitable notice of the receiver's title, can be allowed to share as a creditor in the estate only after renouncing the benefit of the attachment and accounting for the property wrongfully con- verted. In such a case, the meas- ure of liability is the fair value of the property at the date of the attachment, with interest. Ward V. Connecticut Pipe Mfg. Co., 71 Conn. 345, 71 Am. St. Rep. 207, 42 L. R. A. 706, 41 Atl. 1057. If a receiver has been appointed in the state in which an attach- ment creditor is a citizen and the latter has been served with a copy of an injunction against interfer- ing with said receivership, and he thereafter causes the lines and property of a telegraph company situate in another state to be at- tached, such act violates the in- junction and can give no lien to such creditor which is capable of being enforced under an equitable administration of the company's assets in the state wherein the receiver was appointed. Farmers' Loan & T. Co. v. Bankers etc. Tel. Co., 148 N. Y. 315, 42 N. E. 707, 51 Am. St. Rep. 690, 31 L. R. A. 403, affirming 83 Hun 560, 31 N. Y. Supp. 1096. And where a receiver has been appointed by the court of a foreign country over a railway company and he brings property belonging to the receivership in this coun- try, such property will not be sub- ject to attachment, and if attached by creditors in this country he may recover it by replevin. Rob- ertson V. Staed, 135 Mo. 135, 58 Am. St. Rep. 569, 33 L. R. A. 203, 36 S. W. 610. Rut in Maryland it was held that an attachment could be made against the property of a judgment debtor over whose estate a re- ceiver had been appointed until the receivers took possession. Farmers' Bank v. Beaston, 7 Gill & J. (Md.) 421, 28 Am. Dec. 226. In Colorado it was held ti-at a receiver operating a railroad would be subject to attachment if the at- tachment proceedings did not in- terfere with his rights under the order of appointment. Phelan v. Ganebin, 5 Colo. 14. 108 LAW OF RECEIVERS. jurisdiction.^^ This exception is based on the theory that the jurisdiction of a receiver is merely co-extensive with that of the court whioh has appointed him. The general rule in all cases of this character is that the court appointing a receiver has no power to displace or subordinate liens existing upon the receivership prop- 1 erty at the time of taking it into possession through its receiver where it has jurisdiction of the receivership proceedings.^^ Such lien creditors, however, can not as \ a rule enforce their liens and thereby disturb the posses- 16 Local creditors may attach funds due a nonresident insol- vent, inasmucli as an ancillary re- ceiver, if appointed, would only take the funds out of the state for administration. Guimarin & Co. v. Southern Life & Trust Co., 100 S. C. 12, 84 S. E. 298. Domestic creditors of an insol- vent foreign corporation held en- titled to attach funds due it from citizens of this state, though a re- ceiver had been appointed by the federal court in the foreign state. Guimarin & Co. v. Southern Life & Trust Co., 100 S. C. 12, 84 S. E. 298. If, however, a receiver sends a ship belonging to the receivership estate into a foreign state and nec- essary supplies are furnished to it, proceedings in rem in an admir- alty court of that country may be maintained against the ship for the payment of such supplies, as in the case of other ships. Clark v. Chandler, 66 Fed. 565, 13 C. C. A. 635, affirming same case in The Willamette Valley, 62 Fed. 293, and s. c. 63 Fed. 130. Likewise a seaman may acquire a lien on a ship in charge of a re- ceiver for his services rendered on it while in his charge, and enforce such lien in a court of admiralty. In re William M. Hoag, 69 Fed. 742. 17 Arnold v. Weimer, 40 Neb. 216, 58 N. W. 709. Although the general rule is as shown in the text, still the rights of prior lienholders may be affected under some circumstances by a diversion of the earnings of prop- erty for the benefit of the lien- holders. Knickerbocker Trust Co. V. Green Bay Phosphate Co., 62 Fla. 519, 56 So. 699. Such appointment does not af- fect pre-existing liens upon the property or vested rights or inter- ests of third persons. The receiver takes his title to the property sub- ject to all the equities to which it was subject in the hands of the debtor. Rickman v. Rickman, 180 Mich. 224, Ann. Cas. 1915C, 1237, 146 N. W. 609. The receiver of an insolvent has no rights superior to an insolvent's assignee; the latter takes an as- signment of a thing in action with- out prejudice to any set-off or other defense existing at the time of, or before notice of, the assign- ment. Williams v. Johnson, 50 EFFECT OF APPOINTMENT AND DUTIES. 109 sion of the receiver without the leave of the court.^« No right of priority is fixed by the appointment, and £.1- j though it prevents the acquisition of new liens it creates none.^J^ A court of law has no authority to appoint a receiver of property under attachment in order to pre- serve it and continue the defendant's business pending the determination of the attachment litigation.^^ § 29. Effect of Judgments on the Receiversliip. The appointment of a receiver is sometimes said to have an effect similar to that of an equitable execution although it reaches only the actual interest of the defend- ant in the property impounded in the receivership/ but the use of a receivership for the purposes of making an equitable attachment is not favored by the courts.- Mont. 7, Ann. Cas. 1916D, 595, 144 Pac. 768. Under Code Civ. Proc. 298, au- thorizing the appointment of a re- ceiver where one shows that he has a lien upon property, and that there is danger of it being mate- rially injured, a purchaser of hemp who had paid a large part of the purchase price, and the seller hav- ing failed to properly care for the crop, resulting in its damage, and refusing to deliver the crop until full payment of the contract price, a receiver is properly appointed to take charge of the hemp and pre- serve it until the parties' rights could be adjusted. Suiumers Fiber Co. V. Walker, 33 Ky. Law Rep. 153, 109 S. W. 883. isDann Mfg. Co. v. Parkhurst, 125 Ind. 317, 25 N. E. 347; Forest Lake Cemetery v. Baker, 113 Md. 529, 77 Atl. 853, 858. 19 Central Appalachian Co. v. Buchanan, 90 Fed. 454, 33 C. C. A. 598. 20 Berryman v. Billings Mut, Heating Co., 44 Mont. 517, 121 Pac. 280. 1 Longfellow v. Barnard, 58 Neb. 612, 76 Am. St. Rep. 13 7, 79 N. W. 255. 2 Ayres v. Graham Steamship Coal & Lumber Co., 150 111. App. 137. In Johnson v. Garner, 233 Fed. 756, the court said: "The injunc- tion and receivership secured to Mrs. Johnson no lien or preference over other interested parties. High on Receivers (4th ed.) § 5; Cen- tral Appalachian Co. v. Buchanan, 90 Fed. 454, 458, 33 C. C. A. 598, 23 Am. & Eng. Ency. L. 1043, 34 Cyc. 75. As a rule the existence of a receivership suspends the power of creditors to acquire any lien or advantage over other inter- ested parties. Foster v. Field, 13 Okl. 230, 74 Pac. 190, 194; Barnett V. East Tennessee V. & G. Ry. Co. (Tenn. Ch. App.) 48 S. W. 817, 822; Attorney General v. Continen- 110 LAW OF RECEIVERS. The natural effect of the existence of a judgment against the party over whose property a receiver is appointed is to make certain the amount or character of the judgment creditor's claim against the assets of the receivership. In other words, a judgment against the party whose property is imder a receiver or against the receiver, after his appointment as such receiver, is conclusive as to the existence and amount of the tal Life Ins. Co., 28 Hun (N Y.) 360; Jackson v. Lahee, 114 111. 287, 2 N. E. 172; Besuden v. Besuden Co., 4 Ohio Dec. 144. In 34 Cyc. at page 199, it is said: " 'One who has no lien when a receiver is appointed, although the mere right to acquire one may then exist, can not proceed for that purpose by independent action after the appointment of the receiver, and gain a preference over other creditors, as in the case of the administration of insol- vent's estates, in which creditors are entitled to pro rata and equi- table distribution. The application of this rule depends upon the na- ture of the suit in which the re- ceiver is appointed, and the rule has been held not to apply to a receiver pendente lite, where the sole object is to preserve the property for the purpose of the de- cree as between the parties to the suit only, without affecting the in- terests of third persons, as distin- guished from a receivership for the general administration of as- sets as above mentioned.' "The rule as indicated in the quotation has an exception into which the present case falls. In the beginning of this litigation there was no thought of settling Jchnsoiis estate, or making an equitable distribution of his prop- erty. The order of appointment contained no direction to the re- ceiver to give notice to creditors to file claims. The creditors were in nowise restricted in the prose- cution of their demands, and it was not until January 18, 1915, more than seven months after the death of Johnson, that it became apparent to this court that it must in this proceeding distribute the estate. The entry of the judg- ments in favor of Ada Smith and the banking corporation, followed by the death of Johnson, had then raised those debts from the fifth to the fourth class mentioned in section 6052 of the Revised Laws of Nevada, and preferred them to general demands. This preference, having once attached, was not dis- placed by the subsequent determi- nation of this court to administer the estate. "These conclusions find abun- dant support in the following au- thorities: High on Receivers (4th ed.) § 349; Cramer v. Her, 63 Kan. 579, 66 Pac. 617, 23 Am. & Eng. Ency. L. 1043; Waggy v. Jane Lew Lumber Co., 69 W. Va. 666, 72 S. E. 778, 779; Ellicott v. United States Ins. Co., 7 Gill (Md.) 307; Moore v. Southern States L. & T. Co., (C. C.) 83 Fed. 399." EFFECT OF APPOINTMENT AND DUTIES. Ill Judgment creditor's claim, but tlie time and mamier of its payment are matters to be determined and controlled by the court which has appointed the receiver.^ A judg- :'. Judgments obtained against re- ceivers are conclusive as to the existence and amount of tlie claim represented by it. If this were not so, it would be a useless proceeding to obtain any judgment against a receiver except in the court in which the receivership is pending. Painter v. Painter, 138 Cal. 231, 94 Am. St. Rep. 47, 71 Pac. 90; Na- tional Bank of Augusta v. Warren (Stillwell), 101 S. C. 453, 86 S. E. 21; Fordyce v. Withers, 1 Tex. Civ. 540, 20 S. W. 766; Garrison v. Texas etc. Ry. Co., 10 Tex. Civ. 136, 30 S. W. 725; Te.xas Pac. Ry. Co. V. Griffin, 76 Tex. 441, 13 S. W. 471; Central Trust Co. v. East Tennessee etc. Ry. Co., 59 Fed. 523; Dillingham v. Hawk, 60 Fed. 494, 23 L. R. A. 517, 9 C. C. A. 101; St. Louis S. W. Ry. Co. v. Hol- brook, 73 Fed. 112, 19 C. C. A. 385; Texas etc. Ry. Co. v. Johnson, 151 U. S. 81, 38 L. Ed. 81, 14 Sup. Ct. 250. A contrary view was, how- ever, entertained in Missouri Pac. R. Co. V. Texas etc. Ry. Co., 41 Fed. 311, where the court reduced the amount of a judgment ren- dered against its receiver. Judgments rendered in pending suits may be filed as claims in the receivership proceedings. Pringle v. Woolworth, 90 N. Y. 502; People V. Commercial Alliance Life Ins. Co., 5 App. Div. 273, 39 N. Y. Supp. 117; Mercantile Trust Co. v. Pitts- burgh etc. R. Co., 29 Fed. 732; Pine Lake Iron Co. v. LaFayette Car Works, 53 Fed. 853. But see Danforth v. National Chemical Co., 68 Minn. 308, 71 N. W. 274. A judgment against a corpora- tion in the name of a receiver, for materials contracted for before his appointment, is valid. The order of payment should be determined by the United States Circuit Court which appointed the receiver. Har- ding V. Nettleton, 86 Mo. 658. Since a receiver of a street rail- road company is an arm of the court and his official acts those of the court, a judgment recovered against him in his official capacity as to any act or transaction of his in carrying on the business connected with the property is the establishment of a liability against the assets in his hands, and is conclusive as against lienors or purchasers of such assets in the absence of fraud, and this is true notwithstanding the statute pro- viding that such a receiver shall be subject to the general jurisdic- tion of the court in which the re- ceiver was appointed so far as necessary to the ends of justice. Manhattan Trust Co. v. Chicago Electric Traction Co., 188 Fed. 1006. A judgment creditor is not af- fected by the appointment of a receiver for the debtor in proceed- ings to which he was not a party and in which he was not required to intervene. Central Coal & C. Co. V. Southern Nat. Bank, 12 Tex. Civ. App. 334, 34 S. W. 383. The lien of a judgment against a corporation, obtained after the appointment of a receiver, but be- fore the filing of his official bond, is not destroyed by the filing of 112 LAW OF RECEIVERS. ment may be complete and perfect and have full effect rega-rdless of the fact whether the party has a right to issue an execution under it. such bond, although his title dates back to the time of the appoint- ment for the preservation and pro- tection of the property, where the judgment would have been ren- dered before his appointment but for the interposition of a frivolous demurrer. Re Lewis & Fowler Mfg. Co., 89 Hun 208, 34 N. Y. Supp. 983. One who purchases property at a time when all the property of the grantor is subject to a judg- ment lien is, as against a receiver subsequently appointed over the grantor's property, entitled to have the remainder of the property in his hands subjected to the lien in exoneration of that purchased by him. Semple v. Eubanks, 13 Tex. Civ. App. 418, 35 S. W. 509. If on a day when the court ad- judicates a corporation is insol- vent and appoints a receiver in whom title to the company's prop- erty vests a judgment is recovered and entered at an earlier hour, the judgment is a preferred claim on the proceeds of the sale of the company's land. Gallagher v. True American Pub. Co., 75 N. J. Eq. 171, 138 Am. St. Rep. 514, 71 Atl. 741. A judgment against a receiver operates only as an established claim against the assets of the receivership. Arnold v. Penn, 11 Tex. Civ. 325, 32 S. W. 353. Under Act March 3, 1887, ch. 373, 3, 24 Stat. 554 (U. S. Comp. St. 1901, p. 582), which authorizes the suing of a federal receiver in respect of any act of his in carry- ing on the business without the previous leave of the court which appointed him, but such suit to ba subject to the general equity juris- diction of said court, a judgment rendered against such a receiver by a state court in an action brought against him to recover damages for the death of an em- ployee is conclusive on the federal court as to the existence and amount of the plaintiff's claim; but the time and manner of its pay- ment must be controlled by such court. (C. C. 1909) Meyer Rubber Co. V. Georgetown & W. R. Co., 174 Fed. 731. . Under Act Aug. 13, 1888, ch. 866, 3, 25 Stat. 436 (U. S. Comp. St. 1901, p. 582), which authorizes the suing of a federal receiver in re- spect of any act of his in carrying on the business without the pre- vious leave of the court which ap- pointed him, but such suit to be subject to the genera] equity jur- isdiction of said court so far as the same shall be necessary to the ends of justice, a judgment ren- dered against such a receiver by a state court in an action brought against him for the death of an employee is conclusive on the fed- eral court as to the right to re- cover, and the amount that should be recovered. (1910) Willcox v. Jones, 177 Fed. 870, 101 C. C. A. 84. The recovery of a judgment against partners after the appoint- ment of a receiver does not create a lien upon the partnership prop- erty in his hands, and such prop- erty can not be levied upon by EFFECT OF APPOINTMENT AND DUTIES, 113 Frequently judgments are rendered against or in favor of receivers in courts other than the one having juris- execution or reached by garnish- ment, because it is in custody of the court. Jaclcson v. Lahee, 114 111. 287, 2 N. E. 172. Where a suit to foreclose a lien which is pending at the time of appointing a receiver is prosecuted to judgment without leave of the court having jurisdiction of the receivership, the plaintiff will not by his judgment obtain any pri- ority of payment out of the assets of the receivership. Blair v. St. Louis etc. R. Co., 25 Fed. 2. A judgment against a receiver does not give the judgment cred- itor any preference over other creditors who have established their claims, but simply fixes the amount due and allows him to come in and share any fund ad- ministered by the receiver. Na- tional Bank of Augusta v. Warren (Stillwein 101 S. C. 453, 86 S. E. 21. Execution can not be issued in a judgment rendered against a re- ceiver. The time and manner of satisfying it are under the control of the court in which the receiver- ship is pending. Irwin v. McKech- nie, 58 Minn. 145, 49 Am. St. Rep. 495. 26 L. R. A. 218, 59 N. W. 987; Dillingham v. Hawk, 60 Fed. 494, 23 L. R. A. 517, 9 C. C. A. 101. A judgment against a receiver can not be enforced by execution. The proper practice is to apply to the court for an order to enforce it. Painter v. Painter, 138 Cal. 231, 94 Am. St. Rep. 47, 71 Pac. 90. Although a pending suit may be prosecuted to judgment after the appointment of a receiver for the I Rec— 8 defendant, the judgment creditor can not levy under it on the re- ceivership assets. Temple v. Branch Saw Co., 39 Tex. Civ. 606, 88 S. W. 442. A judgment creditor having a judgment upon land in the posses- sion of a receiver can not levy execution on it, but must apply to the court having jurisdiction of the receivership, which will pro- tect his interests when selling the land. Wiswall v. Sampson, 14 How. (55 U. S.) 52, 14 L. Ed. 322. A receiver may be concluded by a judgment in an action in which he was not a technical party, but caused the corporation of which he was receiver to enter its appeai-ance in another state in the case and received certain ben- efits from the litigation. Smith v. United States Express Co., 135 111. 279, 25 N. E. 525. But a judgment which was ren- dered in another state against a corporation over which a receiver has been appointed, the receiver not being a party to the suit, is not binding upon the receiver in the state of his appointment. Mc- Culloch V. Norwood, 58 N. Y. 562. A finding, however, as to the existence of a certain fact in an action by a receiver is not res judicata as to such fact in a sub- sequent action between other par- ties. Brown v. Clow, 158 Ind. 403, 62 N. E. 1006. In a suit by a receiver ap- pointed in supplementary proceed- ings and not in a general creditors' proceeding, to recover a note claimed by the receiver to belong 114 LAW OF RECEIVERS. diction of the receivership, either under leave of court specifically given or under general permissive orders or statutory permission, and in such cases the question naturally arises as to how far such judgments are con- clusive upon the parties. As has been shown, the general rule is that where the court rendering the judgment had jurisdiction uf the parties and subject matter, the judg- ment imports tue same conclusiveness as any judgment rendered in other cases under like jurisdictional facts. Basing liis ruling upon the theory that the receivership is an equity proceeding, it was at one time believed by Judge Pardee ^ that a judgment rendered in a court other than that of the receivership was subject to revi- sion and correction by the receivership court, but that to the debtor, a judgment against the receiver does not bind the general creditors, although it binds the creditor at whose instance the supplementary proceedings were commenced. Southern Loan etc. Co. V. Benbow, 131 N. C. 413, 42 S. E. 896. A judgment against the receiver rendered in a court other than that of the receivership is not evidence against persons not parties to it. Sullivan v. Texas etc. Coal Co., (Tex. Civ.) 60 S. W. 330. (The above case was reversed on a ques- tion relating to the priority of liens, in 94 Tex. 541, 63 S. W. 307.) 4 Missouri Pac. R. Co. v. Texas etc. Ry. Co., 41 Fed. 311. In this case a judgment had been ren- dered in a state court against the receiver of a railroad for $10,000, but the federal court reduced the amount of the judgment to $5000. The court in the course of his opinion, after admitting that the state court had authority to enter- tain the suit, said: "However this may be, it is clear that where a judgment is so obtained, and is brought to the court of original jurisdiction to be ranked as a lien upon the trust funds, such judg- ment is subject to its general equity jurisdiction; and the duties of determining the rightfulness of the judgment, including whether the amount is just, is still imposed upon this court, as it would be if it had ordered an issue tried at law; for this court must still, in the language of the statute, exer- cise a 'general equity jurisdiction, so far as the same shall be neces- sary to the ends of justice.' . . . For this reason I am of the opinion that in the present intervention the court may inquire as to whether or not the intervenor has a lien, and, if so, the rank and amount thereof, and that in such inquiry the court is not concluded in any way by the verdict and judgment produced from the dis- trict court of Harrison County, Texas." EFFECT OF APPOINTMENT AND DUTIES. 115 rule is not sustained by authority nor do we believe tliat it is sustained bj^ sound reasoning. In our opinion the correct rule in cases of this sort was set forth by Judge Caldwell in a well considered case ^ in which lie said: "The court is asked to qualify the order relating to judgments recovered in state courts by adding a pro- viso to the effect that, when it is shown that the judginent is for a grossly excessive amount, this court will reduce it to a just and reasonable sum. This court will not entertain the suggestion that its receiver will not obtain justice in the state courts. The act of Congress gives the right to sue the receiver in the state.^ The state court has jurisdiction of tlie parties and the subject matter, and its judgment against a receiver of tliis court is as final and conclusive as it is against another suitor. The right to sue the receiver in a state court would be of little utility if its judginent could be annulled or modi- fied at the discretion of this court. It is open to the receiver to correct the errors of inferior courts of the state by appeal to the Supreme Court. But this court is not invested with appellate or supervisory jurisdic- tion over the state courts, and can not annul, affect, or modify their judgments."^ The reasoning and conclusion of Judge Caldwell were approved by other cases in the federal courts, including the United States Supreme Court. ^ 5 Central Trust Co. v. St. Louis 523, Judge Lurton, afterwards Jus- etc. Ry. Co., 41 Fed. 551. tice of the United States Supreme 6 Citing Central Trust Co. v. St. Court, said: "A wide difference of Louis etc. Ry. Co., 40 Fed. 426. opinion has been entertained as to 7 Citing Randall v. Howard, 67 the power of the court over judg- U. S. (2 Black) 585, 17 L, Ed. 269; ments obtained against a receiver Nougue V. Clapp, 101 U. S. 551, 25 in courts other than that appoint- L. Ed. 1026. ing the receiver. Central Trust 8 Texas etc. Ry. Co. v. Johnson, Co. v. St. Louis etc. Ry. Co., 40 151 I]."S. 81, 38 L. Ed. 81, 14 Sup. Fed. 426; Eddy v. Wallace, 49 Fed. Ct. 250. 801, 1 C. C. A. 435; Missouri Pao. In Central Trust Co. v. East R. Co. v. Texas Pac. Ry. Co., 41 Tennessee etc. Ry. Co., 59 Fed. Fed. 311. In the two cases first IIG LAW OP RECEIVERS. Where the receivership property is subject to the lien of a judgment, as in the case of a judgment against one ha\ang real estate, a receiver appointed subsequently takes tlie property subject to such lien/^ cited it was held that such judg- ments were conclusive. In the case reported in 41 Fed. it was held that it was within the power of the court, when such judgments were filed in the case in which the fund was being distributed, to look into them, and allow the whole, or half, or any part, as justice might require. The latter view seems to have been enter- tained by Mr. Justice Jackson, for, while judge of this circuit, he made an order in this cause, which has not been revoked, requiring all judgments in other courts in suits prosecuted without leave of the court, to be filed by intervening petition in the main cause, to- gether with a full bill of exceptions showing the evidence upon which the judgment rested. That the judgment is conclusive, so far as to be regarded as a judicial ascer- tainment of the liability, and of the amount, is probably the better view. Speaking of the effect of the proviso, the learned Chief Jus- tice, in the case of Texas etc. Ry. Co. v. Johnson, 151 U. S. 81, 38 L. Ed. 81, 14 Sup. Ct. 250, said that 'the right to sue without resorting to the appointing court, which in- volves the right to obtain judg- ment, can not be assumed to have been rendered practically value- less by his former provision in the same section of the statute which granted it.' " Gere v. Dibble, 17 How. Pr. (N. Y.) 31. The same is true where at the time of the appoint- ment the property is subject to a general tax lien. Duryee v. United States Credit etc. Co., 55 N. J. Eq. 311, 37 Atl. 155. In Ellicott V. United States Ins. Co., 7 Gill (Md.) 307, the court decided that a creditor who had obtained a judgment in a court of law during the pendency of pro- ceedings in equity, in which a receiver had been appointed, ac- quired thereby a lien on the defen- dant's real property in the hands of the receiver, quite as good as if no receiver had been appointed. The opinion of the court shows the reason for so deciding was that the only object in granting the receivership was to provide for safe keeping of the property, and that other creditors were not re- strained from attempting to estab- lish their demands. In Moore v. Southern States Land & Timber Co. (C. C.) 83 Fed. 399, after other creditors had ob- tained judgments against the de- fendant during the existence of the receivership, the court deter- mined to enlarge the scope of the proceedings, and to make an equi- table distribution of all property of the defendant. This change, however, in nowise disturbed the preference already established by the judgments, though, if the larger purpose had characterized the proceedings from their incep- tion, no such advantage could have been acquired. The facts in the case were as follows: There was a suit to foreclose a mortgage on EFFECT OP APPOINTMENT AND DUTIES. 117 Where a judgment is rendered against a receiver in his official capacity, it creates no personal liability against him, and should be rendered against him as receiver and made payable in due course of administra- tion of the receivership.^^ But where the judgment ren- the property of an insolvent cor- poration; a receiver was appointed, and a decree pro cont'esso entered. Some time later there was an amended decree, in which the court indicated for the first time fin intention to make an equitable distribution of the funds among all the creditors, and it then pro- vided for notice to creditors to file their claims. During the time which intervened between the ap- pointment and the amended de- cree, several creditors, not being restrained from bringing suits against the corporation, obtained judgments. The court held that the interveners who had thus ob- tained such judgments should have a, lien on all the property and effects of the defendant not cov- ered by the mortgage, and that their right to be paid out of the property of the debtor was para- mount to that of other creditors. 10 McNulta v. Ensch 134 III. 46, 55. 24 N. E 631 McNulta v. Lock- ridge. 137 111. 270, 31 Am. St. Rep. 362. 27 N. E. 452; Robinson v. Kirkwood, 91 111. App. 54; Irwin v. McKechnie, 58 Minn. 145, 49 Am. St. Rep. 495, 26 L. R. A. 218, 59 N. W. 987; Com.bs v. Smith, 78 Mo. 32; Woodruff v. Jewett, 37 Hun (N. Y.) 205. In Painter v. Painter, 138 Cal. 231, 94 Am. St. Rep. 47, 71 Pac. 90, the court said: "The judgment should be against the receiver in his ofRclal capacity, leaving the matter of its enforcement to be determined by the court having jurisdiction of the receivership. . . . The manner of paying the judgment is under the exclusive control of the court in which the receivership proceeding is pend- ing, and to it there must be an application for its payment. Ex- ecution can not be issued against a receiver; the judgment only op- erates as an established claim against the assets in the posses- sion of the receiver." Suits against a receiver are in ef- fect only against the receivership, and the judgment should be only against the funds in his hands. Smith V. Jones Lumber & Mercan- tile Co., 200 Fed. 647. Judgment against a receiver should not be rendered in his indi- vidual capacity, nor should an execution be issued against him. A proper form of judgment should provide for payment in due course of administration. Lyons v. Samp- sell, 168 111. App. 542. The judgment or decree direct- ing a general recei'"^er to disburse a fund in his hands should not be personal, and it should show on its faoe that it is against him in his official character, and that the amiOunt is to be paid out of the fund held by him in his official character, in the due course of the administration of the affairs of the receivership. United States Blow- 118 LAW OF RECEIVERS. dered against the receiver is on account of property or funds which had been placed under his charge but lost through some fault, misconduct, or mismanagement on his part, the judgment may properly be entered against him in his personal capacity.^^ A party who has a judgment against a debtor over whom a receiver has been appointed is not obliged to resort to the receivership proceedings to enforce its pay- ment but may, if he so desires, await the termination of the receivership and then enforce it in the usual way.^^ A suit which was pending at the time of the appoint- ment of a receiver may be prosecuted to a judgment.^^ And where a receivership is terminated, a pending suit commenced by the receiver may be prosecuted to judg- y ment in the name of the receiver.^^ pipe Co. V. Spencer, 61 W. Va. 191, 56 S. E. 345. * No process will be issued on a judgment rendered against a re- ceiver except by direction of the court having jurisdiction of the receivership, or unless a statute allows it to be done. Abbey v. International etc. Ry. Co.'s Receiv- ers, 5 Tex. Civ. 261, 23 S. W. 934; Arnold v. Penn, 11 Tex. Civ. 325, 32 S. W. 353. The manner of en- forcing such judgments is under control of Uie receivership court. Dillingham v. Russell (Anthony), 73 Tex. 47, 15 Am. St. Rep. 753, 3 L. R. A. 634, 11 S. W. 139. The contention that a judgment creditor should abide a final set- tlement of the accounts of a re- ceiver, and that in obtaining an order to enforce the judgment he should make other creditors par- ties, is without merit where it does not appear that payment of the judgment will exhaust the es- tate or prevent creditors from being paid. Painter >^ Painter, 138 Cal. 231, 94 Am. St. Rep. 47, 71 Pac. 90. The judgment will not, however, have any priority o^^er other claims. Clinkscales v. Pendleton Mfg Co.. 9 S. C. 318. 11 United States Blowpipe Co. v. Spencer, 61 W Va. 191, 56 S. E. 345. 12 Heath v. Missouri etc. Ry. Co., 83 Mo. 617; Wilder v. New Or- leans, 87 Fed. 843, 31 C. C. A. 249. 1.3 Hasselman v. Japanese Devel- opment Co., 2 Ind. App. 180, 27 N. E. 318, 28 N. E. 207. 14 Hall V. Henderson, 126 Ala. 449, 85 Am. St. Rep, 53, 61 L. R, A. 621, 28 So. 531. EFFECT OF APPOINTMENT AND DUTIES, 119 § 30. Rights Obtained by Levy of Writ of Execution. The general rule is that property in the possession of a receiver being in the possession of the court can not be taken from him by means of writs of attachment or execution and the like.^ The diversity of decisions on 1 Sercomb v. Catlin, 128 111. 556, 15 Am. St. Rep. 147, 21 N. E. 606; Holbrook v. Ford, 153 111. 633, 46 Am. St. Rep. 917, 27 L. R. A. 324, 39 N. E. 1091; Chalmers v. Little- field, 103 Me. 271, 69 Atl. 100; Gardner v. Caldwell, 16 Mont. 221, 40 Pac. 590; Skinner v. Maxwell, 68 N. C. 400; Coe v. Columbus etc. R. Co., 10 Ohio St. 372, 403, 75 Am. Dec. 518; Thompson v. Mc- Cleary, 159 Pa. St. 189, 28 Atl. 254; .Jones V. Moore, 106 Tenn. 188, 61 S. W. 81; Grosscup v. German Sav. etc. Soc, 162 Fed. 947; Wiswall v. Sampson, 14 How. (55 U. S.) 52, 14 L. Ed. 322. Property in the hands of a re- ceiver, being in custody of the court, can not be taken from him by writ of attachment or execu- tion. Adams v. Haskell, 6 Cal. 113, 65 Am. Dec. 491; Hooper v. Winton, 24 111. 353. No title passes by a levy on money belonging to and in the hands of a receiver. Hundley Dry Goods Co. V. Albien, 32 S. D. 60, 142 N. W. 49. As a general rule courts of equity will not permit a party who has defied their authority, by seiz- ing under execution property in their possession, to excuse himself on the ground that the order ap- pointing a receiver was irregular or improvidently made. Russell v. East Anglian R. Co., 3 Macn. & G. 104. Property can not be subjected to garnishment when in the hands of a receiver. This is on the general principle that property in the cus- tody of the law can not be reaclel by the garnishment of its legal custodian or otherwise. Blum v. Van Vechten, 92 Wis. 3"8, 66 N. W. 507. Real estate in the possession of a receiver pending a suit relative to its title will not be subject to levy under an execution to satisfy a judgment rendered subsequent to the appointment of the receiver. Edwards v. Norton, 55 Tex. 405. A sale of the equity of redemp- tion of property which is in the possession of a receiver as the result of a foreclosure proceeding will not pass title. Grosscup v. German Sav. etc. Society, 162 Fed. 947. In some cases the courts have in our opinion unduly protected the possession of the receiver. Thus it has been held that a sale under execution, made without permission of the receivership court, would not pass title to the property sold, even though the levy was made prior to the ap- pointment of the receiver. Cani- pau v. Detroit Driving Club, 130 Mich. 417, 90 N. W. 49; Walling V. Miller, 108 N. Y. 173, 2 Am. St. Rep. 400, 15 N. E. 65. Under the circumstances above shown, the property might properly be con- sidered already in the custody of the court. Doubtless, if the cir- 120 LAW OF RECEIVERS. the subject is merely in respect to whether the property attempted to be taken from the receiver under such writ cumstances of the sale had any elements of fraud or oppression connected with them, and there was a probable equity belonging to the receivership above the amount of the judgment, a court would restrain the sale. The case of Wiswall v. Sampson, 14 How. (55 U. S.) 52, 14 L. Ed. 322, is often cited as authority to the proposition that an execution sale, without leave of court, of property in possession of a re- ceiver, will pass no title. The case, however, does not sustain the proposition in a full degree. The demanded premises in that action had belonged to one Ticknor, who had conveyed them in fraud of creditors to Day prior to Decem- ber, 1840. At that date plaintiff's lessors recovered a money judg- ment against Ticknor, execution upon which was returned nulla bona. In 1842 another creditor recovered judgment against Tick- nor, and thereafter commenced a suit in equity to set aside the con- veyance to Day. He succeeded in his action, and after the convey- ance to Day was set aside a receiver of the property was ap- pointed. While the receiver was in possession plaintiff's lessors, without leave asked or granted, sold it under an alias execution issued upon his judgment of 1840. The defendant in the ejectment suit claimed under the receiver, and it was held in his favor that the execution sale passed no title. The reason for so holding is ob- vious. By the conveyance to Day the land had been put beyond the reach of creditors, and had been made subject to their claims solely by means of the action in equity to set that conveyance aside. The fund, in other words, was the cre- ation of the court appointing the receiver, and was necessarily sub- ject to its disposition, to be ap- plied to the satisfaction of the claims of such creditors only as could show a right to come in and share in the distribution. To hold, in such a case, that the execution sale passed a title superior to that of the receiver — title relating back to the date of the first judgment — would have been to hold that a creditor by a prior judgment may stand by while a junior creditor at his sole expense and risk un- covers assets of the debtor, and then step in and reap the entire benefit, which is neither equity nor law. The decision in that case, therefore, must be limited in its effect by reference to the facts of the case under considera- tion. Where a receiver is appointed in a suit to dissolve an insolvent corporation, a sale of its real es- tate under an execution levied before the appointment of the re- ceiver wall not pass title. Ellis v. Vernon Ice etc. Co., 86 Tex. 109, 23 S. W. 858. We believe that the case last cited is distinguishable on account of the complete seques- tration of the property of the cor- poration by the dissolution pro- ceedings. The appointment of a receiver will not deprive a sheriff of the right to sell personal property EFFECT OF APPOINTMENT AND DUTIES. 121 is in fact in the custody of the court. The question some- times arises in respect to property claimed by the re- ceiver but which is alleged to belong to other parties who are judgment debtors under the judgment which is sought to be executed upon. In such cases, if the prop- erty does not belong to the receivership, it is naturally subject to execution process.- Perhaps the most difficult seized under an execution where it was seized by him prior to the appointment. A distinction ob- served was that in the case of real estate the sheriff would not take possession of the property as in the case of personal property. Lake Bisteneau Lumber Co. v. Mimms, 49 La. Ann. 1283, 22 So. 730; In re Hall & Stilson Co., 73 Fed. 527. But in Cole v. Oil-Well Supply Co., 57 Fed. 534, the federal court refused to require the sheriff to return to a receiver property which he had seized under an at- tachment issued by a state court ]prior to the appointment of the receiver. The court appointing the re- vjeiver should upon application allow the judgment creditor to sell property upon which he had levied on an execution prior to the re- ceivership. Cass V. Sutherland, 98 Wis. 551, 74 N. W. 337. Property has been held to be in custody of law where a receiver had been appointed but had de- clined to act. Skinner v. Maxwell, 68 N. C. 400. This exemption from execution has been held to continue, though the order appointing the receiver has been suspended by the giving of a sufficient supersedeas bond, and the consequent surrender of the property by the receiver. Stan- ton V. Heard, 100 Ala. 515, 14 So. 359. 2 If the title to land held by a receiver is decreed by the court to be vested in another party, it becomes subject to execution for the debts of such party, even though the receiver is not formally discharged by the court. Very v. Watkins, 23 How. (64 U. S.) 469, 16 L. Ed. 522. Property which belongs to an- other party who is not a party to the action in which a receiver has been appointed and for which a receiver has not been asked is not in the custody of the court so as to preclude its seizure under legal process, although the re- ceiver has wrongfully taken pos. session of it. Farmers' etc. Nat Bank v. Scott, 19 Tex. Civ. 22, 45 S. W. 26. The property of a third person may be levied upon and sold, al- though it is to some extent con- nected with the property in the hands of a receiver. The pur- chaser at an execution sale of such property obtains no greater rights than the original judgment cred- itor could have asserted. Wheaton V. Spooner, 52 Minn. 417, 54 N. W. 372. So also where the receiver takes possession of property not em- braced within the order of receiv- ership, his possession will not be 122 LAW OF RECEIVERS. question to be encountered in this connection is the one whether the nature of the receivership is such that it sequesters all of the property of the defendant or whether it merely sequesters specific property upon which the plaintiff claims some sort of a lien. If the effect of the receivership is such as to place all of the property of the defendant in the receivership, then the general rule is that no interference with its possession by the receiver will be permitted, but if the receivership is only extended to a part of his property or for some specific purpose, then the execution of such writs, where they do not interfere with the purpose of the receiver- ship, will not be prohibited. The question frequently arises in connection with receivers on behalf of mort- gagees, in respect to receiverships for partnerships and corporations, and in the determination of whether leave to sue the receiver ought to be allowed.^ protected against sale under ex- ecution, since the property is not in the custody of the court. St. Louis etc. Ry. Co. v. Whitaker, 68 Tex. 630, 5 S. W. 448. One securing the appointment of a receiver to take possession of the property of defendant and an injunction against alienation does not for that reason obtain a lien or preference over other interested parties. Johnson v. Garner, 233 Fed. 756. Though the property for which a receiver has been appointed is partly situated in another state, it has been held that the title thereto and the constructive possession thereof rest in him by virtue of his appointment, so that a citizen of the state wherein he is ap- pointed can not proceed against such property in the other state without the sanction of the courts of his domicile, and, if he insists upon doing so, that he may be punished for his contempt. Ser- comb V. Catlin, 128 111. 556, 15 Am. St. Rep. 147, 21 N. E. 606. 3 The appointment of a receiver of a corporation for purposes of liquidation of all of its affairs amounts to a sequestration of all of its property. Temple v. Glas- gow, 80 Fed. 441, 25 C. C. A. 540. But ordinarily a receivership does not operate as an attachment or execution, and is no more than a sequestration of property for safekeeping, leaving the question as to who is entitled thereto for subsequent determination. John- son V. Garner, 233 Fed. 756. The effect of the appointment of a receiver, in a suit brought by one partner against another for the dissolution of the partnership and the settlement of its affairs, has been considered in a series of cases in California. The court held EFFECT OF APPOINTMENT AND DUTIES. 123 Of course the best jjractice in case a receiver is in possession of property claimed by a third person is for that until the dissolution of the partnership is decreed and the pro rata distribution of its assets or- dered among the creditors, they are, notwithstanding the appoint- ment of a receiver, at liberty to pursue their remedies at law, and entitled to retain any liens result- ing from their dliigenue in such pursuit. The court was of the opinion that the creditors were not interested in the outcome of the suit, that the partners had con- trol of the proceedings, and until a dissolution of the partnership had been decreed the partnership business was still in force. Adams V. Hackett, 7 Cal. 187; Adams v. Woods, 8 Cal. 152, 68 Am. Dec. 313; Adams v. Woods, 9 Cal. 24. In Petaluma Sav. Bank v. Supe- rior Court, 111 Cal. 488, 44 Pac. 177, a receiver was appointed over the property of the husband in a suit for divorce which had been pending a long time, but prior to the appointment of the receiver a judgment had been rendered in another county in the state against the husband, which judgment was unsatisfied; transcripts of the judg- ment had been filed in several counties in which the judgment debtor owned land. The receiver was not in the actual possession of any of the land. The judgment creditor, while disclaiming any in- tention to submit itself to the jur- isdiction of the court in the divorce action in which the re- ceiver had been appointed, prayed the court to make an order direct- ing its receiver not to interfere with the officers of the several counties wherein the jmlgment d-^^btor had land in the lawful ex- ecution Df the judgment. The trial coui-t, however, refused to so order on tbe ground that the original judgment in the divorce suit, which was prior to the other judg- ment, was a prior lien on the prop- erty of the debtor whereupon the judgment creditor commenced mandamus proceedings, alleging that the judgment debtor was in- solvent, had iiO peisonal property, and petitioner had no other rem- edy for the enforcement of its legal rights. The petitioner asked tile court to determine whether it had a right to execute the judg- ments without leave of court, or if leave was necessary to issue its writ of mandate as prayed on the ground that the trial court had no discretion in the matter but to grant the request. The court, in holding that the judgment creditor had a right to execute the judg- ment without leave of court sale. "The only authority for the ap- pointment of a receiver in a di- vorce suit is to be found in section 140 of the Civil Code, which reads as follows: 'The court may re- quire the husband to give reason- able security for providing main- tenance or making any paymenta required under the provisions o? this chapter, and may enforce the same by the appointment of a re- ceiver, or by any other remedy applicable to the case.' So far as I am advised, this section has not been the subject of judicial con- struciion, and the powers and du- ties of a receiver appointed in 124 LAW OF RECEIVERS. sucli person to seek tlie permission of the receivership court to assert his claim in whatever form of proceeding pursuance of its provisions have not been defined; but it would not seem difficult to determine in what cases and for what purposes he is to be appointed. The whole object of his appointment is to provide security for the payment of such allowance as is made for the main- tenance of the divorced wife, and this would be accomplished by in- vesting him with the title and con- trol of some productive property of the husband, out of the income of which he could pay such allow- ance, or by authorizing the sale of property to create a fund, the income of which would be applied to the same purpose. In either event, or in any case, the receiver would take the property of the husband, or such portion of it as the court might designate, subject to all prior liens and encum- brances, and the right to enforce such liens could not be made to depend upon the mere volition of the court or judge making the appointment. It would necessar- ily follow, therefore, either that such judge would be invested with authority to determine the valid- ity and priority of all liens upon the property and that all holders and claimants of such liens must make themselves parties to the divorce suit, and submit them- selves to the jurisdiction of the court in which it was pending, or that they must have the right, with or without asking leave of the court, to take such proceeding elsewhere as the law exacts for preserving and enforcing their liens according to their priority. "Which of the two positions is as- sumed by respondent is not, as above stated, very clearly indi- cated by the argument of counsel, and neither is it very clearly to be implied from the order denying plaintiff's application for leave to sell, or the ground upon which it was based, viz., that the interlocu- tory judgment of May 15, 1889, in the case of White v. White, was a lien prior in time and in right upon the property of George E. White. I shall not, therefore, devote much space to the discussion of a doc- trine which is not distinctly as- serted, and has nothing to support it. It is enough to say that there is nothing in the law of California to justify the contention — if such is the contention — that when a wife sues her husband for a di- vorce, and obtains the appoint- ment of a receiver of his property for her benefit, not only their com- munity property, but his entire separate estate, are effectually se- questrated in the hands of the court in which the action for di- vorce is pending as they would be in case of death or insolvency; and that henceforth all his cred- itors must come into that court and by motion or petition in that action seek, not the relief to which in the ordinary course of law they would be entitled, but such relief as it may adjudge and be able to afford in the exercise of a plenary power to dispose of the impounded estate and distrib- ute its proceeds. This proposition being disposed of, the alternative above stated alone remains: It EFFECT OF APPOINTMENT AND DUTIES, 125 appears to be most appropriate under the procedure in must be true that the holders and claimants of prior liens and en- cumbrances upon the property held or claimed by the receiver, not being proper parties to the divorce suit or subject to the juris- diction of the court in -vhich it is pending, have the right to take such pvoceedings elsewhere as the law exacts for preserving or en- forcing their liens according to their priority. If, for instance, real property has been mortgaged, the holder of the mortgage must commence his action to foreclose in the county where the land is situate within a limited time, or his security and claim are lost, just as, in the present case, the plaintiff must sell the lands sub- ject to the lien of its judgments within two years or lose its secur- ity. And, if these steps must be taken, what right has the court appointing the receiver to prevent them? What discretion has it to re- fuse leave to proceed, if leave must be requested? Certainly not an ab- solute discretion, for that would amount to a power of confiscation of property rights, which are as full, as complete, and as much entitled to protection as any that exist. It must be, then, that such discretion as the court appointing the receiver has to prevent pro- ceedings by adverse claimants to the property in the custody of the receiver is a regulated discretion which can not be abused. This proposition I do not understand to be contradicted, but the respon- dent contends that there has been no abuse of discretion, and that even if there had been, mandamus ■will not lie to compel a judge to make an order which he can only make in his judicial capacity, and which, acting in such capacity, he has refused to make. As to whether there has been any abuse of discretion, ttat depends upon the scope of the inquiry which a court is entitled to make in pass- ing upon such an application as the plaintiff presented to respon- dent. It is undoubtedly the pre- vailing doctrine that courts of equity will not permit their receiv- ers to be sued, or propeity in their possession to be seized or sold, without leave asked and granted, but since the refusal of leave to sue in other tribunals or to enforce the judgments of other courts would in many cases de- stroy or impair rights which the court appointing the receiver has no power to conserve, it is the boast of such courts that they never refuse leave in a proper case. If a claimant of real prop- erty, under title adverse to that of the parties represented by the receiver, asks leave to commence his action of ejectment, no court would hesitate to grant his mo- tion. It would not attempt to try the question of title— a question appertaining to another forum— with a view in denying leave to sue, if, in its opinion, the title asserted was not a good one. ■'Upon the same principle, if a receiver of a superior court of San Francisco should be in pos- session of land situate in some other county, and subject to a mortgage, the application of the mortgagee for leave to make the receiver a defendant would be granted without any attempt to 126 LAW OF RECEIVERS. inquire into the validity of the mortgage, or its priority as a lien, for those are precisely the ques- tions to be determined in the action to foreclose, which, b^' the express mandate of the constitu- tion, mast be commeRced in the county where the land is situated (Const., art. VI., sec. 5). If, in such a case, the court appointing the receiver should require the mortgagee to satisfy it of the va- lidity of the mortgage, or, in other words, to litigate the whole ques- tion of the mortgagor's liability, and to establish it on the motion as a condition precedent to any permission to sue the receiver in the county where the land was sit- uate, it would be as much an abuse of discretion as if it should make its leave to sue conditional upon a waiver by the mortgagee of all claim of priority as against the receiver; for the doctrine to be deduced from the authorities cited in the briefs is, that whenever the case is such that the court appoint- ing the receiver can not protect an asserted right in the cause before it, the party will be allowed to in-oceed in the proper forum to establish his right if he can, and to enforce it by appropriate means. But the plaintiff here is not asking leave to sue the receiver. It merely asks permission to take the step which the statute makes im- 1 erative in order that it may pre- serve such right as it has, and the fact that its liens may be subse- quent and subordinate to the lien claimed by Frankie White does not seenri to be a sufficient ground for destroying them altogeth'^r. The holder of a second lien is entitled to protect it. and to p^-e- serve such rights as it gives hjm, and the only way this plaintiff can preserve what it has is to sell the land subject to its liens within the two years prescribed by the stat- ute (Code Civ. Proc, sec. 671). If it can not sell without leave, and no leave is granted, its liens, suc'i as they are, will soon expire, after which it will become a mere gen- eral creditor holding a claim sub- ordinate, not only to the supposed lien of Frankie White, but to all liens of subsequent mortgagees and judgment creditors, if any such there be. What excuse, then, does the assumed priority of Frankie White's lien afford for subjecting the plaintiff to this loss, or risk of loss? If her lien is prior, the sale of the land will not de- stroy her priority, it will merely preserve and perpetuate such rights as the plaintiff has, and will enable it, after her claims are sat- isfied, to take what may be left of White's estate in preference to those whose liens are of lower rank, or who have no liens at all, and the refusal itself— on the as- sumption that leave to sell is nec- essary — was clearly an abuse of discretion. This brings us to the question whether leave to sell was necessary, and, if so, whether man- damus lies to compel the respon- dent to make the order. To my mind it seems clear that if the first question were answered in the affirmative the second must re- ceive the same response, for if the exercise by plaintiff of its clear legal right to preserve its liens de- pends upon the permission of the respondent, it can not deny the exercise of such right for a reason that is absolutely futile and ground- less. But I am of the opinion that no leave to sell was required. EFFECT OF APPOINTMENT AND DUTIES. 127 force in the jurisdiction/ since any other practice would give rise to conflicts of jurisdiction between the courts v.diich would have a tendency to impair the preservation of the property.^ Of course in accordance with the general rule that the appointment of a receiver will not deprive any one of any liens already in existence, the lien acquired by the issuance of an execution will not be lost by the appoint- ment.*^ § 31. Time of Vesting of Possession of Receiver. As has been seen in the preceding sections^ the time when a receiver is entitled to the possession and has taken possession of the property belonging to the receiv- ership is highly important in fixing the priority of claims against the estate. The gist of the question lies in the fact that the property does not come into the custody of the court until it comes into the possession of the re- ceiver who is the arm of the court, l^'rom the principle that the receiver holds the property for the benefit of either to avoid the commission of in the counties where the lands a contempt or in order to pass a are situate between those claiming title strictly corresponding to the under the receiver and those claim- actual rank of plaintiff's lien, as ing through the execution sales, as to which it is unnecessary to ex- was the case in Wiswall v. Samp- press an opinion. A sale by plain- son, 14 How. (55 U. S.) 52"; 14 tiff would involve no physical dis- L. Ed. 322. turbance of such possession as the i Dugger v. Collins. 69 Ala. 324; receiver may have, and, therefore, St. Louis etc. R. Co. v. Hamilton, would be no contempt of court. 158 111. 366, 41 N. E. 777; Riggs v. The rights and relative positions Whitney, 15 Abb. Pr. (N. Y.) 388; of the parties would not be Thompson v. McCleary, 159 Pa. St. changed. The title transferred 189, 28 Atl. 254; In re Day, 34 Wis. would be good as against subordi- 638. nate liens, and subject to such as 5 Robinson v. Atlantic etc. Ry. were superior, and the question of Co., 66 Pa. St. 160. title would be the proper subject •• Re Muchlfeld etc. Piano Co., 12 of litigation in actions commenced App. Div. 492, 42 N. Y. Supp. 802. 12S LAW OK RECEIVERS. the party whom the court may ultimately decree to be entitled to it, it naturally follows that the possession of the prevailing- litigant will be related back to the time of the appointment of the receiver whenever to do so will benefit him,^ although for some purposes, such as in the case of claiming damages on account of the receivership, it will not be held that his possession was continuous.^ " The general rule is that right of possession to the property constituting the receivership vests by relation back to the time of the original order of appointment even though the proceedings are not perfected until a later date. In other words, after the time of the signing of the order of appointment, the possession of the re- ceiver is held to be superior to that of persons who there- after seek to obtain a lien by means of attachment, judgTnent, or execution.^^ The decisions supporting this 1 Beverley v. Brooke, 4 Gratt. (Va.) 187, 212. 2 Sturgis V. Knapp, 33 Vt. 486. In the case of In re Butters' Es- tate, 13 Ir. Ch. (N. S.) 456, it was said: "The general proposition is, that the possession of the receiver is that of all parties to the suit, according to their titles. As be- tween the owner and incum- brancers, it is for some purposes the possession of the incum- brancers, who have obtained or extended the receiver; as between the owner whose possession has been displaced and a third party, it is the possession of the former. The receiver is in fact his agent; all rents are applied to his use, either by paying his debts or paramount charges, or by being handed over to him." z Saginaw County Sav. Bank v. DufReld. 157 Mich.. 522, 133 Am. St. Rep. 354, 122 N. W. 186; Maynard V. Bond, 67 Mo. 315; Generotzky v. Barnay Hotel Co., 85 N. J. Eq. 63, 95 Atl. 865; In re Christian Jensen Co., 128 N. Y. 550, 28 N. E. 665; In re Schuyler's etc. Boat Co., 136 N. Y. 169. 20 L. R. A. 391, 32 N. E. 623; Roberts v. Bowen Mfg. Co., 169 N. C. 27, 85 S. E. 45; Roberts v. Bowen Mfg. Co. 169 N. C. 27, 85 S. E. 45; Ardmore Nat. Bank v. Briggs Machinery & S. Co., 20 Okla. 427, 129 Am. St. Rep. 747, 16 Ann. Cas. 133, 23 L. R. A. (N. S.) 1074, 94 Pac. 533; Pope v. Ames, 20 Ore. 199, 25 Pac. 393; Clinkscales v. Pendleton etc. Co., 9 S. C. 318; Regenstein v. Pearl- stein, 30 S. C. 192, 8 S. E. 850; Connecticut River Banking Co. v. Rockbridge, 73 Fed. 709. After the appointment of a re- ceiver, the property to which the receivership relates is in the cus- tody of the law, even before he qualifies, so as to exempt it from EFFECT OF APPOINTMENT AND DUTIES. 129 rule are based on the idea that the receivership proceed- the levy of an attachment, and such levy can confer no right on the attachment creditor or on those claiming under him. Texas etc. Ry. Co. v. Lewis, 81 Tex. 1, 26 Am. St. Rep. 776, 16 S. W. 647. A receiver's right to the posses- sion of the property of the party of which he is receiver dates from his appointment as such and not from the commencement of the ac- tion in which he is appointed. American Clay Machinery Co. v. New England Brick Co., 87 Conn. 369, 87 Atl. 731. Where the court in a suit to set aside a preferential assignment by one of the partners and appoint a receiver made an order for the appointment, but, referred the question who should be appointed to a master, the title of the re- ceiver was held to refer back to the order for the appointment and thereby defeat an attempted levy made after the original order. Rutter V. Tallis, 5 Sandf. (N. Y.) 610. Where an appeal is taken from the order of appointment and a stay of proceedings granted, the receiver does not take possession until the appeal has been heard and decided. Cook v. Cole, 55 Iowa 70, 7 N. W. 419. It is not necessary for the re- ceiver to make an actual seizure of the property in order to become vested with the right to its pos- session. Longstaff v. Hurd, 66 Conn. 350, 34 Atl. 91; Richards v. People, 81 111. 551; Mosher v. Su- preme Sitting etc., 88 Hun 394, 34 N. Y. Supp. 816; People v. Cen- tral City Bank, 53 Barb. (N. Y.) I Rec. — 8 412; In re Schuyler's etc. Boat Co., 64 Hun 384, 19 N. Y. Supp. 565 (affirmed in 136 N. Y. 163, 20 L. R. A. 391, 32 N. E. 623) ; McDon- ald V. Charleston etc. R. Co., 93 Tenn. 281, 24 S. W. 252; Vermont etc. R. Co. V. Vermont Central R. Co., 46 Vt. 792; Hagedon v. Bank of Wisconsin, 1 Finn. (Wis.) 61, 39 Am. Dec. 275. But actual possession may be required in some cases where con- structive possession would work a hardship upon other parties. Thus in the case of the appoint- ment of a receiver to foreclose a railroad mortgage which as be- tween the mortgagor and mort- gagee covered after acquired property, but did not so cover as to third parties, it was held necessary for the receiver to take actual possession of the after-ac- quired in order to defeat the levy of an execution on it after his ap- pointment. Mississippi Valley Co. V. Chicago etc. R. Co., 58 Miss. 896, 38 Am. Rep. 348. Rights of receiver become fixed at date of appointment, and liens and priorities acquired before ap- pointment will not be disturbed. P. E. Payne Hardware Co. v. In- ternational Harvester Co., 110 Miss. 783, 70 So. 892. The qualified title of a receiver to the property of the receiver- ship dates from the time of his appointment, and actual seizure by him is not necessary to pre- vent the attachment of rights or liens thereafter; and, if the order of appointment requires him to give bond, his title when so quali- fied relates back to the date of 130 LAW OP RECEIVERS. ings operate as an equitable lien or sequestration in appointment, and cuts off all inter- mediate rights. Horn v. Pere Marquette R. Co., 151 Fed. 626. An attorney who received a check from a corporation as a retainer for services to be ren- dered, and who presented and re- ceived payment of the check after he had knowledge that a receiver had been appointed for the prop- erty of the corporation, will be re- quired to turn over the sum so received to the receiver. Bowker V. Haight & Freese Co., 146 Fed. 257. An order appointing a receiver vests title in the receiver when it was signed by the judge, al- though not filed on the same day, and though signed in a county other than that in which the ac- tion was pending, but in the same judicial district. Exchange Nat. Bank v. Northern Idaho Pine ILium- ber Co., 24 Ida. 671, 135 Pac. 747. The court in the case last cited said: "There is but one question involved, and that is whether the order of District Judge Flynn is made when the judge by judicial act signs the order, or whether it is made when the clerk by minis- terial act files the order. In other words, whether the order of Judge Flynn appointing George Ott be- came effective on the instance of the signing of the order, or whether the order became effec- tive when the same was filed and the receiver qualified as such and took possession of the property. "Section 4880, Rev. Codes, pro- vides: 'Every direction of a court or judge, made or entered in writ- ing, and not included in a judg- ment, is denominated an order. An application for an order is a motion.' "Section 4881, Rev. Codes, pro- vides: Motions must be made in the county in which the action is pending, or any county in the same judicial district. Orders made out of court may be made by the judge of the court in any part of the state.' "The motion made at Sandpoint, Bonner county, during the morn- ing of the 24th of August, 1911, being in a county in the same ju- dicial district in which the action was pending for the appointment of a receiver, an order was there- upon made by the court at cham- bers by a judge signing the order. The fact that it was not filed on the same day would not affect the order or the power of the court to take possession at that time of the property, by the signing of the order." In Matter of Lewis etc. Mfg. Co., 89 Hun 208, 34 N. Y. Supp. 983, the court in upholding the levy of an execution after the order of ap- pointment of a receiver in volun- tary dissolution of a corporation, but before he had filed his bond, said: "The execution upon the judgment of Boyle and Macy war> executed and issued to the sheriff on the twenty-first day of Janu- ary, in the forenoon as we have seen. The receiver had not then taken possession of the property, and was not entitled to do so until he had filed his bond, which he did the next day. Boyle and Macy acquired a lien upon the personal property of the company upon the EFFECT OF APPOINTMENT AND DUTIES. 131 delivery of their execution to the sheriff, but when the bond of the receiver was filed his title related back to the time of his anpoint- ment, which was anterior to the lien of Boyle and Macy under their execution. In re Christian Jensen Co., 128 N. Y. 550, 28 N. E. 665. Their lien was therefore divested, if the doctrine of relation is al- lowed its full force against them. That doctrine is a fiction of law which was adopted for the ad- vancement of right and justice, and resort is made to it for no other purpose. It is not adopted where third parties, who are not parties or privies, 'will be preju- diced thereby. In fact, fictions in law are never to be implied to perpetuate a wrong or defeat col- lateral acts which are lawful and concern strangers. Pierce v. Hall, 41 Barb. (N. Y.) 142, 146; Jack- son v. Davenport, 20 Johns. (N. Y.) 537, 551; Heath v. Ross, 12 Johns. (N. Y.) 140. It will therefore be no violation of the principles which underlie the doc- trine of relation to exempt the judgment of Boyle and Macy from its operation, and subject the title of the receiver to the lien of their judgment. On the contrary, it would be quite inconsistent with the doctrine of relation to sub- ordinate the rights of Boyle and Macy to the title of receiver. Fic- tion is not fact. It is not equiva- lent to fact. The fact was that plaintiffs Boyle and Macy ac- quired a lien upon the property of the defendant on the 21st day of January, 1895, at ten-thirty-five o'clock in the forenoon. At that time the receiver had no title to the property of the defendant, and no right to interfere with it in any manner or for any purpose. On the .ild day of January, 1895, the receiver filed his official bond, and the titl^ to the property vested in him in fact and in la'v at that time. By a fiction of law, his title related back to the day of his appointment for some pur- poses, such as its preservation and protection, but not for the purpose of destroying vested rights, or for any other unjust purpose. It would be unjust and wrong to permit the vested rights of the plaintiffs Boyle and Macy which they had acquired by virtue of the execution upon their judg- ment, to be vested by fiction." So also in a suit brought by one lien holder to have the property sold for the purpose of paying off all liens on it and making the other lien holders parties to the proceeding. The filing of the bill and service of process constitutes an equitable levy upon the prop- erty and a receiver appointed sub- sequently by another court in a proceeding by one of the defen- dants will be obliged to yield to the receiver appointed in the first proceeding, even though he was appointed after the one in the sec- ond suit. Adams v. Mercantile Trust Co., 66 Fed. 617, 15 C. C. A. 1. A contrary rule prevails in some states to the effect that the title of the receiver does not vest until it goes into the actual possession of the property. This rule is based on the theory that the court could not furnish by contempt proceed- ings an Interference with the re- ceiver's poosession until he is in actual possession. Farmers Bank 132 LAW OF RECEIVERS. respect to the property covered by the proceeding.* Some confusion has occurred among the decisions caused by a faihire to observe the distinction between different classes of receivers, such as when appointed for pur- V. Beaston, 7 Gill & J. (Md.) 421, 28 Am. Dec. 226. In the last cited case the court said: "It is time that money or effects in the hands of the as- signee of the bankrupt, or the trustee of an insolvent debtor, can not be attached, not only because such property stands assigned by operation of law, but because the allowance of such attachments would utterly defeat the whole policy of the bankrupt or insol- vency laws. Nor can money taken by a sheriff in execution, or money paid into court. Serg. on Attach. 89. But we apprehend that the appointment and bonding of receivers does not work such disability. The property by the order is not taken under the pro- tection of the court, and until taken in charge by the receivers its summary jurisdiction could not be interposed to punish such as might cover it, or portions of it, by execution or attachment. The period when it might or ought legally to be considered as under the mantle of legal protection should be the time when a court of chancery would interpose by attachment for disturbing or inter- fering with the possession of the receiver. Innocent third persons might be grievously affected by extending this doctrine further. It has been argued, and we think with much force, that there is, and ought to be, an analogy in this respect between the law appli- cable to receivers and sequestra- tors. As regards the latter, the Court of Kings Bench have de- cided that where a sequestration is awarded to collect money to pay a demand in equity, if it is not executed — that is, if the seques- trators do not take possession, and a judgment creditor take out exe- cution, notwithstanding a seques- tration awarded — there may be a levy under the execution. 9 Ves. Jr. (Eng.) 335. So here, the re- ceivers never obtained possessions of the credits of the Elkton Bank of Maryland, its books and papers, or its evidence of debt." On the receiver qualifying by the filing of his bond, the prop- erty is deemed in the custody of the court as of the date of his ap- pointment. In re Lenox Corpora- tion, 57 App. Div. 515, 68 N. Y. Supp. 103; In re Hoagland, Robin- son Co., 36 Misc. Rep. 28, 72 N. Y. Supp. 435. 4 Storm v. Waddell, 2 Sandf. Ch. (N. Y.) 494; Smith v. New York etc. Stage Co., 28 How. Pr. (N. Y.) 377; Wickens v. Town- shend, 1 Russ. & M. 361; In re Birt, 22 Ch. D. 604. Ordinarily the rights of the re- ceiver do not relate back to the commencement of the suit so as to defeat a levy or attachment made prior to the actual appointment. Artisans' Bank v. Treadwell, 34 Barb. (N. Y.) 553; Smith v. Sioux City Nursery etc. Co., 109 Iowa 51, 79 N. W. 457. EFFECT OF APPOINTMENT AND DUTIES. 133 poses of general liquidation and wlien appointed for some temporary or specific purpose. In the former case the receiver is generally conferred the legal title to the receivership property by the order of appointment or by virtue of the statute allowing the appointment, while in the latter case, the position of the receiver is that of a mere custodian of the property.^ The observance of 5 If the appointment is made under statutory authority, it often happens that the title of the re- ceiver will relate back to the date of the filing of the suit. Jones v. Arena Pub. Co., 171 Mass. 22, 50 N. E. 15. Where a receiver is appointed in foreclosure proceedings, the property involved will be regarded in the custody of the court to the extent that it will be exempt from the process of a court having con- current jurisdiction from the time of the commencement of the suit even though the receiver is not appointed at once. Farmers' Loan etc. Co. V. Lake M. etc. R. Co., 177 U. S. 51, 44 L. Ed. 667, 20 Sup. Ct. 564. The property over which the receivership extends varies ac- cording to the nature of the pro- ceeding. Sometimes, as in the case of mortgage foreclosures, it merely extends to the rents and profits of the mortgaged premises, sometimes to the whole property as in partnerships, corporations, etc., and sometimes to only suffi- cient property to satisfy the de- mand of encumbrancers. Re Schuyler Steam Tow Boat Co., 43 N. Y. St. Rep. 163, 18 N. Y. Supp. 89; Showalter v. Laredo Imp. Co., 83 Tex. 162, 18 S. W. 491; Ma- grath v. Veitch, 1 Hog. 110. In a railroad foreclosure the receiver has no custody or control except of the property covered by the mortgage. Smith v. McCuUough, 104 U. S. 25, 26 L. Ed. 637. The appointment of a receiver to foreclose a mortgage against a lessee will not deprive the lessor of the right to obtain possession of the premises under forcible en- try proceedings. Woodward v. Winehill, 14 Wash. 394, 44 Pac. 860. Sometimes from the nature of the property or the business, such as in cases of insurance or benefi- cial societies, the property has been held to have come into the custody of the court at the time of filing the receivership proceed- ings or service of process therein. Burdon v. Massachusetts Safety Fund Assn., 147 Mass. 360, 1 L. R. A. 146, 17 N. E. 874; Fogg v. Supreme Lodge etc., 159 Mass. 9, 33 N. E. 692; Merrill v. Common- wealth etc. Ins. Co., 171 Mass. 81, 50 N. E. 519. The appointment of a receiver for the purpose of liquidation operates as a general sequestra- tion of the property and no liens against the property can be cre- ated between the time of the ap- pointment and the qualification of the receiver. Merrill v. Common- wealth etc. Ins. Co., 166 Mass. 238, 184 LAW OF RECEIVERS. these distinctions will tend to harmonize any variations of the decisions in respect to the extent of the rights of receivers. The diversity of opinion in respect to tliis question, it is quite apparent, arises because of different notions by the courts as to the meaning of custody of the court (custodia legis) and as to when property 44 N. E. 144; Rlesner v. Gulf etc. Ry. Co., 89 Tex. 656, 59 Am. St. Rep. 84, 33 L. R. A. 171, 36 S. W. 53; Temple v. Glasgow, 80 Fed. 441, 25 C. C. A. 540. In Decker v. Gardner, 124 N. Y. 334, 11 L. R. A. 480, 26 N. E. 814, this distinction was adverted to in connection with the appointments of receivers upon dissolution pro- ceedings against corporations. In Bank of Woodland v. Heron, 120 Cal. 614, 52 Pac. 1006, the court said: "There are, no doubt, authorities — and perhaps a weight of authorities, although there are cases the other way — to the point that the appointment of a receiver operates as a sequestration of the property mentioned in the order of appointment (Beach on Receiv- ers, sec. 205) ; still it will be found that the cases in which com- plaints at whose instance the re- ceivers were appointed had some estate in or some right to or lien upon the property involved prior to and independent of the ap- pointment of the receiver. Fa- miliar instances of that character are actions to wind up insolvent corporations, to dissolve partner- ships, to administer assets or dis- tribute a fund in which all the parties have an interest, or to foreclose a mortgage where, by the provisions of the instrument or the law obtaining in the juris- diction, the mortgagee has a lien upon the very property sought to be subjected to the receivership. (See, Klinkscales v. Pendleton Mfg. Co., 9 S. C. 318; Wiswall v. Sampson, 14 How. (55 U. S.) 52, 14 L. Ed. 322.) In all such cases the complainants have estates or interests in the property, or liens thereon, independent of and not created by the receivership, and the receiver is appointed to pre- serve and enforce their pre-exist- ing rights. But in the case at bar the appellant, under his mortgage contract and the laws of this state, had no estate or interest in or lien upon the growing crop prior to and independent of the receivership, and the rule con- tended for by him as above stated should not be extended to such a case. If he could acquire any lien through a receiver, it would be a new lien, not pre-existing or cre- ated by the mortgage; it would be analogous to a writ of attach- ment, and would be effective only after possession taken by the re- ceiver, as the writ of attachment would be only after levy." In Merj-ill v. Commonwealth etc. Ins. Co., 171 Mass. 81, 50 N. E. 519, it was held in a corporate receivership that the right of the receiver to the possession related back to the commencement of the proceedings. The same rule was held in Hutchinson v. American Palace Car Co., 104 Fed. 182. EFFECT OF APPOINTMENT AND DUTIES. 135 comes into such custody. This question naturally must be decided by the decisions of each particular state con- struing the nature of tlx action in M'hlch the appoint- ment of a receiver is sought. TLe history and develop- ment of the law on this subject were very well set forth by Mr. Justice Savage of tlie Supreme Court of Maine in a comparatively recent case,*^ in which he laid great 6 In Cobb V. Camden Sav. Bank, 106 Me. 178, 20 Ann. Cas. 547, 76 Atl. 667, the court said: "The plaintiffs contend that the prop- erty was in custodia legis, both at the time of the seizure by the sheriff and at the time of the sale, although they were not appointed receivers until after the sale. In the very recent case of Chalmers V. Littlefield, 103 Me. 271, 69 Atl. 100, it was held, in accordance with practically universal author- ity, that property in custodia legis is not subject to seizure and sale on execution, and that such a sale, without leave of the court first obtained, is wholly illegal and void. In view of this rule, the question to be answered in the case is, whether this property un- der the circumstances, was in custodia legis. First, what is the • custody which the law intends? The oft-repeated expression is that the custody of the receiver is the custody of the court, and that is custodia legis. But when can it be said that the receiver has cus- tody? Must he take actual physi- cal possession? Does his title date from the time of his appointment, or does it relate back to the be- ginning of the proceedings? Or to the time when the court took cognizance of the bill by issuing process? Or to the time when the process was served? Does he take title by the decree of ap- pointment or is a conveyance to him necessary? All these ques- tions are more or less involved in the present inquiry, and upon all of these there is more or less diversity, and even contrariety, of judicial expression in the reported cases. But we think that a care- ful analysis of the cases will show that some, though not all, of this diversity is due to the varied kinds of receivership proceedings to which the rules have been ap- plied. In attempting to answer these questions, while due regard must be paid to established rules of equity procedure general, we must not lose sight of the purpose of the statute, which is judicial sequestration and distribution of the entire corporate estate, nor of the equitable principles applicable to such a statute. It should be re- membered that the proceedings under which these receivers are acting are statutory in their ori- gin and character. It is not a creditor's bill. It is not a pro- ceeding at common law. It is not a supplementary proceeding to a suit, like those in many of the cases in other jurisdictions. And, too, we may in a measure elimi- nate a line of cases in which re- ceivers sought to invalidate exe- 136 LAW OP RECEIVERS. stress upon the purpose of the receivership being a con- trolling factor in determining when the property came cution sales of personal property which had been levied upon and was in the lawful possession of the sheriff prior to the appointments of receivers, for this case relates to real estate. See Varnuin v. Hart, 119 N. Y. 101, 23 N. E. 183; In re Hall & Stilson Co., 73 Fed. 527; Alderson on Receivers, 229. In former days, in common law proceedings, it was generally held that the appointment of a receiver did not operate to convey to him the title of real estate, but in mod- ern times the doctrine has grown up, and appears to be well estab- lished, that at least in statutory proceedings for the dissolution of corporations, the decree of ap- pointment, ipso facto, vests the title to the real estate in the re- ceiver. Attorney General v. At- lantic Mut. L. Ins. Co., 100 N. Y. 2 Wood V. McCardell etc. Co., 49 N. J. Eq. 433, 24 Atl. 228. The distinctions in this respect were shown by the court in Howe V. Harding, 76 Tex. 17, 18 Am. St. Rep. 17, 13 S. W. 41, where the court held that the court could not in every case refuse to exe- cute contracts of the defendant. A fund in a bank to be delivered to the person entitled becomes a trust fund in the hands of a re- ceiver. Capital Nat. Bank v. Cold- water Nat. Bank, 49 Neb. 786, 59 Am. St. Rep. 572, 69 N. W. 115. The receiver of a corporation succeeds to the title of property of the corporation in possession of a factor, subject to the lien for advances in favor of the latter with which it was burdened before h i s appointment. Cameron v. Crouse, 11 App. Div. 391, 42 N. Y. Supp. 58. Where a party, having a con- tract for the employment of claim- ant and for assignment of certain of his patent rights, went into the hands of a receiver, who trans- ferred the property to a purchaser on September 1, 1910, but did not actually deliver the property until September 22, 1910, claimant's contract rights, in theory at least, not being affected under the trans- fer, he was entitled to recover against the receivers for the 22 days in September during which they had possession of the prop- erty, and neglected or refused to employ him, and deprived him of his rights under the contract, and also for any damage he can show he suffered by the action of the re- ceivers in transferring the prop erty to the purchaser, as well as for past-due payments under his contract. Ely v. Van Kannel Re- volving Door Co., 184 Fed. 459. The receiver is not bound by a contract made by the company EFFECT OF xVPPOIXTMENT AND DUTIES. 147 llio contracts of the defendant, or in other words step \ before his appointment which does not constitute a lien on the prop- erty, and he can not be compelled to perform it. Union Trust Co. v. Curtis, 182 Ind. 61, L. R. A. 1915A, 699, 105 N. E. 562. Where an agent of a newspaper publishing company had a contract with it under which he was its agent for a certain period to pro- cure advertisements, fix rates and collect the bills, and apply the col- lections to repay a loan made by him to it, upon the appointment of a receiver, the agent is entitled to have the contract enforced as an equitable pledge of the receipts from the advertisements for its purposes. Commercial Pub. Co. v. Beckwith, 167 N. Y. 329, 60 N. E. 642. Where certain accounts were assigned as security for certain loans and such assignment was accepted by the debtor, the receiv- ers were held bound by it as it constituted an equitable assign- ment of a certain fund and vested the assignee with a power coupled with an interest in the fund. Cur- tis V. Walpole Tire etc. Co., 218 Fed. 145, 134 C. C. A. 140. In the case just cited the court said: "We are, however, of the opinion that the District Court did not err in this particular, and that the writings of April 16th and April 23d, when read together and taken in connection with the trans- action which the parties were undertaking to carry out, show that it was intended to assign the entire account as then due and to become due from the Foster Com- pany to the Tire Company to se- cure the claimant's not*. By their delivery to the claimant with this intention there was an actual ap- propriation of the account as it then existed, and a constructive appropriation of it as to sums that might become due in the future. The transaction was not a mere promise to pay the note out of a particular fund. Field v. Mayor etc. of City of New York, 6 N. Y. 179, 57 Am. Dec. 435; Brill v. Tuttle, 81 N. Y. 454, 37 Am. Rep. 515; Fourth Street Bank v. Yard- ley, 165 U. S. 634, 17 Sup. Ct. 439, 41 L. Ed. 855; Ingersoll v. Coram, 211 U. S. 335, 368, 29 Sup. Ct. 92, 53 L. Ed. 208; Barnes v. Alex- ander, 232 U. S. 117, 34 Sup. Ct. 276, 58 L. Ed. 530; Peugh v. Por- ter, 112 U. S. 737, 5 Sup. Ct. 361, 28 L. Ed. 859; 3 Pomeroy's Eq. (2d ed.), §§1235, 1236, 1237. The Tire Company retained no right to collect the account for its own benefit, or to revoke the disposi- tion promised as to the future. By the assignment an equitable inter- est in the account as it then stood, and as it might thereafter accrue, passed to the claimant as security for his note, together with a power to collect the account and apply the proceeds in satisfaction of the note. As the assignment vested in the claimant an equitable interest in the account, with a power to collect the same, he thereby be- came possessed of a power coupled with an interest in the account assigned, which was irrevocable. Hunt V. Rousmanier, 21 U. S. (8 Wheat.) 174, 175, 5 L. Ed. 589. "Being of the opinion that the claimant obtained an assignment 148 LAW OF RECEIVERS. into his shoes in respect to his prior contracts, and he is entitled to a reasonable time to elect whether to adopt of the entire account as it stood on April 16th, and as it might thereafter accrue, and the sum turned over to the receivers being more than sufficient to pay the claims of the Traders' Company and of the claimant in full, many of the questions argued by coun- sel for the receivers and the cred- itor pass out of the case, and it is imnecessary to consider them." So also in a case where there was a bill in equity by an express company against the receiver of a railroad company to compel spe- cific performance of a contract, made before the appointment of the receiver, to carry freight for the complainant, the court in re- fusing to grant specific perform- ance said: "The road is in the hands of a receiver In a suit brought by the bondholders to foreclose their mortgage. The ap- pellant has no lien. The contract neither expressly nor by implica- tion touches that subject. It is not a license, as insisted by coun- sel. It is simply a contract for the transportation of persons and property over the road. A specific performance by the receivers would be a form of satisfaction or payment, which he can not be required to make. As well might he be decreed to satisfy appellee's demand for money, as by the ser- vice sought to be enforced." South- ern Express Co. v. Western etc. R. Co., 99 U. S. 191, 199, 25 L. Ed. 319, 320. The same principles were recog- nized in Ellis v. Boston etc. R. Co., 107 Mass. 1; Commonwealth V. Franklin Ins. Co., 115 Mass. 278; Re Brown, 3 Edw. Ch. (N. Y.) 384. In Ellis V. Boston etc. R. Co., 107 Mass. 1, the court said: "The receivers are officers of the court for this purpose [that of preserv- ing the property] and act under its direction and control. They continue the operation of the road, and conduct its business, because this is essential to its proper pres- ervation. They may fulfill the contracts of the corporation so far as beneficial. They may not pay its debts or fulfill contracts which are burdensome, or tend to dimin- ish the value of property under their control, unless such con- tracts are charged as incum- brances in the property, or are necessary to its proper preserva- tion and security." Upon the appointment of a re- ceiver the contract of employment of the general manager ceases, such termination being impliedly within the contemplation of the parties when the contract was made. Du Pont v. Standard etc. Co., 9 Del. Ch. 315, 81 Atl. 1089. Where the president of a cor- poration by a verbal agreement grants permission to another to box and gather the turpentine from the pine trees growing on the land of the corporation, such verbal permit amounts only to a license, which terminates on the ajipointment of a receiver for the properties of such corporation at the suit of its creditors. McKin- non-Young Co. v. Stockton, 53 Fla. 734, 44 So. 237. EFFECT OF APPOINTMENT AND DUTIES. 149 or repudiate such contracts,*^ but this power on the part of the receiver to adopt or reject such contracts does not apply to the other party to the contract. The theory of the law in this respect is that the receiver is ap- pointed for the purpose of preserving the property and that if he did not have the right to terminate the con- tract the assets of the receivership might be wasted and dissipated by the performance of unprofitable contracts. In other words, he is not' to adopt the contract unless it appears that to do so wdll benefit the receivership.^ The mere fact that the receiver has taken possession of prop- erty does not of itself prove that the contract in regard to it has been adopted by him.^ 6 Kansas Pac. Ry. Co. v. Bayles, 19 Colo. 348, 35 Pac. 744; In re Seattle Lake Shore etc. Ry. Co., 61 Fed. 541; Sunflower Oil Co. v. Wilson, 142 U. S. 313, 35 L. Ed. 1025, 12 Sup. Ct. 235; United States Trust Co. V. Wabash etc. R. Co., 150 U. S. 287, 37 L. Ed. 1085, 14 Sup. Ct. 86. A receiver may adopt a contract of his predecessor, either ex- pressly or by implication. Craw- ford V. Gordon, 88 Wash. 553, L. R. A. 1916C, 516, 153 Pac. 363. A receiver, of course, holds the funds under his control subject to the orders of the court. Adams v. Woods, 15 Cal. 206; Johnson v. Gunter, 6 Bush (69 Ky.) 534; In re Sheets Lumber Co., 52 La. Ann. 1337, 27 So. 809; Penn v. White- heads, 12 Gratt. (Va.) 74. The receiver may avail himself. of the rights which the defendant had to enforce or defend against instruments executed by the de- fendant. Williams v. Babcock, 25 Barb. (N. Y.) 109; Bell v. Shibley, 33 Barb. (N. Y.) 610. 7 A receiver is not bound to ac- cept property of an onerous and unprofitable nature which would be a burden instead of a benefit to the estate. Shreve v. Hankinson, 34 N. J. Eq. 413; Weeks v. Weeks, 106 N. Y. 626, 13 N. E. 96; McMinn- ville & M. Railroad v. Huggins, 3 Baxt. (62 Tenn.) 177; Sparhawk v. Yerkes, 142 U. S. 1, 35 L. Ed. 915, 12 Sup. Ct. 104; Glenny v. Langdon, 98 U. S. 20, 25 L. Ed. 43; American File Co. v. Garrett, 110 U. S. 288, 28 L. Ed. 149^ 4 Sup. Ct. 90. This species of unprofitable property is termed by Lord Ken- yon damnosa hfereditas, cited in 7 East 342. Re Thames etc. Co. v. The Com- pany, 106 L. T. Rep. 674. In Suydam v. Receivers, 3 N. J. Eq. 114, the court says of a "clearly unlawful" (but moral) contract entered into prior to the receivership: "But the receivers might have ratified it in their dis- cretion on the ground of expe- diency." s Scott V. Rainier Power etc. Co., 13 Wash. 108, 42 Pac. 531; Craw- 150 LAW OF RECEIVERS. If the receiver could be lielcl to the performance of an uncompleted contract, the performance of the contract ford V. Gordon, 88 Wash. 553, L. R. A. 1916C 516, 153 Pac. 363. In Peabody Coal Co. v. Nixon, 226 Fed. 20, 140 C. C. A. 446, the court said: "On the hearing be- fore the master it appeared that under the old contract the railroad company had bound itself to pur- chase and receive from the coal company f. o. b. mines for its fuel purposes not less than 450 and not more than 900 tons of mine-run coal per day produced from the mines of the coal company. The price for the coal was 'to be deter- mined by adding ten cents per ton to the average actual cost to the coal company per ton of coal produced from all such mines dur- ing such month.' "The contract set forth in detail the items which were to enter into the cost of production and the way in which the average actual cost of production per ton should be ascertained. The items thus enter- ing into the price to be paid by the railroad company included ren- tals, royalties, depreciation, inter- est on part of the investment, insurance premiums, cost of main- taining, repairing and renewing plant (in part), wages and salaries of employees, payments made as damages, cost and attorneys' fees for claims for personal injuries to employees, for insurance against such claims, net cost of props, and all other supplies and material used during such month, wages and salaries of officers, and all other proper expenses usually chargeable to the operation of coal mines, all of which were to be distributed pro rata over the en- tire production at all of the coal company's mines, to which was to be added ten cents on each ton taken by the railroad company. "The first impression is, that this is unlike an agreement be- tween parties dealing at arms length. The coal company was on the ground, the railroad company was not. It bought the supplies, hired and paid the labor, and did everything else about cost of pro- duction, and kept the books. There was the implied right to re-check, but that would be an additional expense and hardly satisfactory to a business man. The face of the contract was a representation that there was a profit of only ten cents a ton, but it turned out from the proof to be much more, as meas- ured by the market. "The master began the hearing on September 3d following the ref- erence. The coal company at- tempted to show and induce the master to believe that the old con- tract was beneficial to the receiv- ers and ought to be affirmed, but the master found from the evi- dence that appellant's coal under the old contract would cost the receivers $1.25 per ton, that they could obtain the coal they needed in operation at $1 per ton and thus save annually about $50,000 to the trust estate. He recommended that an order be entered approv- ing the renouncement of the con- tract. . . . "We had occasion in another case (Kansas City So. R. Co. v. Lusk et al., 224 Fed. 704, 140 EFFECT OF APPOINTMENT AND DUTIES. 151 by liim would be equivalent to a payment or satisfaction of the contract indebtedness, and in the absence of ade- quate funds for that purpose, the court will not require him to do so.*^ C. C. A. 244) at this term to ob- serve that it is not the rule that the contract of the owner of a trust estate is binding on the re- ceivers until renounced, but, con- tra, that the receivers are not bound by the contract until they have affirmed it and assumed its burdens under the direction of the court. We need not say much more. There can be no claim on the facts of an affirmance by con- duct or an estoppel against renun- ciation. Spencer v. World's Colum- bian Exposition, 163 111. 117, 45 N. E. 250; Nelson v. Kalkhoff (In re Bishop), 60 Minn. 305, 62 N. W. 335; Commercial Pub. Co. v. Beck- with, 167 N. Y. 329, 60 N. E. 642; Howe V. Harding, 76 Tex. 17, 13 S. W. 41, 18 Am. St. Rep. 17. The receivers were entitled to a rea- sonable time within which to investigate and determine what course they would take, for the engagements of the great railway system which the court took in hand were multitude. With this in mind the court granted them six months to act. Within one month after their appointment they decided that the contract be- tween appellant and the owner of the trust estate was burdensome and determined that it should be renounced, and immediately pe- titioned the court for an approval. They also gave notice within the month to appellant that they would not affirm the contract and assume its burdens, and continued thence to assert their renouncement until their action was confirmed by the court, which would have been doubtless granted shortly after their request but for the resistance of the appellant and its persistent elTort to convince that the affirm- ance of the contract would be ben- eficial to the trust estate. The facts and the law are against the appellant. Ames v. Union Pac. R. Co., (C. C.) 60 Fed. 966, 970; Mer- cantile Trust Co. V. Farmers' Loan & Trust Co., 81 Fed. 254, 258, 26 C. C. A. 383; Dayton Hydraulic Co. V. Felsenthall, 116 Fed. 961, 966, 54 C. C. A. 537; General Elec- tric Co. V. Whitney, 74 Fed. 664, 20 C. C. A. 674; Coy v. Title etc. Trust Co., (D. C.) 198 Fed. 275, 280, and authorities cited in those cases." Receiver of corporation may pro- ceed with a contract partly per- formed until he has ascertained that its performance would not be beneficial to the estate, and he is entitled to be paid on a quantum meruit for the work so performed. Butterworth v. Degnon Contract- ing Co., 214 Fed. 772, 131 C. C. A. 184 (reversing judgment (D. C.) 208 Fed. 381). But if the receiver has not rati- fied the agreement and has in effect suspended its operation, he may be held to the reasonable value of property or service fur- nished to him. Odell v. Bedford Co., 224 Fed. 996. Gaither v. Stockbridge, 67 Md. 222, 9 Atl. 632, 10 Atl. 309; Com- monwealth v. Franklin Ins. Co., 152 Lu\.W OP RECEIVERS. The receiver lias no right to impeach or disaffirm the legal and authorized acts of a corporation, as where a corporation had surrendered a note upon which the receiver subsequently brought suit, no fraud or mistake of fact being shown,^'' for in such a case the receiver is as much bound by the act of the company as the company would be. He may, however, avoid the illegal and unau- thorized act of the company.^^ 115 Mass. 278; Ellis v. Boston etc. R. Co., 107 Mass. 1; Berry v. Gillis, 17 N. H. 9, 43 Am. Dec. 584; Gillet V. Moody, 3 N. Y. 479; Brown v. Warner. 78 Tex. 543, 22 Am. St. Rep. 67, 11 L. R. A. 394, 14 S. W. 1032. See, contra, Howe v. Hard- ing, 76 Tex. 17, 18 Am. St. Rep. 17, 13 S. W. 41; Fidelity Safe Deposit & T. Co. V. Armstrong, 35 Fed. 567; Southern Express Co. v. Western etc. R. Co., 99 U. S. 191, 25 L. Ed. 319; Central Trust Co. V. Marietta & N. G. R. Co., 51 Fed. 15, 16 L. R. A. 90; Glenny v. Lang- don, 98 U. S. 20, 25 L. Ed. 43; American File Co. v. Garrett, 110 U. S. 288, 28 L. Ed. 149, 4 Sup. Ct. 90; Sparhawk v. Yerkes, 142 U. S. 1, 35 L. Ed. 915, 12 Sup. Ct. 104. As to leasehold estates, Mr. Chief Justice Fuller, in Quincy, M. & P. R. Co. V. Humphreys, 145 U. S. 82, 36 L. Ed. 632, 12 Sup. Ct. 787, says: "If the order of court under which the receiver acts embraces the leasehold estate it becomes his duty of course to take possession of it. But he does not by taking such possession become assignee of the term in any proper sense of the word. He holds that as he would hold any other personal property for and as the hand of the court and not as the assignee of the term." Re Oak Pits Colliery Co., L. R. 21 Ch. Div. 322. 10 Hyde v. Lynde, 4 N. Y. 387. As to the right of a receiver of a railroad to sever the connection between it and another railroad, for non-payment of the sums agreed to be paid by the latter for the privilege of running over the road — determined, in a case de- pending upon particular facts, see Elmira Iron & S. Roll. Mill Co. v. Erie Ry. Co., 26 N. J. Eq. 284. A receiver represents both the creditors and their debtor, the in- solvent, he being the trustee of both and bound to serve both, but his right to represent the creditors in opposing a contract entered into by the debtor is generally limited to questions of fraud, though he may be heard individ- ually when he asserts a personal right, although precluded from being heard as a receiver. In re Pleasant Hill Lumber Co., 126 La. 743, 52 So. 1010. 11 A receiver represents and stands in the place of the corpora- tion over which he is receiver and can enforce only such contracts and rights as the corporation itself could enforce. Russell v. Bristol, 49 Conn. 251; Greene v. A. & W. Sprague Mfg. Co., 52 Conn. 330; Coope V. Bowles, 42 Barb. (N. Y.) 87; Leavitt v. Palmer, 3 N. Y. 19, 51 Am. Dec. 333; Gillet v. Moody, EFFECT OF APPOINTMENT AND DUTIES. 153 /^The functions of the receiver are merely to marshal /the assets and distribute the assets of the receivership to the creditors as directed by the court according to their respective rights and interests. He is, as a general rule, but the agent of the court, and is not the agent of the owner of the property for the fulfillment of his con- tracts, except where he makes the contracts his own by some act of adoption.^ ^ If the receiver were required to complete the unfin- ished contract of the owner the eifect in many cases would be to make a preference in favor of a simple contract creditor as against a lien holder, and thus change the rights of the parties as they exist at the time of the receiver's appointment.^^ 3 N. Y. 479; Brouwer v. Hill, 1 Sandf. (N. Y.) 629. Although the general rule is that a receiver takes the title of the lierson or entity whose receiver he is, suhject to the defenses ex- isting against them, still he may, in the interest of creditors, dis- avow contracts of the debtor which are in fraud of the rights of the creditors. Porter v. Wil- liams, 9 N. Y. 142, 59 Am. Dec. 519; Curtis v. Leavitt, 15 N. Y. 9. A receiver in a foreclosure pro- ceeding has no power to contract for municipal aid in the construc- tion by him of the unfinished por- tion of a branch road. Smith v. McCullough, 104 U. S. 25, 26 L. Ed. 637. As to the liability of the receiver for work partially completed when appointed and continued by the contractor thereafter until ordered to suspend, see Girard Life Ins. A. & T. Co. v. Cooper, 51 Fed. 332, 2 C. C. A. 245, 4 U. S. App. 631. i2Hoyt v. Stoddard, 2 Allen (84 Mass.) 442; Ellis v. Boston etc. R. Co., 107 Mass. 1; Commonwealth V. Franklin Ins. Co., 115 Mass. 278; Re Brown, 3 Edw. Ch. (N. Y.) 384; Woodruff V. Erie R. Co., 93 N. Y. 609; Re Otis, 101 N. Y. 580, 5 N. E. 571; Brown v. Warner, 78 Tex. 543, 22 Am. St. Rep. 67, 11 L. R. A. 394, 14 S. W. 1032; St. Joseph & St.'L. R. Co. V. Humphreys, 145 U. S. 105, 36 L. Ed. 690, 12 Sup. Ct. 795; United States Trust Co. v. Wabash etc. R. Co., 150 U. S. 287, 37 L. Ed. 1085, 14 Sup. Ct. 86; Seney v. Wa- bash Western R. Co., 150 U. S. 310, 37 L. Ed. 1092, 14 Sup. Ct. 94; Peoria & P. U. R. Co. v. Chicago, P. & S. W. R. Co., 127 U. S. 200, 32 L. Ed. 110, 8 Sup. Ct. 1125; Sun- flower Oil Co. V. Wilson, 142 U. S. 313, 35 L. Ed. 1025, 12 Sup. Ct. 235; Turner v. Richardson, 7 East 335. 13 Olyphant v. St. Louis Ore & S. Co., 28 Fed. 729; Southern Express Co. V. Western etc. R. Co., 99 U. S. 191, 25 L. Ed. 319. In this case there was a contract between a railroad company and an express 154 LAW OP RECEIVERS. The court, however, may order the receiver to com- plete unfinished contracts if by so doing the interests of all parties will be better conserved, and, in such case, whatever is done by the receiver in the performance of such contracts becomes an obligation upon the receiver- ship and its property to be protected by the court.^^ It is, however, as much the duty of a receiver, in admin- istering an estate, to protect valid preferences and priori- ties, as it is to make a just distribution among the general creditors. ^^ § 35. Performance by Receiver of Executory Contracts. Following the rules set forth in the preceding section, it is apparent that unless there is some equitable lien upon the receivership property which demands the per- formance of the contract as part of its obligation, the receiver is under no obligation to perform an executory contract entered into by the defendant prior to his ap- pointment. He may proceed with the contract if he deems such continuance to be beneficial to the estate company by which the latter St. Louis Ore & S. Co., 28 Fed. loaned the former a sum of money 729. But see Elmira Iron & S. to be expended in repairing and Roll. Mill Co. v. Erie Ry. Co., 26 equipping the road in considera- ^^• j gq. 284. tion of the privileges and facilities ,5 American etc. Bank v. Mc- of express business over the road. ^^^^^.^^^^ ^^^ j^^ 582^ ^^ Am. St. Foreclosure proceedings were in- o,r kom -p^ 7qq . i.^A Rep. 345, 52 N. B. 793. stituted and a receiver appointed, '' who refused to perform the con- A receiver's exclusive posses- tract. A bill for specific perform- slon of property does not interfere ance of the contract was filed by with or disturb any pre-existing the express company. The court liens, pi-eferences, or priorities, held that a specific performance if He simply holds the property in- decreed would be a form of satis- tact until the relative rights of faction or payment, and declined all parties can be determined, and to grant the relief. prevents the sacrifice of assets by 14 Florence Gas, E. L. & P. Co. a multiplicity of suits and execu- V. Hanby, 101 Ala. 15, 13 So. 343; tions. Pelletier v. Greenville Lum- Suydam v. Bank of New Bruns- her Co., 123 N. C. 596, 68 Am. St. wick, 3 N. J. Eq. 114; Olyphant v. Rep. 837, 31 S, E. 855, EFFECT OF APPOrTSTTMENT AND DUTIES. 155 or abandon it if lie deems it not beneficial to the receiver- ship.^ The privilege of a receiver in tliis respect is for the purpose of acting in the best interests of the receivership estate and its creditors and it extends not only to the right to elect what contracts he will adopt but also to making such election without subjecting the receivership fund to the satisfaction of existing claims of creditors for damages arising from the breaches of their contracts.^ Although the receiver may not be bound by the con- tract of the defendant with other parties, his appoint- ment will not nor can any act on his part impair the obligations of the contract as between the original par- ties to it and therefore the injured party to the contract may recover damages against the defendant for its 1 Where the receiver of a cor- poration, when appointed, found a contract for the transportation of large quantities of stone partly performed, it was his duty to pro- ceed with the contract if beneficial to the estate, and to abandon it if not beneficial. Butterworth v. Deg- non Contracting Co., 214 Fed. 772, 131 C. C. A. 184, reversing judg- ment (D. C.) 208 Fed. 381. Receiver of estate of insolvent corporation has the right to ques- tion a transaction in which insol- vent borrowed money, paying an alleged usurious rate of interest. James Bradford Co. v. United Leather Co., (Del. Ch.) 95 Atl. 308. In Southern Express Co. v. Western etc. R. Co., 99 U. S. 199, 25 L. Ed. 319, the court said: "A specific performance by the re- ceiver would be a form of satis- faction or payment which he can not be required to make. As well might he be decreed to satisfy aj)- pellee's demand by money as by the service sought to be enforced." A receiver who comes into pos- session of unfulfilled contracts, al- though not bound to perform them if he deems it unprofitable to the estate, must nevertheless investi- gate the matter and determine what he should do in the best in- terests of the receivership. Harri- gan V. Gilchrist, 121 Wis. 127, 352. 99 N. W. 909, 978. The non-performance of a con- tract can not be recovered for if caused by the appointment of a receiver and injunction against the further transaction of business. Malcomson v. Wappoo Mills, 88 Fed. 680. A guaranty of coal that may be bought may be enforced by a re- ceiver, although the guaranty was before the receivership, and the sale of coal was by the receiver himself. Philadelphia etc. Iron Co. V. Daube, 71 Fed. 583. •2 Wells V. Hartford Manilla Co., 76 Conn. 27, 55 Atl. 599. 156 LAW OF RECEIVERS. breach and the receiver is not a necessary party to such an action.^ The application of the rules discussed in these sec- tions to specific subjects, such as in respect to leases and public ser^dce corporations and the like, ^\^ll be treated more fully in the sections devoted to such subjects. § 36. Effect of Receiver Adopting Prior Contracts. Where a receiver having a right to repudiate a con- tract of the defendant in the receivership proceeding adopts the contract, either expressly or by such implied acts as leave no question of the adoption, he must comply \\i.th all of its terms and burdens. He can not, under such circumstances, accept its benefits without also assuming its burdens.^ Where the receiver has adopted 3 Wolf V. National Bank, 178 111. 85, 52 N. E. 896; Chemical Nat. Bank v. Hartford Deposit Co., 156 111. 522, 41 N. E. 225 (affirmed in 161 U. S. 1, 40 L. Ed. 595, 16 Sup. Ct. 439). Money due upon contracts en- tered into prior to the receivership and which do not constitute a lien on the property of the receiver- ship, constitutes merely a part of the general indebtedness of the receivership. A payment of such indebtedness by the receiver be- fore a general distribution would in effect be giving a preference to creditors who were not entitled to a preference. Ellis v. Boston etc. R. Co., 107 Mass. 1 (same case under the name of Graham v. Bos- ton etc. R. Co., 118 U. S. 161, 30 L. Ed. 196, 6 Sup. Ct. 1009). No act of a receiver could re- lieve a party from obligations aris- ing from a valid contract, made before the receivership. Arlington Heights Realty Co. v. Citizens' Ry. & Light Co., (Tex. Civ.) 160 S. W. 1109. Where an executory contract made by a corporation is termi- nated by its receivers on its in- solvency, a claim by the other party for damages for loss of ex- pected future profits is not prov- able against the insolvent estate. In re New York City Ry. Co., 188 Fed. 339; Pennsylvania Steel Co. V. New York City R. Co., 188 Fed. 343. 1 De W^olf V. Royal Trust Co., 173 111. 435, 50 N. E. 1049; Spencer V. World's Columbian Exposition, 163 111. 117, 45 N. E. 250; Nelson V. KalkhofE (In re Bishop), 60 Minn. 305, 62 N. W. 335; Commer- cial Pub. Co. V. Beckwith, 167 N. Y. 329, 60 N. E. 642; Sumner Iron Works V. Wolten, 61 Wash. 689, 112 Pac. 1109; Street v. Maryland Central R. Co., 59 Fed. 25; Cen- tral Trust Co. V. Continental Trust EFFECT OF APPOINTMENT AND DUTIES. 157 the contract, he can not refuse to be bound by the terms fixed by it and be willing to merely pay a ''reasonable Co., 86 Fed. 517, 30 C. C. A. 235; Dayton etc. Co. v. Felsenthall, 116 Fed. 961, 54 CCA. 537; Sunflower Oil Co. V. Wilson, 142 U. S. 313, 35 L. Ed. 1025, 12 Sup. Ct. 235; Fames v. H. B. Claflin Co., 220 Fed. 190. When, however, a receiver adopts a contract of the defendant, he then becomes mutually bound by its terms with the other party. General Electric Co. v. Whitney,, 74 Fed. 664, 20 C C. A. 674. ' He will be directed to pay claims made on account of mate- rial furnished to and accepted by him as such receiver, and which are either admitted by him to be due or which have been properly verified and presented for pay- ment. Vanderbilt v. Central R. Co., 43 N. J. Eq. 669, 12 Atl. 188. A receiver of a party to a con- tract has a reasonable time within which to elect to adopt or perform the contract, where performance is necessary; and he can not be put in default for not adopting, or performing, or tendering such j erioi-mance, before such reason- rble time has expired. Rogers v. Union Iron & Foundry Co., 167 Mo. App. 228, 150 S. W. 100. In this connection see also But- terworth v. Degnon Const. Co., 208 Fed. 381. In Easton v. Houston etc. Ry. Co., 38 Fed. 784, the original con- tract, whereby certain Pullman cars were transferred from plain- tiff to the railway company, im- posed certain burdens upon the latter. The subsequent receivers of the railway, while retaining the cars, declined to assume such bur- dens, having never themselves made any contract or agreement with the claimants. But the court held the receivers bound to per- form the covenants of the previous agreement, saying: ". . . the receivers, with full knowledge of the obligations of the railway company, and the con- dition of the property furnished thereunder, did take possession of the lease and leased property, and operated the same, enjoying all the advantages thereof, and all for the benefit of the trust fund. It would seem that, under this state of facts, the receivers, fully au- thorized thereto, became the as- signees of the railway company, and thereby legally and equitably obligated themselves to perform the several covenants undertaken by the company as to the care and return of the leased property. The lease in question was an entirety; of necessity an assignment or assumption thereof was of the whole, and not of any particular part." (Citing authorities.) In Girard Life Ins. etc. Co. v. Cooper, 162 U. S. 529, 538, 40 L. Ed, 1062, 16 Sup. Ct. 879, where the receivers accepted the benefits of the performance of a contract entered into prior to their ap- pointment, which contract was un- enforceable against them, the Supreme Court of the United States said: "It is true that the company, in December, 1890, was put into the hands of receivers; but, with full knowledge of all that was being 158 LAW OF RECEIVERS. price" to be fixed by the court for the materials bought, services rendered, rentals or other things of value re- done, they allowed the work to continue without Interruption, until June 3, 1891, and were justly held to be liable for what had been done up to that time, according to the terms of the contract." In Central Trust Co. v. Conti- nental Trust Co., 86 Fed. 517, 30 C. C. A. 235, the Eighth Circuit Court of Appeals, after holding that a prior lease contract is not valid as against the receivers, says: ". . . but if, after due investi- gation, the receiver decides that it is best not to sell or surrender the leasehold interest, because it is indispensable to the successful operation of the trust estate, and the court, on consideration, so determines, and notifies the lessor, and thereafter continues the pos- session, such acts would constitute an adoption of the lease, and, of consequence, carry with it the ob- ligation of the receiver to pay according to the stipulations of the lease." The court then mentions the fact that "the law implies the fact of adoption from the mere refusal of the court to surrender posses- sion to the lessor upon his applica- tion" (p. 526), and concludes: "If the lease was adopted, the law fixed the rental specified in the lease as the amount of com- pensation to be rendered." In Dayton etc. Co. v. Felsenthall, 116 Fed. 961, 54 C. C. A. 537, the receivers did not take actual pos- session of the previously leased premises, and upon demand by the claimants refused either to sur- render the premises or to pay rent, as provided in the lease. The lower court finally ordered the premises surrendered to claim- ants, but declined to order any payment of rent. The Circuit Court of Appeals, in reversing this judgment, held that the refusal of the receiver to return the prop- erty amounted to an election to retain it, and rendered him liable to perform the covenants of the lease rather than for a reasonable rental. The late Mr. Justice Lur- ton, speaking for the court, after remarking that the controversy in a case of this kind is usually "whether rent should be paid ac- cording to the stipulations of the contract between lessor and les- see, or upon a basis of a reasoi- able compensation to the lessor," says: "His (the receiver's) whole con- duct was that of one who was neither willing to give up the premises, nor to make the lease his own. . . . These considera- tions lead us to the conclusion that the receiver has apra'opriated the premises to the use of the ctb-.r properties committed to his charge, in the way in which it was most useful, by retaining his hold upon the term, and his con- structive possession of the prem- ises; and that from July 16, 1896, he ought to compensate the lessor by paying the rents stipulated in the lease, and the taxes." Where a receiver comes into the possession of an executory con- tract for the sale of corporation stock or land, he obtains no greater rights under it than the EFFECT OF APPOINTMENT AND DUTIES. 159 ceivetl by him under the contract. The fundamentals going to the make-up of a contract are not abrogated purchaser has under its provisions. He can not obtain the property described in the contract without paying for it any more than can the original purchaser under the contract. Continental Trust Co. v. Brown, (Tex. Civ.) 179 S. W. 939. In the case just cited the court said: "Since this stock contract is executory, whether it be Hilde- brand, Hopkins, or the Boston & Texas Corporation, they neither had the legal title to the property, but only the right to complete the purchase by paying the price and then obtain a title. It is not dif- ferent from a man who buys laud, and the vendor's lien and superior title are reserved until the bal- ance of the purchase money is paid. The title there remains in the seller; the purchaser only hav- ing the right to complete the pur- chase and obtain a title by paying the price. It would be a mon- strous proposition of law if the purchaser of this stock could de- mand and receive the stock with- out first paying for same. And here payment of the $175,000 is not even tendered; but it is pro- posed to do, through a receiver, what no one would contend that Hopkins or Hildebrand would have the right to do as individuals, namely, get possession of the stock without first paying for it. A receiver takes no greater title to or right in property than the owner had prior to the receiver- ship. The appointment of a re- ceiver does not do away with rights fixed by contract, and the very same contract under which right to the stock is here asserted provides that the executor should hold same until the purchase money should be paid." In Commercial Pub. Co. v. Beckr with, 167 N. Y. 329, 60 N. E. 642, the defendant made a loan to the publishing company under a con- tract which constituted defendant the agent for the publishing com- pany in certain territory to secure advertisements, and to make and apply the collections therefor to the repayment of his loan. De- fendant secured ad^^ertisements and received payments from the advertisers for them. A receiver was then appointed for the pub- lishing company, and he took ad- vantage of defendant's labor in securing the advertisements by publishing them and earning their price. The defendant then claimed that the amounts collected for the advertisements could be retained by him under the contract and applied to the loan. The receiver repudiated the contract and brought suit for these proceeds. But the New York Court of Ap- peals held that the receiver could not receive the benefits of defen- dant's performance of the contract (securing the advertisements) and repudiate the burdens and obliga- tions of the same contract. The court, in holding against the re- ceiver, said: "As receiver he could refuse to carry out or execute the contract of the defendant, and by so doing leave him with his claim for dam- ages for a breach of the contract; or, if he saw fit, he could carry 160 LAW OF RECEIVERS. merely because a court through its receiver has become a party to the contract.- The rule in this respect was out and perform the contract of the corporation, and thus prevent any claim for damages. He could not, however, perform the contract and receive the benefits without satisfying the obligations of the company thereunder. When, there- fore, the receiver accepted and published the advertisements pro- cured by the defendant, he must be deemed to have done so under the contract which the defendant had with the corporation; and under that contract the defendant had the right to collect the moneys accruing for such advertisements, and to retain out of such collec- tions a sum not to exceed $1000 per month, to be applied upon the loan." The case was affirmed by the Supreme Court of the United States. Commercial Pub. Co. v. Beckwith, 188 U. S. 567, 47 L. Ed. 598, 23 Sup. Ct. 382. 2 In Spencer v. World's Colum- bian Exposition, 163 111. 117, 45 N. E. 250, the claimant and the corporation entered into a con- tract for the lease of a concession at the World's Fair for the stipu- lated price of 25 per cent of the gross receipts. The corporation became insolvent and a receiver was appointed to carry on its busi- ness. The receiver continued to occupy the premises but insisted that he should be required to pay only a reasonable rental for the premises and not the 25 per cent of the gross receipts stipulated for in the original contract, the very contention of the receivers at bar. But the court held that the re- ceiver, having taken the benefits, must also assume the burdens and pay the amount fixed by the con- tract rather than a "reasonable" price to be fixed by the court. After deciding that the contract was not originally valid as against the receivers, who could have re- pudiated it, the court says: ". . . the question is whether, after it had taken possession, and under the order of the court car- ried on the business as it had theretofore been carried on by the insolvent company, until the end of the term, and received all the benefits and profits of the contract from thenceforward, it should not also, in view of the circumstances shown in the record, be required to assume the burdens and pay the stipulated price for the part of the term it so carried on the business and received the receipts., . . . But appellant insists that if the receiver was bound to pay anything, it was bound to pay only a reasonable compensation for the privileges enjoyed, and was in no- wise bound by the price stipulated in the contract; and insists that it is shown by the pleadings upon which the question arises that the contract price was unreasonable and excessive, and that the court erred in refusing to refer the cause to the master to take proof as to the reasonable value of the privileges the receiver enjoyed. This position can not be sustained on this record. . . . But we have been referred to no cases holding that, where the lease or contract is of itself a thing of value to the EFFECT OF APPOINTMENT AND DUTIES. 161 well stated by Mr. Chief Justice Start of tlie Supreme creditors, and the receiver, under the order of the court, takes pos- session of the premises, and con- ducts the business which the insolvent had been unable to con- tinue, and, without any act of disafhrmarice or notice that he would not be bound by the con- tract, completes the term, and re- ceives profits, and all the benefits, from such possession and contin- uance of the business, the receiver may then repudiate the contract, and pay only on the basis of a quantum meruit. ... In view of the above-recited facts we do not deem it important whether appel- lee had a right of re-entry or not for non-payment of the percen- tages reserved in the contract, or whether or not it had the right to declare a forfeiture; for, if the receiver, by the consent of the creditors, elected to take the place of the insolvent, and to perform the contract for the remainder of the terra, and did so, receiving the benefits therefrom, a court of equity would not permit its said receiver, at the end of the term, when it would be too late for the other party to take any action it might think proper for the protec- tion of its own interests, to say that it had not assumed the obliga- tion to pay at the contract price." In De Wolf v. Royal Trust Co., 173 111. 435, 50 N. E. 1049, the court said: "The only question here is whether the court erred in . . . holding the receiver not bound by the covenants of the lease. The decision, in effect, was, that the receiver could accept the lease- hold interest vested in it by the I Rec. — 11 order of appointment without be- coming bound by the terms of the lease, and could remain in occu- pancy under the lease for so much of the term as it might choose, and, at its pleasure and election, abandon the premises and surren- der the lease." The court then recognizes the fact that the contract was not originally enforceable as against the receiver, and proceeds: "If he [the receiver] remains in possession beyond a reasonable time to make the election, he, by implication, elects to accept the lease, and becomes bound, as re- ceiver, under its terms; and the remedy of the landlord for rent may be sought against the estate of which he is receiver. If a re- ceiver elects to adopt a lease, he becomes vested with a right to the leasehold estate; and a privity of estate is thereby created be- tween him and the lessor, by which he becomes liable upon the covenant to pay the rent. United States Trust Co. v. Wabash W. R. Co., 150 U. S. 287, 37 L. Ed. 1085, 14 Sup. Ct. 86. Neither courts nor receivers have any right to disre- gard contracts or violate obliga- tions. The only question open here was whether the receiver would take the lease. The stipulation in the case is that the receiver, at the time of its appointment, elected to take possession of the premises, and occupy the same, and did occupy them for three months. This was for more than one-half of the term remaining at the time of the appointment, and that length of time was not neces- sary for the purpose of determin- 162 LAW OF RECEIVERS. Court of Minnesota in a case ^ involving a lease, wherein he observed : **When the receiver took possession of the demised premises in this case, it was nnder the lease, otherwise he was a trespasser; for the court had no power by its receiver to take possession of the property of a third party without his consent, and then make its own terms as to the compensation to be paid for the use thereof. The receiver having taken possession and occu- pied the premises by virtue of the lease, the appellants are equitably entitled to rent at the stipulated rate, unless some new arrangement as to the amount to be paid for the use of the premises was entered into between the parties. . . . The duty of the receiver, failing to se- ing whether it would take the lease." The court then approved Spen- cer V. World's Columbian Exposi- tion, 163 111. 117, 45 N. B. 250, and concludes: "The rule does not disregard the rights of the landlord, and a I'e- ceiver can not be permitted to use his situation as an officer of the court to sequester property of a landlord, and hold the same with- out his having any redress. . . . The receiver could not take, and the court could not authorize it to take, that estate, except as a whole, and upon the terms of the lease." 3 Nelson v. KalkhofE (In re Bishop), 60 Minn. 305, 62 N. W. 335. In this case the receiver took possession of claimant's premises, occupied them for a month, and then notified claimant that he would not recognize the previous lease, as the rent reserved therein was greater than the reasonable rental value of the premises, but would pay a reasonable rental therefor. No agreement could be reached between the receiver and the claimant. Upon settlement the claimant petitioned that the receiver comply with the cove- nants in the lease. The receiver urged that he was liable for a reasonable rental only. It was ad- mitted that a reasonable rental was $300 a month, while the lease stipulated for $500 a month. The lower court upheld the receiver's contention. Upon appeal Chief Justice Start for the Supreme Court of Minnesota, in reversing the cause, said: "Are the appellants equitably entitled to be paid rent as reserved in the lease for the time the prem- ises were in the possession of the receiver? This is the only ques- tion in the case, and we answer it in the affirmative. . . ." The court then proceeded to hold that the lease was not orig- inally valid as against the receiver. EFFECT OP APPOINTMENT AND DUTIES. 163 cure more favorable terms tlian those in tLe lease, was either to surrender the premises at once, or retain them at the stipulated rent, if he deemed it for the interest of the trust estate so to do. It is true that the ap- pellants' petition is addressed to the equitable side of the court, but equity must regard the contract rights of the appellants, and it would clearly be inequitable for the receiver to take possession of the premises by vir- tue of the lease, enjoy its benefits, then repudiate its burdens and ask the court to make a new contract for the parties, which the appellants refused to make." And on the other hand, the receiver will not be allo\A'ed to exercise his judgment without the approval of the court in adopting a contract in which he as an indi- vidual is a party and in which contract he is to obtain compensation for ser^dces which he should perform in his capacity of receiver. He must, in adopting or reject- ing such contracts, be guided solely by the question whether the contract will or will not operate beneficially on behalf of the receivership.^ Wliere several contracts 4 In appeal of Pramuk, 250 Pa. ceiver is an officer of the court; 45, 95 Atl. 326, the receiver of a and, by accepting such appoint- brewing company had prior to the ment, he accepts the responsibili- receivership a contract for a com- ties of his office, which involves mission upon certain sales of beer the exercise of his best business which he controlled, but this con- experience and influence for the tract was substituted by another benefit of the company in the in which he accepted a salary same manner as if he were the of $600 a month in lieu of his sole owner of the business. For commissions. During his receiv- these services the law recognizes ership, which continued for thirty- the justice of compensation meas- five months, he paid himself ured by the circumstances of the $21,000 by way of salary under case. Beyond such compensation, this contract, he having been the receiver may not profit by his authorized by the court to con- position to the detriment of the tinue the business as a going creditors or owners of the busi- concern. He conducted the busi- ness. The very fact of his ability ness in better shape than before to control trade or his familiarity the receivership. The court dis- with the business might have been allowed him the $21,000 which he and probably was the inducement paid to himself, saying: "A re- for appellant's appointment by the 1(54: LAW OF RECEIVERS, relative to a matter exist but are severable and not con- nected with each other, an acceptance of one is not neces- sarily an adoption of the other. Thus where a corporation accepts orders sent in by the general sales agent, but before they are filled the company goes into the hands of a receiver, he may, if he does not adopt the general sales contract with the agent, fill the orders on hand without being liable as receiver for the commissions of the agent under the contract ; the agent as to such com- missions being in the same position as other creditors.^ §37. Conditional Sales, Consignments, and Purchases with Knowledge of Insolvency. Where property is sold under a contract conditioned that the title to it shall remain in tlie seller until it is paid for, title does not pass to the buyer until the con- ditions are fulfilled, and in the event of a receiver being appointed for the buyer, such receiver is enti- tled to a reasonable time within which to elect whether he will adopt the contract or return the property, paying, of course, the stipulated rental for the prop- erty for the time during which he has used it. If he elects to take the property subject to the conditions named court as a person most likely to service he would be entitled to successfully wind up the affairs receive the compensation usually of the corporation, especially allowed receivers. In view of the where, as here, the purpose was fact that his entire time was not to keep it a going concern. If ap- employed in the performance of pellant could not afford to under- his receivership duties, the com- take the duties required by the pensation of $15,000 allowed him appointment at the compensation by the auditor was both ample and usually allowed under such cir- reasonable under the circum- cumstances, the time to make this stances, and the surcharge of the known was when the appointment $21,000, which he paid to himself was made by the court. Not hav- under his contract with the com- ing done so, and having accepted pany at the time of his appoint- the appointment, his duty to the ment as receiver, was entirely court required of him the exercise proper." of his utmost ability and fnfluence 5 Brandenburg v. Coxe, 228 Pa. in closing the business, for which 212, 77 Atl. 455. EFFECT OF APPOINTMENT AND DUTIES. 165 in tlie contract he is bound to perform the conditions before he can obtain title to it.^ Where, however, the 1 Commonwealth v. Franklin Ins. Co., 115 Mass. 278; Sunflower Oil Co. V. Wilson, 142 U. S. 313, 35 L. Ed. 1025, 12 Sup. Ct. 235; Tur- ner V. Richardson, 7 East 335. Where the seller of property re- serves title to it until the payment of the purchase price, the receiver of the purchaser obtains no greater title to the property than the purchaser had and hence can not convey title to the property. Sayles v. National Water etc. Co., 62 Hun 618, 16 N. Y. Supp. 555, .41 N. Y. St. Rep. 856 (affirmed by memorandum opinion in 141 N. Y. 603, 36 N. E. 740). Seller under conditional sale contract is entitled to retake from receiver or trustee in bankruptcy property not paid for. In re Weg- man Piano Co., 221 Fed. 128. If a receiver purchases personal property, but fails to make pay- ment therefor, the vendor may, as in the case of a sale to a pri- vate person, resell the property for the best price he can obtain, for the purpose of ascertaining his damages, and without first apply- ing to the court for permission to make such sale. Moore v. Potter, 155 N. Y. 481, 63 Am. St. Rep. 692, 50 N. E. 271. In Street v. Maryland Cent. R. Co., 59 Fed. 25, the court said: "The New York Equipment Com- pany furnished for the use of the railroad certain locomotives and cars, under contracts of lease and conditional sale, retaining the title to the property and the right to reclaim the property upon default in payment of the installments of purchase money. The Morton Safety Heating Company supplied heating apparatus for passenger cars under similar contracts. All this property is now in possession of the receiver, and he can not operate the road without it. He can not retain it without comply- ing with the contracts, and must pay the current installments and those which have fallen due since the property has been in his hands." In Sumner Iron Works v. Wol- ten, 61 Wash. 689, 112 Pac. 1109, the appellant had sold to the cor- poration some machinery under a conditional bill of sale, reserving title in the seller until paid. A receiver of the insolvent purchas- ing corporation was subsequently appointed, who took possession of the machinery. The vendor then filed his claim in the receivership proceeding and asked that either the property be returned to it or that it be secured in the payment of the purchase price. The lower court dismissed the claim. But the court in disposing of the mat- ter by reversing the action of the trial judge, said: "It would have been the courts duty to thereupon inquire into the demand, and if it found it well taken, to order the receiver to comply therewith and surrender the machinery or pay the balance due. The receiver could obtain no better or different title or claim to the machinery than the insol- vent lumber company. Its rights were his rights; no more, no less. . . , The appointment of a re- 166 LAW OF RECEIVERS. statute requires such conditional contracts to be executed in a certain manner and recorded, it is necessary that the seller has complied with the statute in order to recover the property from the receiver.^ ceiver could not give the lumber company any additional contrac- tual rights, nor deprive it of any old ones. ... it was right and proper to pray the court which had, by its adjudication of insol- vency and appointment of re- ceiver, assumed jurisdiction over all property and property rights of the insolvent debtor, to uphold the contract and enforce its rights." And Mr. Justice Chad wick (con- curring) said: "On its face, it (the petition) discloses a clear right in the ap- pellant to either a return of its property or the payment of the balance due on the purchase price." 2 Under Rev. St. 1908, §§5523- 5525 (Mills' Ann. St. 1912, §§ 6172- 6174), a seller of locomotives to railroad under a conditional sale contract duly recorded, pursuant to the statute, on which balance remained unpaid, is entitled to possession a^ against receivers. Central Locomotive & Car Works V. Smith, 27 Colo. App. 449, 150 Pac. 241. Though Code 1906, § 3101, by recording notice as prescribed, gives the seller a right to reserve title to chattels sold as security for the purchase price, when such reserv-ation relates to property sold to special receivers to be used by them in the original con- struction of a manufacturing plant, subject to prior liens and to the paramount lien of receivers' cer- tificates, fixed by decree under which such receivers are author- ized to act, such reservation of title to the property sold and af- fixed to the plant will be protected only when it can be done without detriment to the rights of such prior lienors. Lazear v. Ohio Val- ley Steel Foundry Co., 65 W. Va. 105, 63 S. E. 772. A receiver appointed to convert- into money the property of an in- solvent debtor can avoid, under Rev. St. Mo. 1909, § 2889, the un- recorded condition in a contract of conditional sale to the debtor of personalty found in his posses- sion. T. L. Smith Co. v. Orr, 224 Fed. 71, 139 C. C. A. 517. Where, in replevin against a re- ceiver for goods conditionally sold his insolvent on a contract, the rights of insolvent under which had been forfeited by insolvent, defendant defends on the ground that there were certain named creditors, and perhaps others, of insolvent, who became such after the sale, relying on insolvent's ownership of the property, so that, under Laws 1903, p. 6, ch. 6, the contract not being on file, the sale became absolute so far as con- cerns such creditors, they may not intervene, it being unnecessary; they being represented by the re- ceiver. Springer v. Ayer, 50 Wash. 642, 97 Pac. 774. The receiver of a corporation to which personal property is sold EFFECT OF APPOINTMENT AND DUTIES. 167 In other words, the receiver's rights in tlie property taken in possession by him are subject to all the exist- ing equities against tbe defendant.^ Hence where property found by the receiver in pos- session of defendant was purchased by him subject to trial and acceptance thps same rule applies as in respect on condition that the title shall pass only on payment of a speci- fied price is not the "personal rep- resentative" of the corporation, within Conn. Pub. Acts 1895, ch. 212, sec. 2, providing that all con- ditional sales of personal property which are not made in conformity with the provisions of sec. 1 shall be held to be absolute sales, ex- cept as between the vendor and the vendee or their personal rep- resentatives, and all such prop- erty shall be subject to attach- ment and execution for the debts of the purchaser the same as any other unexempt property. Re Wil- cox & Howe Co., 70 Conn. 220, 39 Atl. 163. In North Coast Dry Kiln Co. v, Montecoma Inv. Co., 82 Wash. 247, 144 Pac. 58, the plaintiffs had sold machinery to a corporation on a conditional bill of sale, but failed to record it in the proper county. The corporation continued in busi- ness thereafter, and incurred other debts and then became insolvent and went into the hands of a re- ceiver. The court decided that the conditional bill of sale not having been filed as required by statute, the penalties of the statute applied and the sale became absolute as to the subsequent creditors of the vendee corporation, and that there fore the receiver, representing such creditors, could assert this absolute title in the property, as authorized by the statute. The court further held that the ques- tion of the vendor's preference as a general claimant over certain other claimants should have been litigated all in one proceeding and could not be asserted in a different proceeding as against a bona fide purchaser of the property from the receiver. 3 Hyde v. Lynde, 4 N. Y. 387, 392; Ford v. Cobb, 20 N. Y. 344, 348. Where a receiver was a mere bailee as to property in his pos- session, equity would restore pos- session to the intervener, who proved a title superior, to all others, except a conditional seller, who had the legal title until the balance of the price was paid by intervener. Penton v. Hall, 140 Ga. 576, 79 S. E. 465. The seller is entitled to have the property, on which his privi- lege rests, seized and sold forth- with and the proceeds distributed to him. J. P. Hudson & Sons v. Uncle Sam Planting & Mfg. Co., 136 La. 1071, 68 So. 129. A creditor for coal furnished before the receivership to carry on the business has an equitable lien on the earnings prior to the rights of bondholders under a mortgage covering income and profits. Homer v. Baltimore Re- frigerating & Heating Co., 117 Md. 411, 84 Atl. 176. 168 LAW OF RECEIVERS. to property sold on conditional contracts, and the seller may compel the return of the property since, as was said by the chancery court of Delaware :^ ''Though the seller might have regarded the deten- tion and use as unreasonable and chosen to regard it as an acceptance, it may not choose to do so, and it remains unaccepted so far as the seller is concerned. The buyer can not by his unreasonable detention acquire against the will of the seller a right to the goods sold on trial. The seller may acquire a right against the buyer by the detention, but not the buyer against the seller. This is both a reasonable and just principle. Title did not, therefore, pass to the buyer, even if there had been an agreement as to the prices." "Where goods are received by a party under a selling agreement under which he is to sell them to the public but does not undertake to safe-keep the funds received from such sales, but on the contrary mingles such funds with his own and such mingling is in fact stipulated in the contract, the only express duty being to account for them at agreed times, no such trust relation in regard 4 James Bradford Co. v. United machine sold on trial was used by Leather Co., (Del. Ch.) 97 Atl. 620; the buyer until it became bank- see, also, Wolf Co. V. Monarch etc. rupt, and with continued refusals Co., 252 111. 491, 50 L. R. A. (N. S.) to accept, or pay for the machine. 808, 96 N. E. 1063, to the same When the buyer was adjudicated effect. a bankrupt, the seller sought to Where, however, property is reclaim the machine. It was held sold on sixty days' time, but is that there was no acceptance used for nearly a year and the which under the contract was es- seller had made unconditional de- sential to constitute a completed mands for the payment of the sale to diA^est the title of the price, it was held that the unquali- seller, and the seller having re- fied demands for payment put an fused to accept until bankruptcy, end to the trial period and the whether, or not, the refusal was title of a trustee in bankruptcy justified or made in bad faith, was absolute. In re Downing Paper neither the bankrupt, nor its trus- Co., 147 Fed. 858. tee, could claim an acceptance as In re George M. Hill Co., 123 a basis of reclamation of the ma- Fed. 866, 59 C. C. A. 354, where a chine. EFFECT OF APPOtNTMENT AND DUTIES. 169 to them is established as will give tlie seller a specific interest or equitable charge upon the funds received for the goods as against the receiver of the buyer.^ But where one sells goods to a merchant without knowl- edge of his insolvency and before the goods are delivered a receiver is appointed for such merchant the receiver can not keep the goods unless he pay for them in accord- ance with the purchase agreement.® § 38. General Liability of Receiver on His Own Contracts. A receiver is not individually liable on contracts made by him in his official capacity under the orders of the court. The only remedy which the other contracting party has under such circumstances must be sought in the receivership proceeding.^ 5 Isaac McLean Sons Co. v. Wil- liam S. Butler & Co., 208 Fed. 730. 6 Where, on a creditors' bill to sequestrate the assets of an insolvent corporation, receivers were appointed, and thereafter, but before the receivers had filed their bond or taken possession of the property, a seller, who had contracted to sell merchandise to the corporation, and who had no knowledge of the insolvency or receivership, delivered the mer- chandise to the corporation, the receivers could not retain posses- sion thereof without paying the purchase price, whether their possession related back to their appointment or not, since the cor- poration could not accept posses- sion after the decree appointing the receivers had been made, un- less the receivers rejected the contract of purchase and, if the receivers elected to accept the contracts as assets of the corpora- tion, they must also accept the burdens of such contracts. The retention of the goods delivered in these circumstances must be deemed an election to accept the contracts. The receivers must either pay for the goods the con- tract price or abandon all claim to them and allow the sellers to retake them. Eames v. H. B. Claf- lin Co., 220 Fed. 190. 1 Bayles v. Kansas Pac. R. Co.. 13 Colo. 181, 197, 5 L. R. A. 480, 22 Pac. 341; Brown v. Wabash R. Co., 96 111. 297; Ellis v. Little, 27 Kan. 707, 41 Am. Rep. 434; Avey v. Burnley, 167 Ky. 26, 179 S. W. 1050; Arnold v. Suffolk Bank, 27 Barb. (N. Y.) 424, 425; Farmers' Loan etc. Co. v. Central R. Co., 7 Fed. 537, 2 McCrary 181. Thus, where the receiver sold certain judgments which were part of the assets of the receivership, and in his official capacity cov- enanted that they were due and unpaid, he can not be held personally responsible on the cov- 170 LAW OF RECEIVERS. Persons contracting with a receiver are cliargeable with notice that contracts made by him must be authorized or ratified by the court.^ A court may modify or repudiate contracts made by its receiver Avithout its sanction or approval.^ If no advantage accrues to the receivership f imd from obligations or disbursements by the receiver, tlie court will not approve his account including them.^ A receiver may be personally liable in a contract en- tered into by him without the sanction of the court even though in relation to a matter which otherwise would be a charge against the receivership.^ But a receiver who is managing a receivership as a going concern has implied power to make sucli reasonable contracts as are neces- sary for the proper management of the receivership.*' enant. Livingston v. Pettigrew, 7 Lans. (N. Y.) 405. 2 Hendrie & Bolthoff Mfg. Co. v. Parry, 37 Colo. 359, 86 Pac. 113; Tripp V. Boardman, 49 Iowa 410; Ellis V. Little, 27 Kan. 707, 41 Am. Rep. 434. 3 Mooney v. British Commercial Life Ins. Co., 9 Abb. Pr. (N. S.) (N. Y.) 103. 4 Schwartz v. Rosetta Gravel etc. Co., 110 La. 619, 34 So. 709. 5 Allen V. Kittrell (Tex. Civ.), 162 S. W. 397. 6 Jourdan v. Long Island R. Co., 42 Hun 657, 6 N. Y. St. Rep. 89; Dahlstrom v. Hudelson, 80 Ore. 520, 157 Pac. 798; Central Trust Co. V. Wabash etc. R. Co., 52 Fed. 908. A court of equity has power to authorize its receiver to purchase goods or make contracts for the benefit of the property in his hands. John H. McGowan Co. v. Ingalls, 60 Fla. 116, 53 So. 932. Where a receiver enters into contracts under the express or implied authority of the court, they can not be annulled at the pleasure of the court. Vanderbilt v. Central R. Co., 43 N. J. Eq. 669, 12 Atl. 188; State Bank v. Domes- tic Sewing Machine Co., 99 Va. 411, 86 Am. St. Rep. 891, 39 S. E. 141. A receiver of a railway, even though authorized by the court to make all contracts necessary in carrying on the business of the road, has no authority to lease offices for a term of years without the authority of the receivership court. Chicago Deposit etc. Co. v. McNulta, 153 U. S. 554, 14, Sup. Ct. 915, 38 L. Ed. 819; Braman v. Farmers' Loan etc. Co., 114 Fed. 18, 51 C. C. A. 644. The receiver and manager of a corporation may contract for sup- plies but not for ten months in advance without the sanction of the court. Brunner etc. Co. v. EFFECT OF APPOINTMENT AND DUTIES. 171 Wliere the contract is made with the authority of tlie court it will require the receiver to perform it." Of course, it is not required that a receiver should be obliged to go to the court for an order for every trifling matter. It is the practice in such cases for the receiver to act as he would in conducting his own affairs having in mind that he is acting in a trust capacity and that his acts require the approval of the court in order to relieve him from individual responsibility.^ Where there are two receivers and one receiver enters into a contract with tlie sanction and approval of the court, the contract is en- forceable notwithstanding that the other receiver did not join in the contract.'^ The rule in short is, that if a receiver contracts debts on behalf of the receivership without having been author- ized by the court or without his acts in so doing having been ratified by the court, he will be personally respon- sible to the creditors for the debts so incurred, but if, however, he has been previously authorized or his acts have been ratified by the court, the creditor will be obliged to look to the receivership fund for his payment unless the receiver has in his individual capacity guaranteed the debts. In other words, a creditor in dealing with a court acting through its receiver is bound to use the same com- mon sense in extending credit as he would expect to use in dealing with an individual, namely, look to the assets behind the individual or take chances upon the individual not succeeding with the enterprise which he is conducting. It is, of course, true, as we will find when considering the issuance of receiver's certificates, that courts ought ndt to place themselves in the humiliating position of con- Central Glass Co., 18 Ind. App. 174, Fanning Ball Bearing Chain Co., 63 Am. St. Rep. 339, 47 N. E. 118 Iowa 698, 92 N. W. 712 ^^6- 9 Girard Life Ins. etc. Co. v. T Farmers' Loan etc. Co. v. Bur- Cooper, 162 U. S. 529, 16 Sup Ct. lington etc. Ry. Co., 32 Fed. 805. 879. 40 L. Ed. 1062 (affirming 51 t State Central Sav. Bank v. Fed. 332, 2 C. C. A. 245). 172 LAW OF RECEIVERS. tracting debts which they can not liquidate, and without doubt, on account of the dignified and peculiar position of courts in their functions toward the public, they ought to be very astute not to allow their receivers to incur obliga- tions Avith only their hope of being able to pay as their principal asset. §39. Binding Force of Contracts of One Receiver on His Successor. A receivership is continuous notwithstanding that there is a change of receivers during the course of the admin- istration of the receivership.^ It has, however, been held that one receiver who succeeds another is not liable on the contracts of his predecessor, since he can not be said to be the representative of his predecessor in the legal sense of the term.- But we do not understand the courts to hold that where the contract has been authorized or ratified by the court, any one who happened to be 1 Knickerbocker v. Benes, 195 how he was under the least legal 111 434, 63 N. E. 174. duty to perform them, nor under 2KansasPac.'Ry.Co.v. Bayles, ^'^at legal rule he can be held liable, at law, for not performing 19 Colo. 348, 35 Pac. 744; Craw- ford V. Gordon, 88 Wash. 553, them. He can not be said to have broken them, because he was un- L. R. A. 1916C. 516, 153 Pac. 363. ^^^ ^^ obligation to perform them. It was held, however, by the j^e had promised nothing, and same court in Kerr v. Little, 42 could not therefore be re- N. J. Eq. 528, 9 Atl. 110, that a quired to perform anything, suit for damages could be main- n^ jg ^0^ ^^g representative of tained against a receiver for the his predecessor. In his char- non-performance of the contract g^ter as receiver, his predeces- of a former receiver. goj. can have no representative, In Lehigh Coal etc. Co. v. Cen- in the legal sense of that term, tral R. Co., 38 N. J. Eq. 175, the He was, at best, a mere agent or court said: "It is certain the pres- instrument, and when he died, his ent receiver is no party to these power died also, and he left noth- contracts. He neither negotiated ing behind him, as receiver, of them nor assented to them. He either property or power, in which has not been directed by the chan- he can be represented so as to cellor to perform them. It is not make his acts binding on his suc- possible, therefore, for me to see cessor." EFFECT OF APPOINTMENT AND DUTIES. 173 receiver at any subsequent time would not be bound by it since it is clear that a properly authorized contract is not that of an individual receiver but that of the court, and if the receivership continues regardless of changes in the personnel of the receiver the contract if originally valid will continue to be valid." If a receiver has any doubts about the validity or fairness of a contract made by a preceding receiver he may refuse to perform it until he has sought the advice of tlie court.* A remarkable case along these lines was that of Crawford v. Gordon,^ 3 Farmers' Loan etc. Co. v. Bur- lington etc. R. Co., 32 Fed. 805. 4 Re Angell, 131 Mich. 345, 91 N. W. 611; Haines v. Buckeye Wheel Co., 224 Fed. 289, 139 C. C. A. 525. 5 Crawford v. Gordon, 88 Wash. 553, L. R. A. 1916C, 516, 153 Pac. 363. In the course of the opinion in the above case the court said: "No cases just like the case at hand have been cited, nor have we found any. But if authority be essential, the principle involved may be sustained by reference to analogous cases. We see no dif- ference between this case and one where a receiver comes into a property burdened with a lease or a contract providing for payments under an extended term or an executory contract that puts a burden upon the trust property. When a receiver comes into pos- session of property which is held under contract, it is his duty pri- marily to take possession of it, but he does not, by such act, adopt the contract. Scott v. Rainier Power & Railway Co., 13 Wash. 108, 42 Pac. 531; Casey v. North- ern Pacific Ry. Co., 15 Wash. 450, 48 Pac. 53. But all the books hold that a contract that is voidable — that is no contract if the receiver elects so to declare — may be rati- fied by conduct as well as by an ex- press affirmation. The rule and its limitation are stated in the case of Spencer v. World's Columbian Exposition, 163 111. 117, 45 N. E. 250. The limitation is thus ex- pressed: " 'But we have been referred to no case holding that where the lease or contract is of itself a thing of value to the creditors, and the receiver, under the order of the court, takes possession of the premises and conducts the busi- ness which the insolvent had been unable to continue, and, without any act of disaffirmance or notice that he would not be bound by the contract, completes the term and receives the profits and all the benefits from such possession and continuance of the business, the receiver may then repudiate the contract and pay only on the basis of a quantum meruit.' "See, also. High on Receivers (4th ed.), p. 273; Pennsylvania Steel Co. V. New York City Ry. Co., 198 Fed. 721, 117 C. C. A. 503; Street v. Maryland Central Ry. Co. (C. C), 59 Fed. 25; Sunflower Oil 174 LAW OP RECEIVERS. whicli recently came before the Supreme Court of tlie State of Wasliiiigtoii in which it was contended by re- Co. V. Wilson, 142 U. S. 313, 12 Sup. Ct. 235, 35 L. Ed. 1025; Cen- tral Trust Co. V. Continental Trust Co., 86 Fed. 517, 30 C. C. A. 235; De V'olf V. Royal Trust Co., 173 111. 435, 50 N. E. 1049; Easton v. Houston etc. Ry. Co. (C. C), 38 Fed. 784; Dayton Hydraulic Co. v. Felsenthall, 116 Fed. 961, 54 C. C. A. 537, Ann. Cas. 1912C, 949, note. "So, too, it is generally held that a receiver is not bound by con- tracts made by a preceding re- ceiver, and that a succeeding receiver is not liable in damages for refusing to perform the con- tracts of his predecessors. "Stripping this case to its bare elements, we have the same situ- ation as if the present receivers were repudiating a contract made by their own predecessors, for whatever process of reasoning we employ, it all comes down to this, that here is a transaction that the present receivers were not bound, in law, to carry out. "In Kansas Pac. Ry. Co. v. Bayles, 19 Colo. 348, 35 Pac. 744, a contract made by prior receivers and repudiated by a present re- ceiver was considered by the court, and although it was held that the contract made by the prior receivers was a valid con- tract, it did not follow that it was binding upon their successors. The court quoted from the Lehigh Coal & Navigation Co. v. Central Rail- road Co., 38 N. J. Eq. 175: . . . "In this case the receivers, be- ing in essentially the same posi- tion, did not repudiate the con- . tract but, by every act that would mark an affirmance and ratifica- tion of it if this were a contro- versy between private parties, adopted and acted upon it. "Counsel meets these cases by the suggestion that in all of them there was a valid subsisting con- tract which, but for the receiver- ship, would have been binding upon the insolvent estate and a charge in equity upon its property. This may be admitted without do- ing violence to the principle in- voked. The fact remains that in all cases where the question has arisen there was either a voidable contract or one subject to repudi- ation. If it be said that in the cases cited the contract was valid as against the company or party but for the receivership, it may be said likewise that the contract in this case would have been valid if the federal court, which, barring the fact that there had been a prior assertion of jurisdiction on the part of the state courts, had continued to administer the trust through its own receivers. That court had jurisdiction of the sub- ject-matter, and jurisdiction to de- termine its own jurisdiction, and while its receivers were in charge of the property, they were at least de facto officers of a court of com- petent jurisdiction. In finally de- ciding that it had no jurisdiction to proceed as against the state court, it had no power or author- ity to hold anything beyond the fact that it had acted without jurisdiction. The appellants were not parties to that proceeding, and the legality and binding force of their contract was and is a mat- EFFECT OF APPOINTMENT AND DUTIES. 175 coivers appointed by a state court that they were not bound to pay the agreed purchase price of certain rail- way cars bought by receivers appointed in a federal court •on credit under a conditional contract whereby the seller retained title until paid. Tliey contended that they had a right to retain the property and pay merely a rea- sonable price regardless of the price and conditions in the contract. This contention on the part of the receivers was based on the point that a succeeding federal judge had reversed the order appointing the receivers who had purchased the property under the authority of the appointing court on the ground that there the federal court had no jurisdiction because tJiere had been a prior application for a receiver pending in the state court. Thereupon the federal court annulled all the receivership proceedings had in the federal court. The receivers ap- pointed by the state court took possession of the cars from the federal receivers and subsequently were noti- fied by the seller of the conditional agreement respecting the cars. The receivers in the State Court did not for- mally adopt the agreement, but used the cars for a long period and in answer to tlie claim of the seller for com- pensation asserted that the purchase by the federal re- ceivers was void because the court had no jurisdiction to appoint them and that their own possession was the result of a conversion by themselves which Avas subject to a judgment for tlie reasonable value of the cars. The sellers contended tliat the receivers had impliedly adopted ter for the state court to deter- "to pay the contract price. We mine under the general rules of think it can be said with entire law and equity. assurance that the complaint "Suppose the appellants had not would be held bad on demurrer. A delivered the cars and the re- court would necessarily say that if ceivers had brought an action set- the receivers did not want to take ting up the contract and the initial the property under the contract payment, and undertook to put the and pay such price as the owners owners to the hazard of a trial to were willing to take, they would determine the reasonable value of be under a legal duty to repudiate the property, instead of offering the contract In toto." 176 LAW OF RECEIVERS. the contract and were obliged to either return the cars or pay for them in accordance with the contract. The trial court, however, ruled against them, but the Supreme Court very properly lield that the receivers were bound by the contract of purchase, and Mr. Justice Chadwick in the course of his opinion said : *'We know of no case holding, nor has any been cited by counsel that wi]l allo^\' an agent or an officer of the court to plead his own tort to defeat a contract. Such, in effect, is the receiver's present attitude. Not having disaffirmed the contract promptly or within a reasonable time, they will not now be heard to say: We repudiate the written contract under whicli you reserved title ; we will deny you a recovery upon your contract and compel you to affirm our tort and take whatever may be awarded to you upon a quantum valebant. ''The title to the cars is in appellants. They did not part with it when they sold to the federal receivers, nor will the law compel them to part with it by resort to the fiction of a conversion. Ha^dng title, they may select their own remedy, and although the contract of sale may have been a voidable thing, they can not be compelled to accept a contract in lieu thereof Avhich has been made for them by the receivers; that is to say, take a substitu- tion of a contract to sell upon quantum valebant for a contract to sell at an agreed price. Courts have great powder, but they can not make contracts. If they can not, it follows that their agents and servants can not coerce others into an involuntary contract. **The receivers knew the sale was voidable. They had the property in possession and in use, and it was up to them to repudiate it within a reasonable time or to bring it to the notice of the court. When they said, 'Proof re- quired,' and then continued to use the property without calling for proof beyond the prima facie case made by the appellants, they ratified the contract. EFFECT OF APPOINTMENT AND DUTIES. 177 "It would not be fair dealing, eitlier on the part of individuals or the officers of the court, to hold property parted with in good faith upon a contract merely void- able, upon the theory that the seller is remediless, and therefore bound to resell upon such terms as his adver- sary may dictate. The power of the receiver is the power of the court, and we are not disposed to sanction by judi- cial decree anj'thing done, or omitted to be done, by the court's officers which would put the court in the attitude of sanctioning a tort. ''Neither do we think that appellants were bound to elect whether they would stand upon their contract or waive it and take the reasonable value of their property. The duty to elect within a reasonable time was upon the receivers.*' They were bound to deny or affirm the con- tract under which the property had come to the estate which was subject to their administration. They did not disaffirm until called to the bar of the court. As against this tardy disaffirmance, we must measure the continued use and assertion of ownership in the property." The receivers in this case also took the position that the sellers in case they desired the return of the cars should have returned the money paid on account, but the court held that they had no right to repudiate the con- tract on the theory that it was void, that having been solely a privilege which could have been exercised by the receivers.'^ 6 Citing United States Trust Co. desire the return of the cars, they V. Wabash W. Ry. Co., 150 U. S. should have returned the money 287, 14 Sup. Ct. 86, 37 L. Ed. 1085; paid them under the terms of the Sparhawk v. Yerkes, 142 U. S. 1, void obligation.' 12 Sup. Ct. 104, 35 L. Ed. 915, Sun- "Counsel have failed to appre- flower Oil Co. v. Wilson, 142 U. S. ciate the exceptions to the gen- 313, 12 Sup. Ct. 235, 35 L. Ed. 1025. eral rules of law as they are T The court in this respect said: applied to receivership cases. Ap- "Counsel for respondents say in pellants had no lawful right to their briefs: repudiate the contract upon the " 'If they [meaning appellants] theory that it was void. The re- IRec. — 12 -j^yg LAW OP RECEIVERS. We have given considerable attention to the case of Crawford v. Gordon because it covers points of law on questions of great importance in respect to the relations of receivers toward parties with whom they have con- tractual relations. The question which probably was most confusing in the case was that relating to the effect of the order in the Federal Court annulling the appoint- ment of the receivers and all proceedings had by them. The receivers in the State Court failed to realize that if they had any title to the property it must have been through the contract rather than by wrongfully holding the property by way of conversion. Although subrogation is not founded upon contract but upon principles of equity, and may be enforced where no contract or privity of any kind exists between the parties, still it is well settled that where the liability of a party is fixed by contract or by statute, courts will not resort to equity to either enlarge or defeat them.* 8 40. Effect of Order of Appointment as Res Judicata. It is, of course, elementary that where a court has jur- isdiction of the subject-matter and the parties to the action tliat its orders and decrees in the suit are not sub- ceivers alone were privileged to on Receivers, Alderson's Edition, , ., ,. § 328, p. 332. do that. ^ ^ ... , ■ . . , . , . X *!,„ "It is because of the rule wnicn " 'The rule which gives to the , ^ ^ *. * ^.;^ lue luic 6 binds the adversary party to his receiver the right to adopt or re- ^^^^^^^^^ ^^^^^ ^he principle of rati- ject the contracts of the defendant ^^^^j^^ jg ^^^^ ^^ ^pply to re- is not reciprocal, and hence is ggiygj-s. The rule that binds the anomalous. It does not matter adversary party to his contract, how burdensome the contract may while making it optional with the be to the latter, he must render receiver, compels its corollary, in performance, if the receiver so de- proper cases; that is, that the re- mands. The power to adopt or ceiver must elect whether he will reject the defendant's contracts, ratify or reject the contract, and to accept those which are of ad- that within a reasonable time." vantage to the trust estate, and 8 Southwestern Surety Ins. Co. v. reject the burdensome ones, is re- Pacific Coast etc. Co., 92 Wash, stricted to the receiver.' Beach 654, 159 Pac. 788. EFFECT OF APPOINTMENT AND DUTIES. 179 joct to collateral attack. If the court appointing a re- ceiver has jurisdiction of the parties and the subject- matter of the suit, its order making the appointment will not be subject to collateral attack even though it be in- valid and voidable on a direct attack.^ WJiere, however, 1 In First Nat. Bank v. United States Encaustic Tile Co., 105 Ind. 227, 4 N. E. 846, it is held that an erroneous appointment of a re- ceiver is not void, but voidable, as where the court had jurisdiction of the subject-matter and of the parties. Cook v. Citizens' Nat. Bank, 73 Ind. 256; Howard v. Whitman, 29 Ind. 557; Pressley v. Lamb, 105 Ind. 171, 4 N. E. 682. In O'Mahoney v. Belmont, 62 N. Y. 133, it is held that in the matter of the county and a person appointed receiver it is no objec- tion that the appointment was void in a case where it appeared that the receiver was appointed and obtained control of the fund without the consent, and contrary to the wishes, of the parties. An appointment of a receiver upon the application of plaintiff is not invalid because of the er- roneous overruling of a previous motion by defendant to require plaiutifC as a non-resident to file a bond for costs under Ind. Rev. Stat 1894, 1698. Galloway v. Campbell, 142 Jnd. 324, 41 N. E. 597. In Commercial Nat. Bank v. Burch, 141 III. 519, 33 Am. St. Rep. 331, 31 N. E. 420, it is held that where the court, appointing a receiver for an insolvent corpor- ation, has jurisdiction of the sub- ject-matter and of the parties, the order appointing him can not be questioned collaterally, no matter how erroneous it may be. It can not be attacked upon appeal from an order refusing to give an inter- vening petitioner a preference in payment on his claim of an equi- table lien on the assets of the cor- poration. See, also, Richards v. People, 81 111. 551; Comer v. Bray, 83 Ala. 217, 3 So. 554; Florence Gas etc. Co. v. Hanby, 101 Ala. 15, 13 So. 343; Lowenstein v. Finney, 54 Ark. 124, 15 S. W. 153; Illinois Trust etc. Bank v. Pacific Ry. Co., 115 Cal. 285, 47 Pac. 60; Title Ins. etc. Co. v. Girdner, 152 Cal. 746, 94 Pac. 601; Ward v. Farwell, 97 111. 593; Great W^estern etc. Co. v. Gray, 122 111. 630, 14 N. E. 214; Commercial Nat. Bank v. Burch, 141 111. 519, 33 Am. St. Rep. 331, 31 N. E. 420; Equitable Trust Co. v. Wilson, 200 111. 23, 65 N. E. 430; Vandalia v. St. Louis etc. R. Co., 209 111. 73, 70 N. E. 662; Bodkin v. Merit, 102 Ind. 293, 1 N. E. 625; Pressley v. Lamb, 105 Ind. 171, 4 N. E. 682; First Nat. Bank v. United States Encaustic Tile Co., 105 Ind. 227, 4 N. E. 846; Hatfield V. Cummings, 152 Ind. 280, 50 N. E. 817, 53 N. E. 231, Metropolitan Nat. Bank v. Commercial State Bank, 104 Iowa 682, 74 N. W. 26; Paine v. Mueller, 150 Iowa 340, 130 N. W. 133; Green wait v. Wilson, 52 Kan. 109, 34 Pac. 403; State v. Judge of Civil Dist. Court, 45 La. Ann. 1418, 14 So. 308; Converse v. Ayer, 197 Mass. 443, 84 N. E. 98; Skinner v. Lucas, 68 Mich. 424, 36 N. W. 203; Basting v. Ankeny, 64 Minn. 133, 66 N. W. 266; Whitney 180 LAW OF RECEIVERS. the court making the order of appomtment was without V. Hanover Nat. Bank, 71 Miss. 1009, 23 L. R. A. 531, 15 So. 33, Keokuk N. L. Packet Co. v. David- sou, 13 Mo. App. 561 ; Neiin v. Black- stone etc. Assn., 149 Mo. 74. 50 S. W. 436; State (ex rel. Connors) V. Shelton, 238 Mo. 281, 142 S. W. 417; Andrews v. Steele City Bank, 57 Neb. 173, 77 N. W. 342; Murphy V. Fidelity etc. Ins. Co., 69 Neb. 489, 95 N. W. 1022; Dean v. Thatcher, 32 N. J. L. 470; Scott V. Dunscombe, 49 Barb. (N. Y.) 73; Whittlesey v. Frantz, 74 N. Y. 456; Stanley v. National Union Bank, 115 N. Y. 122, 22 N. E. 29; Jones V. Blun, 145 N. Y. 333, 39 N. E. 954; Brynjolfson v. Osthus, 12 N. D. 42, 96 N. W. 261; Threadgill v. Colcord, 16 Okla. 447, 85 Pac. 703; Thompson v. HoUaday, 15 Ore. 34, 14 Pac. 725; First Nat. Bank v. Mack, 35 Ore. 122, 57 Pac. 326; Eichman v. Hersker, 170 Pa. St. 402, 33 Atl. 229; Edrington v. Pridham, 65 Tex. 612; New Britain Mach. Co. v. Watt (Tex. Civ.), 180 S. W. 624; Radebaugh v. Tacoma etc. R. Co., 8 Wash. 570, 36 Pac. 460; Elderkin v. Peterson, 8 Wash. 674, 36 Pac. 1089; Smith v. Hop- kins, 10 Wash. 77, 38 Pac. 854; Carroll v. Pacific Nat. Bank, 19 Wash. 639, 54 Pac. 32; Wood v. Blythe, 46 Wis. 650; Neeves v. Boos, 86 Wis. 313, 56 N. W. 909; Davis V. Shearer, 90 Wis. 250, 62 N. W. 1050; Gunby v. Armstrong, 133 Fed. 417, 66 C. C. A. 627; Mer- cantile Trust Co. v. Pittsburgh & W. R. Co., 29 Fed. 732. A creditor who has brought suit against a private corporation in a federal court, and caused its property to be attached and se- questered on a vendor's lien. which property is subsequently ordered to be surrendered to a receiver previously appointed in a state court, can not successfully assail the order of appointment for informality in the proceedings, without asking judgment on its demand, or disclosing a well- grounded claim for damages against the receiver personally. Remmington Paper Co. v. Watson, 49 La. Ann. 1296, 22 So. 355. An order directing a receiver to distribute certain funds in his possession, even though erroneous, can not be questioned in a col- lateral proceeding. Piatt v. New York etc. Co., 170 N. Y. 451, 63 N. E. 532. Under N. Y. Stat, vol. w., p. 463, sec. 36, it was held that if the appointment was binding upon the corporation no one else could question it. Whittlesey v. Frantz, 74 N. Y. 456; Peters v. Carr, 2 Dem. (N. Y.) 22; Bamett v. Nel- son, 54 Iowa 41, 37 Am. Rep. 183, 6 N. W. 49; Thompson v. Greeley, 107 Mo. 577, 17 S. W. 962; Elder- kin V. Peterson, 8 Wash. 674, 36 Pac. 1089. But a contract by receivers, whose appointment it was subse- quently declared was not author- ized, to purchase necessary prop- erty is not void, but only voidable, and may be ratified. Crawford v. Gordon, 88 Wash. 553, L, R. A. 1916C, 516, 153 Pac. 363. Where a federal court having jurisdiction over the subject-mat- ter attempted to appoint a re- ceiver, but subsequently revoked the appointment, because the state courts had already acquired juris- diction over the suit, such re- EFFECT OF APPOINTMENT AND DUTIES, 181 such jurisdiction of the subject-matter and parties, the ceiver is at least a de facto officer, and a contract entered into by him under the authority of the court is not void, but merely voidable, and may be ratified. Crawford v. Gordon, 88 Wash. 553, L. R. A. 1916C, 516, 153 Pac. 363. Under Code, 574, authorizing the appointment of a receiver without notice, and section 922, permitting chancellors of districts other than that in which the suit is pending to act, an order of appointment reciting that such appointment was made in a cause pending in another district, and that the chancellor of the district was ill, and absent, will be presumed to have been made on a sufficient showing. Pearson v. Kendrick, 74 Miss. 235, 21 So. 37. Where testimony is introduced on an application for a receiver before a court of competent juris- diction, and the court, after find- ing insolvency, appoints a re- ceiver, the proceedings are not null and void and are not subject to collateral attack. W. L. Nelson & Co. V. Adolphe Rocquet & Co., 123 La. 91, 48 So. 756. Where an order appointing a receiver showed on its face that it was not made and signed until the bill had been filed, such order, on being filed and entered, became a judicial record importing abso- lute verity, which could not be im- peached, either by parol, by a statement of the chancellor, or otherwise, except for fraud. Bank of Meadville v. Hardy, 94 Miss. 587, 48 So. 731. Where a receiver is appointed over an insurance company on the ground of its insolvency, the in- solvency being admitted by the company, a policy holder can not in a suit against him to collect an assessment question the appoint- ment of the receiver on the ground that the company was not in fact insolvent. Eichman v. Hersker, 170 Pa. St. 402, 33 Atl. 229. The order appointing a receiver can not be questioned on a writ of error to review an order au- thorizing the issuance of receiver certificates where the court had jurisdiction of both the subject- matter and parties. Vandalia v. St. Louis etc. R. Co., 209 111. 73, 70 N. E. 662. A decree appointing a receiver in an administration suit can not be attacked collaterally by man- damus proceeding, where no ap- peal has been taken therefrom and it stands unreversed. Ex parte Hurt, 157 Ala. 368, 47 So. 264. Nor is the appointment invali- dated by irregularity or error in the proceeding. As where one of the firm is not made a party to the proceeding, it not appearing that he was within the jurisdiction of the court, or had a substantial interest in the partnership. Stel- zer V. La Rose, 79 Ind. 435. Or where the court fails to require adequate security. Nesbitt v. Tur- rentine, 83 N. C. 535. Nor does the fact that an execution was not sued out and returned nulla bona, in a creditor's proceeding, where no objection was interposed at the time of the appointment, and where according to the facts and admissions it would have been an idle ceremony and of no benefit. Sage V. Memphis & L. R. R. Co., 182 LAW OF RECEIVERS. order is void and may be attacked in a collateral pro- 125 U. S. 361, 31 L. Ed. 694, 8 Sup. Ct. 887. Nor where the clerk of court is appointed in violation of the statute. Moore v. Taylor, 40 Hun 56. Nor the failure to give notice as required by law. Corbiu V. Berry, 83 N. C. 27. Nor where the findings of the court are not reduced to writing until three or four days after the entry of the order. Forsaith Mach. Co. v. Hope Mills L. Co., 109 N. C. 576, 13 S. E. 869. Nor where the order did not specify the newspapers in which it was to be published, as required by the code. In re Christian Jen- sen Co., 128 N. Y. 550, 28 N. E. 665. Nor by reason of defects in the averments of the bill. Comer v. Bray, 83 Ala. 217, 3 So. 554. See, also, Stith V. Jones, 101 N. C. 360, 8 S. E. 151. Nor where the re- ceiver neglects to be sworn, as required by statute. American Bank v. Cooper, 54 Me. 438. One intervening in receivership proceedings with knowledge of the application for the receivership and the answer thereto, which he claims show upon their face fraud in appointing the receiver, can not thereafter attack the appointment of receiver on that ground. Dilley V. Jasper Lumber Co. (Tex. Civ.), 114 S. W. 878. The Supreme Court will not re- view the question whether the ap- pointment of a receiver is void in an action against the sureties on a bond of the original defen- dant to effectuate a stay pending En appeal from the order of ap- pointment where the court has previously affirmed the order ap- pointing the receiver, and such has been held to be the rule even where the record on the appeal from said order was such as to preclude a review of the merits of the action of the court in mak- ing it and the decision was in fact made to rest on the legal pre- sumption of the due regularity of the proceeding culminating in the making of the order, since the af- firmance of the order involves a conclusive determination of the question and is consequently res adjudicata. Borges v. Hillman, 29 Cal. App. 144, 154 Pac. 1075. The appointment of a receiver for a private corporation by a state court of general jurisdiction having power under the state stat- utes to make such appointment in a proper case is a judicial act, v.'hich can not be questioned col- laterally bj'' any other court. In re Benwood Brewing Co., 202 Fed. 326. The order of appointment can not be collaterally attacked in a court other than the one in which the appointment was made on the ground of having been made with- out proper notice. McKay v. Van Kleeck, 133 Mich. 27, 94 N. W. 367. In a suit by a receiver of a mu- tual fire insurance company to re- cover an assessment, defendant can not question the right of the plaintilT on the ground that the receiver was appointed as suc- cessor of a prior one without no- tice. Nichol v. Murphy, 145 Mich. 424, 108 N. W. 704. In a suit by a receiver in rela- tion to matters connected with his trust the order of appointment will be conclusive. Neeves v. Boos, 86 Wis. 313. 56 N. W. 909; Ver- mont & C. R. Co. V. Vermont C. R. EFFECT OF APPOINTMENT AND DUTIES, 183 Co., 46 Vt. 792; Attorney General V. Guardian Mut. L. Ins. Co., 77 N. Y. 272; Stanley v. National Union Bank, 115 N. Y. 122, 22 N. E. 29; Block v. Estes, 92 Mo. 318, 4 S. VV. 731; Cox v. Volkert, 86 Mo. 505; Keokuk N. L. Packet Co. v. Davidson, 13 Mo. App. 561; Rich- ards V. People, 81 111. 551; Com- mercial Nat. Bank v. Burch, 141 111. 519, 33 Am. St. Rep. 331, 31 N. E. 420; Barbour v. National Exch. Bank, 45 Ohio St. 133, 12 N. E. 5; Beverley v. Brooke, 4 Gratt. (Va.) 187; Neall v. Hill, 16 Cal. 145, 76 Am. Dec. 508. It can not be attacked in a matter relat- ing to the compensation of the receiver; nor by a creditor who accepts a dividend from the re- ceiver. Greeley v. Provident Sav. Bank, 103 Mo. 212, 15 S. W. 429. Nor by one consenting to the ap- pointment. Russell V. White, 63 Mich. 409, 29 N. W. 865. Nor, in the absence of fraud or mistake, can a purchaser of the receiver deny the validity of his appoint- ment. Stelzer v. La Rose, 79 Ind. 435. See, generally, Lowenstein v. Finney, 54 Ark. 124, 15 S. W, 153; Florence Gas, Elec. L. & P. Co. v. Hanby, 101 Ala. 15, 13 So. 343; Comer v. Bray, 83 Ala. 217, 3 So. 554; Moore v. Taylor, 40 Hun (N. Y.) 56; Case v. Marchand, 23 La. Ann. 60; Edrington v. Prid- ham, 65 Tex. 612; Texas etc. Ry. Co. V. Gay, 86 Tex. 571, 25 L. R. A. 52, 26 S. W. 599; Wilson v. Bar- ney, 5 Hun (N. Y.) 257. The possession of a receiver ap- pointed by the court is the posses- sion of the court; and the right of the court to grant the receiver- ship can not be questioned in pro- ceedings for contempt by disturb- ing such possession. Albany City Bank v. Schermerhorn, 9 Paige (N. Y.) 372, 38 Am. Dec. 551. The proper record evidence of an appointment as receiver is con- clusive evidence of the right to act as such, until it is impeached. It is immaterial whether the order of appointment was erroneous or improper; while it is a subsisting order the receiver will be sus- tained in his possession of prop- erty. Vermont & C. R. Co. v. Ver- mont C. R. Co., 46 Vt. 792; Press- ley V. Lamb, 105 Ind. 171, 203, 4 N. E. 682; Bodkin v. Merit, 102 Ind. 293, 298, 1 N. E. 625; First Nat. Bank v. United States En- caustic Tile Co., 105 Ind. 227, 4 N. E. 846; Thompson v. Holladay, 15 Ore. 34, 14 Pac. 725; Dann Mfg. Co. V. Parkhurst, 125 Ind. 317, 25 N. E. 347; Greenawalt v. Wilson, 52 Kan. 109, 34 Pac. 403; Rade- baugh v, Tacoma & P. R. Co., 8 Wash. 570, 36 Pac. 460; Elderkin V. Peterson, 8 Wash. 674, 36 Pac. 1089. The appointment of a receiver can not be collaterally attacked in an action by the receiver to re- cover an assessment, where the court appointing him had jurisdic- tion of the subject-matter and of the parties. Rand, McN. & Co. v. Mutual F. L Co., 58 111. App. 528. A party to a proceeding for the appointment of a receiver, who contests the application and fails to appeal from the order of ap- pointment, can not afterwards assert a claim based on the irregu- larity or wrongfulness of the ap- pointment. Saunders v. Kempner (Tex. Civ. App.), 32 S. W. 585. A judgment appointing a re- ceiver in purely statutory proceed- ings in which such appointment is not authorized is void, and may be 184 LAW OF RECEIVERS. ceediiig.2 j^n^j where the court was without jurisdiction collaterally assailed. Murray v. American Surety Co., 70 Fed. 341, 17 C. C. A. 138. An insurance company does not have such an interest in an as- signment by a corporation, by reason of a suit against it on a policy by a receiver to whom the assignee was directed to deliver all the property of the corporation, as will authorize it to intervene in the receivership proceedings for the purpose of having the appoint- ment of the receiver and all pro- ceedings taken by him set aside. Barth v. Enger-Kress Co. (Ameri- can Ins. Co.), 92 Wis. 225, 65 N. W. 1035. A levying creditor can not inter- vene to attack the appointment of a receiver on the ground of want of jurisdiction. Holmes v. Knapp Electrical Works, 59 111. App. 58. If the court had jurisdiction of the subject-matter the validity of the appointment can not be ques- tioned in an action by the receiver. Davis V. Shearer, 90 Wis. 250, 62 N. W. 1050. An erroneous appointment on an inadequate showing will not affect the jurisdiction of the court over the subject-matter. Id. Appointment can not be at- tacked in a collateral proceeding. State V. Scarritt, 128 Mo. 331, 30 S. W. 1026. See State v. Ross, 122 Mo. 435, 23 L. R. A. 534, 25 S. W. 947; Yore v. Superior Court, 108 Cal. 431, 41 Pac. 477; Smith v. Hopkins, 10 Wash. 77, 38 Pac. 854. A judgment creditor not a party by intervention or otherwise can not appear in the action without leave and move to vacate the or- der of appointment. Wooding v. J. Wooding & Co., 10 Wash. 531, 39 Pac. 137. 2 St. Louis etc. Min. Co. v. San- doval Coal etc. Co., Ill 111. 32; Whitney v. Hanover Nat. Bank, 71 Miss. 1009, 23 L. R. A. 531, 15 So. 33; Smith v. Ely etc. Dry Goods Co., 79 Miss. 266, 30 So. 653; State V. Ross, 122 Mo. 435, 23 L. R. A. 534, 25 S. W. 947; State V. District Court, 21 Mont. 155, 69 Am. St. Rep. 645, 53 Pac. 272; Gib- son V. Sexson, 82 Neb. 475, 118 N. W. 77; Texas etc. Ry. Co. v. Gay, 86 Tex. 571, 25 L. R. A. 52, 26 S. W. 599. A collateral attack on the ap- pointment of a receiver may be made only when the court making the appointment was without jur- isdiction. Harned v. Beacon Hill Real Estate Co., 9 Del. Ch. 232, 80 Atl. 805. If it appears upon the face of the proceedings that a court's order appointing a receiver was without authority of law, and therefore void, the order may be assailed collaterally by any one. State V. District Court, 21 Mont. 155, 69 Am. St. Rep. 645, 53 Pac. 272. The appointment of a receiver by a federal court in an action to foreclose a mortgage is absolutely void and subject to collateral at- tack, where the court never ac- quired any jurisdiction of the cause. Thurber v. Miller, 11 S. D. 124, 75 N. W. 900. Where a receiver appointed to collect the rents and profits of mortgaged property pending fore- closure brought an action to re- cover possession of certain cattle claimed by him to be part of the EFFECT OF APPOINTMENT AND DUTIES. 185 to appoint a receiver, the order of appointment as well as rents and profits of the mortgaged property, the defendant may show in such action that the appoint- ment was void on the ground that the court had no jurisdiction to make such appointment. Baker v. Varney, 129 Cal. 564, 79 Am. St. Rep. 140, 62 Pac. 100. The jurisdiction of the court to appoint the receiver may be ques- tioned collaterally in any action in which the appointment or the al- leged receiver's title is involved. In an action of claim and delivery against an alleged receiver, it may be shown that he wrongfully seized possession under a void order of appointment. And where the court vacated the void order of appointment, the receiver was thereby deprived of any semblance of authority to retain the posses- sion of property seized thereunder. He can neither justify under the void order, nor insist that author- ity must first have been granted before suing him in claim and de- livery. He thereafter holds the property seized only in his indi- vidual capacity, and the true owner may reclaim the same. Bibby v. Dieter, 15 Cal. App. 45, 113 Pac. 874. And where a receiver was ap- pointed over a corporation on the application of the corporation but without filing a bill and without notice, the order of appointment will be subject to collateral attack, although the proceeding in which the attack was a writ of prohibi- tion which appears to have been regarded as a direct attack on the order. State v. Ross, 122 Mo. 435, 23 L. R. A. 534, 25 S. W. 947. But in First Nat. Bank v. Mack, 35 Ore. 122, 57 Pac. 326, in a case where the receiver had been appointed in a suit commenced by a stockholder on the sole ground of its insolvency, the court held the validity of the order of ap- pointment could not be raised in a suit by the receiver to have a certain judgment declared not a lien upon the assets of the receiv- ership. The appointment of a receiver of a dissolved corporation without notice to it is void where the ap- pointment is made without requir- ing the complainant to give bond, in violation of Ala. Acts, 1894-95, p. 226, although such corporation may have been in contempt in join- ing in a request in another court for the appointment of a receiver. Capital City Water Co. v. Weath- erly, 108 Ala. 412, 18 So. 841. In St. Louis etc. Min. Co. v. Sandoval Coal etc. Co., Ill 111. 32, the doctrine is laid down that a judgment or decree rendered where jurisdiction is wanting of either the subject-matter or par- ties is void and a nullity, and all acts performed under it are void and no right can be devested by it or acquired thereunder. Cf. Mul- ford V. Stalzenback, 46 111. 303, 306; Campbell v. McCahan, 41 111. 45; Johnson v. Baker, 38 111. 98, 87 Am. Dec. 293; Chambers v. Jones, 72 111. 275; Grand Tower Min., Mfg. & T. Co. v. Schirmer, 64 111. 106; Haywood v. Collins, 60 111. 328; Chase v. Dana, 44 111. 262; White v. Jones, 38 111. 159; Curtiss V. Brown, 29 111. 201, 229; Pardon v. Dwire, 23 111. 572. Otherwise, however, where there is a mere error or irregularity. 186 LAW OF RECEIVERS. everything done in tlie alleged receivership is void and subject to impeachment in a collateral proceeding.-^ So also where a person has hj some act on his part recog- nized the validity of the order appointing the receiver, he Anil be precluded from thereafter questioning it in Adams v. Larrimore, 51 Mo. 130; Wenner v. Thornton, 98 111. 156; Harris v. Lester, 80 111. 307; Wing V. Dodge, 80 111. 564; Hernandez v. Drake, 81 111. 34. Cf. Neeves v. Boos, 86 Wis. 313, 56 N. W. 909; Stanley v. National Union Bank, 115 N. Y. 122, 22 N. E. 29; Green- await V. Wilson, 52 Kan. 109, 34 Pac. 403. In Texas & P. Ry. Co. v. Gay, 86 Tex. 571, 25 L. R. A. 52, 26 S. W. 599, the court exhaustively dis- cusses the question of jurisdiction, not only as between courts, but also as to what constitutes juris- diction over the subject-matter, as well as jurisdiction over the par- ties to the suit, and also holds that a receiver appointed under a void order must be deemed to have been simply the agent of the railway company over whose prop- erty he was appointed, and it is liable for injuries resulting from his management of the railway to the same extent and in the same manner as if such receiver were made agent in the ordinary course of business; and the same rule applies where the receiver is ap- pointed by collusion, In such case he being treated as the agent of the parties procuring the appoint- ment. So, also, where the appointment of a receiver of an insolvent cor- poration was made ex parte and without the filing of a bill, the order of appointment is subject to collateral attack. Smith v. Ely etc. Co., 79 Miss. 266, 30 So. 653. Goods taken by a receiver under an appointment which is void need not be restored before hearing an- other application for the appoint- ment of a receiver, as void ap- pointments may be entirely disre- garded and a second appointment made without vacating the first. Nor does such an appointment of a receiver by a void order dis- qualify him from being appointed under a second order, under Ind. Rev. Stat. 1894, § 1237, providing that no party, attorney, or "other person interested" in any action shall be appointed receiver therein. Robinson v. Dickey, 143 Ind. 214, 42 N. E. 638. 3 Jones V. Schaff Bros. Co., 187 Mo. App. 597, 174 S. W. 177. Where an order appointing a receiver was without jurisdiction subsequent orders approving his acts, allowing and approving his expenditures and authorizing him to issue receivership certificates therefor, were erroneous. Ander- son v. Robinson, 63 Ore. 228. 126 Pac. 988 (rehearing denied, 127 Pac. 546). Where the court appointing a receiver had no jurisdiction, it can not claim "jurisdiction o^^er the property seized without jurisdic- tion, and pay costs and expenses of the receivership therefrom. Hawes v. First Nat. Bank of Madi- son, 229 Fed. 51, 143 C. C. A. 645. EFFECT OF APPOINTMENT AND DUTIES. 187 accordance with the general rules relating to the law of estoppel.^ •4 The doctrine of estoppel ap- plies also to receivers. Wilming- ton Star Min. Co. v. Allen, 95 111. 288; Peabody Coal Co. v. Nixon, 226 Fed. 20, 140 C. C. A. 446. Consent or long acquiescence in the appointment will estop a party from questioning the legality of the appointment where the court had jurisdiction. Pagett v. Brooks, 140 Ala. 257, 37 So. 263; Dickerson V. Cass County Bank, 95 Iowa 392, 64 N. W. 395; Post v. Dorr, 4 Edw. Ch. (N. Y.) 412; Zieverink v. Kem- per, 50 Ohio St. 208, 34 N. E. 250; Pitts V. New Mammoth etc. Min. Co., 23 Utah 623, 65 Pac. 1076; Brown v. Lake Superior Iron Co., 134 U. S. 530, 33 L. Ed. 1021, 10 Sup. Ct. 604. The legality of an appointment of a receiver made in open court, in the presence of the adverse party, without objection or excep- tion, can not be raised by motion to set it aside. Gray v. Oughton, 146 Ind. 285, 45 N. E. 191. Creditors who have admitted the necessity of an appointment of a receiver, and who have made ap- plication for another appointment than that made, can not urge suc- cessfully that the proceedings for the prior appointment are null, because of defect or insufficiency in the pleadings. McGilliard v. Donaldsonville Foundry etc. Wks., 104 La. 544, 81 Am. St. Rep. 145, 29 So. 254. A creditor who has brought suit against a private corporation in a federal court, and caused its property to be attached and se- questered on a vendor's lien, which property is subsequently ordered to be surrendered to a receiver previously appointed in a state court, can not successfully assail the order of appointment for infor- mality in the proceedings, without asking for judgment on its de- mand, or disclosing a well-grounded claim for damages against the receiver personally. Remington Paper Co. v. Watson, 49 La. Ann. 1296, 22 So. 355. Where parties stipulate that a receiver acted as such and should be protected, the validity of the appointment can not be ques- tioned. Kelsey v. Sargent, 40 Hun (N. Y.) 150. A lien creditor of a judgment debtor, who was not a party to the proceedings in which the judg- ment was rendered, is not, by con- senting to the appointment of a receiver in aid of execution, es- topped to object to the possession and control of the property by the receiver. First Nat. Bank v. Cook, 12 Wyo. 492, 2 L. R. A. (N. S.) 1012, 76 Pac. 674, 78 Pac. 1083. Where receivers within the time allowed by the court for that pur- pose therefor petitioned the court for approval of their disaffirmance of a contract, there could be no claim of an affirmance by conduct or an estoppel against disaffirm- ance. Peabody Coal Co. v. Nixon, 226 Fed. 20, 140 C. C. A. 446. The appointment of, or refusal to appoint, a receiver pending de- termination of an action, does not conclude either of the parties upon the ultimate question involved. Lyon V. United States F. & G. Co., 48 Mont. 591, Ann. Cas. 1915D, 1036, 140 Pac. 86. 188 LAW OF RECEIVERS. The recital of jurisdictioiial facts in the order of ap- pointment is prima facie evidence of the existence of such facts." The validity of the order must be determined by The vendee of a receiver can not, in the absence of fraud or mistake, deny the validity of the appointment, where possession has been taken by the receiver. Stelzer v. La Rose, 79 Ind. 435; Jay V. DeGroot, 17 Abb. Pr. (N. Y.) 36, note; Storm v. Ermantrout, 89 Ind. 214. Giving a bond to release a ves- sel for which a state court has appointed a receiver in a proceed- ing under a state statute to en- force a lien for Injury done by it to a bridge, waives any question of the regularity of the receivership. West V. Martin, 51 Wash. 85, 21 L. R. A. (N. S.) 324, 97 Pac. 1102. Plaintiff's assignor having been a party to proceedings by which the receiver took charge of the assets of defendant corporation under the orders of a Mississippi court, the assignor thereby recog- nized the jurisdiction of that court, and would not be in a position to invoke the rule that local cred- itors are entitled to a preference over foreign creditors in regard to funds in the jurisdiction of courts of this state. De Mattos v. Camp & Hinton Co., 129 La. 251, 55 So. 832. Where creditors, in proceedings to perfect a lien, sued both the debtor corporation and receivers which had been appointed to con- serve its property, they can not, in a subsequent proceeding, attack the validity of the receivership. State (ex rel. Connors) v. Shelton, 238 Mo. 281, 142 S. W. 417. Where an order uppoiut.ing a receiver is void, it is not made valid by a motion to quash the order and acquiescence in the order of the court denying the mo- tion. "To move to strike from the record a void order does not make the order valid, nor does it estop the moving party from ques- tioning subsequent acts of the court based on the order." State V. Superior Court, 86 Wash. 584, 150 Pac. 1153. Plaintiff was not estopped to question the propriety of the ap- pointment of a receiver, by his failure to appeal from an order refusing to vacate the receiver- ship. Lyon V. United States F. & G. Co., 48 Mont. 591, Ann. Cas. 1915D, 1036, 140 Pac. 86. Where parties stipulate that a receiver acted as such and should be protected, the validity of the appointment can not be ques- tioned. Kelsey v. Sargent, 40 Hun (N. Y.) 150. And the mere failure to appear and contest the appointment of a receiver does not preclude the party from asserting the invalidity of the appointment. Albritton v. Lott-Blackshear Commission Co., 167 Ala. 541, 52 So. 653. 5 Starr v. Bankers' Union of the World, 81 Neb. 377, 129 Am. St. Rep. 684, 116 N. W. 6L The general presumption ap- plicable to courts of general jur- isdiction is that proof without which the judgment could not have been given was duly made at the hearing. Cole v. Price, 22 Wash. 18, 60 Pac. 153. EFFECT OF APPOINTMENT AND DUTIES. 189 the proceedings upon which it is based and it can not be validated by any subsequent proceedings.^ A denial by the court of an application for tlie appointment of a receiver will be controlling in respect to a subsequent application based upon the same grounds.'^ The same general principles of law, of course, apply to orders appointing receivers in respect to their void and voidable character as apply to other orders and de- crees, and the same loose language on the part of the courts in dealing with the subject of collateral attacks on such orders is found in respect to orders appointing re- ceivers as is often found in many of the decisions on the general subject. There is often a careless use on the part of judges in writing tlieir opinions of the terms void and voidable in characterizing orders or decrees under consideration, and language is used which is good law in the particular case at bar, but which is unsound if ap- plied as a general statement of the law on the general subject. § 41. Source and Extent of Possessory Rights of a Receiver. The powers of the receiver are derived from the order appointing him, and he is, therefore, entitled to take pos- / session of all the property described in the order of ap- pointment.^ He is appointed on behalf of all parties and not of the complainant or defendant only. He is appointed for the cBibby v. Dieter, 15 Cal. App. A receiver being the arm of 45, 113 Pac. 874. the court which appoints him, 7 Dudley v. Piatt, 70 Misc. Rep. whatever he does under the order 322, 127 N. Y. Supp. 154. ^j ^j^^ court regarding the prop- iQuincy etc. R. Co. v. Hum- ^^^^ .^ ^.^ ^^^^^ j^ ^^^ ^^^ of phreys, 145 U. S. 82, 36 L. Ed. 632, ^^^ ^^^^^^ .^^^^^ ^^^^^ ^^^ ^^j 12 Sup. Ct. 787. Sullivan) v. Reynolds, 209 Mo. 161. A receiver can not be sued inai- vidually upon a contract made by 1--^ T". „ , rxi Q^ Qfi-i in7 him as a receiver. Avey v. Burn- 198. 15 L. R. A. (N. S.) 963. 107 ley, 167 Ky. 26, 179 S. W. 1050. S. W. 487. 190 LAW OF RECEIVERS. benefit of all parties who may establisli rights in the cause. He has no powers except such as are conferred upon him by the order of his appointment and the course and practice of the court.^ And an order of appointment which is prima facie regular and valid is a sufficient justi- fication for his acts as a recei^'er.^ The extent of the powers of a receiver under the order of his- appointment was well set forth by the late Mr. Chief Justice Beattj- in the case of Havemeyer v. Superior Court/ in which he said : ''When a receiver holds by a valid appointment con- taining no directions in excess of the jurisdiction of the court, so long as he acts in pursuance of the orders of the court he can not ordinarily invade the rights of par- ties or strangers to the litigation. If he does an injury, he does it by exceeding his autliority. In such case the fault is his, and his alone. If he attempts to take prop- erty lawfully in the possession of another and to which he is not entitled, his attempt m^j be resisted, and the person defending his lawful possession is not brought in 2 Atlantic Trust Co. v. Chapman, s Edee v. Strunk, 35 Neb. 307, 208 U. S. 360, 28 Sup. Ct. 406, 53 N. W. 70. 52 L. Ed. 528, 13 Ann. Gas. 1155. In Holcombe v. Johnson, 27 Minn. In Buckley v. George, 71 Miss. 353, 7 N. W. 364, a receiver was 580, 15 So. 46, it is held that where appointed in a supplementary pro- an order appointing a receiver is ceeding over specific property of appealed from and a supersedeas the judgment debtor and the order granted the effect is to retroact and appointing the receiver was subse- suspend the order by which the quently reversed on appeal. It receiver was appointed by which was held that the action of the there was no longer any efficacy lower court was not void, but re- in the decree to uphold the pos- mained in force until reversed, and session of the receivers, and the furnished a protection to the re- right of the party from whom the ceiver for acts done under it in property is taken is revested in strict conformity with the require- him. Cf. State v. Johnson, 13 Fla. ments of the order as long as the 33; Blondheim v. Moore, 11 Md. order was in force. 365; Everett v. State, 28 Md. 190. 4 Havemeyer v. Superior Court. See, also, Johnson v. Powers, 21 84 Cal. 327, 18 Am. St. Rep. 192, Nob. 292, 32 N. W. 62. 10 L. R. A. 627, 24 Pac. 121. EFFECT OF APPOINTMENT AND DUTIES. 191 conflict with the court. If he by any means gains pos- session of the property claimed by a stranger, the court will either order him to restore it, or if the title is in doubt, permit an action to be brought against him to try the title. But when the court has exceeded its juris- diction in appointing a receiver, or in directing him to take specific property out of the possession of a stranger, the injury that results is directly due to the action of the court ; the wrong is in the order of the court, not in the receiver's transgression of the order. In such case it seems clear that the appropriate remedy is in some writ or proceeding which operates upon the court, as such, to restrain the judicial action, and not in the sort of resist- ance that may be opposed to an ordinary wrong-doer, or in such an action as may be brought against a private person who has coimiiitted a trespass. However confi- dent he may be of his right to resist, no prudent man will take the risk of resisting the plain terms of an order of court, and no rule of practice should be laid down which will compel a man in that situation to defend his possession by force in order to avoid the necessity of re- sorting to an action to recover it. On tlie contrary, all men should be encouraged to avoid forcible resistance to orders of courts, no matter how plainly in excess of jurisdiction, by firmly upholding and freely administer- ing the remedies provided for the summary correction of such excesses." A receiver can not ordinarily take into custody prop- erty found in possession of a stranger to the record claiming title, although where the stranger intervenes and submits his riglits to the receivership court, he is not entitled to a writ of prohibition to restrain the court from determining those rights.^ Except where power is given to the receiver in the 5 State V. McClure, 17 N. M. 694, Ann. Gas. 1915B, 1110, 47 L. R. A. (N. S.) 744, 133 Pac. 1063. 192 LAW OF RECEIVERS. order of appointment or by statute, the proper practice is for tlie receiver to apply by petition to the court for specific authority and direction in all matters involving his official action and duty where the result of his action may seriously affect the receivership property or fund. The interest of the parties and his responsibility to the court require this. In such case the order of court is based upon the petition and should so recite.*^ The powers of a receiver are derived from two gen- eral sources, and are to be determined from the nature of the proceeding and the duties imposed upon him, by virtue of his office. As we have seen, the appointment of a receiver is the exercise of a purely provisional remedy by a court of chancery. The courts of chancery, both in this country and in England, by a long line of decisions reaching back for more than two centuries, have marked out the jurisdiction exercised by courts in this respect and defined, with tolerable accuracy, the cases in which this extraordinary power is exercised.'^ So that as a primary source of power we are to look to the rules of practice as established by courts of equity in the appoint- ment of receivers. In those states and countries where no chancery courts exist as distinctive courts of general jurisdiction, the common laAv courts of general jurisdic- tion are vested with cliancery powers and administer this branch of equity jurisprudence', but nevertheless are still 6 Cammack v. Johnson, 2 N. J. Egberts Woolen Mills Co., 31 Misc. Eq. 163; Curtis v. Leavitt, 1 Abb. Rep. 523, 64 N. Y. Supp. 466. Pr. (N. Y.) 274; Missouri Pac. R. The office of receiver had its Co. V. Texas & P. R. Co., 31 origin in equity practice, and to Fed. 864; People v. St. Nicholas that practice we must look to as- Bank, 76 Hun (N. Y.) 522, 28 N. Y. certain his rights and duties when Supp. 114; Re Van Allen, 37 Barb. not prescribed by statute. State (N. Y.) 225. (ex rel. Fichtenkamm) v. Gambs, He has no powers except such 68 Mo. 289; Wilder v. New Or- as are conferred on him in the leans, 87 Fed. 843, 848, 31 C. C. A. course and practice of the court. 249. He has very little discretion. Blair 7 Corey v. Long, 12 Abb. Pr. V. Core, 20 W. Va. 265; Fulton v, N. S. (N. Y.) 427. EFFECT OF APPOINTMENT AND DUTIES. 193 guided by the general principles established by the courts of chancery. Witli the introduction of the code practice in most of the states of this country, and the modifications of the common law practice, by statutory enactments, the jurisdictions of courts in the appoint- ment of receivers have been somewhat enlarged, as well as the scope and powers of receivers, in some particulars, but the general scope of the law of receivership practice and powers of receivers remains comparatively unaf- fected by the code enactments. In many of the states, however, are found special statutes relating to insol- vency, corporations, and kindred matters wherein are special provisions relating to the appointment of statu- tory receivers, their functions, powers, duties, and official relations, which are siii generis, and are treated of herein under special chapters. Of such character are the Com- panies Act, and various winding-up acts of England, principally relating to corporations, in which the minis- terial officers charged with specific duties analogous to those of receivers, and designated as liquidators, are appointed, sometimes by the corporations, and some- times by the courts. § 42. Manner of Determining Extent of a Receiver's Power. Owing to the nature of the proceeding, and the objects sought to be accomplished by the receivership, and to the fact that the appointment of a receiver rests, in all cases, in the sound judicial discretion of the court, the receiver's powers and duties should be embodied in the order of appointment. 1 The order of appointment should point 1 The rules and orders of the ceive and collect all rents payable courts constitute the law for the to the debtor, or to make leases direction of such receivers, who from time to time as may be nec- are officers of the court which essary. Shreve v. Hankinson, 34 appointed them, and always act N. J. Eq. 413. under its direction. The court Grant v. Davenport, 18 Iowa may, by general or special rule or 179; Davis v. Gray, 83 U. S. (16 order, authorize Its receiver to re- Wall.) 203, 21 L. Ed. 447- HooDer I Rec— 13 194 LAW OF RECEIVERS. out distinctly the general scope of the receiver's powers and duties so that, at least in a general sense, he wili be enabled to understand the ofificial duties imposed upon him, and for the faitliful discharge of which he is to become responsible. By the earlier English practice the receiver was supposed to occupy a position of such ex- treme indifference as between the parties that all appli- cations to the court for directions to the receiver were to be made by the proper parties to the suit, and the receiver was not permitted to apply to the court for directions until he had first made request of the plaintiff or defendant to make the desired application and had been refused by him.- This rule of practice, however, V. Winston, 24 111. 353. In this case it was contended that the powers of the receiver were en- larged and extended by stipula- tion of the parties, and that by reason thereof he was vested with larger discretionary powers than ordinarily attach to a receivership. But the court say: "We do not deny that he had some discretion in this matter, but it was very limited. We hold, being an officer of court, he should have applied to the court for leave to make these expenditures, and he is an- swerable to the court for the exer- cise of all his powers." In Benneson v. Bill, 62 111. 408; Yea- ger V. Wallace, 44 Pac. 294, 296; People V. St. Nicholas Bank, 76 Hun (N. Y.) 522, 28 N. Y. Supp. 114; Verplanck v. Mercantile Ins. Co., 2 Paige (N. Y.) 438, 452; Re Colvin's Estate, 3 Md. Ch. 278. See discussion of the powers of tem- porary and permanent receivers in Herring v. New York, L. E. & W. R. Co., 105 N. Y. 340, 12 N. E. 763. As to what is embraced in the scope of the order, see Benneson V. Bill, 62 111. 408; American Const. Co. V. Jacksonville, T. & K. W. R. Co., 52 Fed. 937. While it is true that the receiver is an officer of the court, yet that fact does not confer upon him any special privi- leges so far as rights of action are concerned over other persons bringing suit. State Bank at New Brunswick v. First Nat. Bank, 34 N. J. Eq. 450. Such a receiver has only the power and authority given him in his orders. Chau- tauqua County Bank v. White, 6 Barb. (N. Y.) 589; Republic L. Ins. Co. V. Swigert, 135 111. 150, 12 L. R. A. 328, 25 N. E. 680. Whether the order be compre- hensive in regard to the power given the receiver, or his power be given from time to time, as occa- sion requires, the court is in fact the real custodian of the property, and the acts of the receiver are acts of the court designed to pre- serve the property for the benefit of the parties subsequently shown to be entitled to it. Devendorf v. Dickinson, 21 How. Pr. (N. Y.) 275. ;: Parker v. Dunn, 8 Beav. 497; EFFECT OF APPOINTMENT AND DUTIES. 195 ]ias no force in this country, since owing to the fact that tlie receiver is the instrument or arm of tlie couit, he is I)rivileged, and it is, in fact, liis (hity, to apply to the court at any and all times for instructions and directions as to his powers and duties, and he should do so especially where there are conflicting interests, rights, liens, and matters which may give rise to future litigation.^ Re Doolan, 2 Connor & L. 232 Clark V. Fisher, Sausse & Sc. 684 O'Connor v. Malone, 1 Ir. Eq. 20 Wrixson v. Vize, 5 Ir. Eq. 276 Richards v. Goold, 7 Ir. Eq. 209. A mere order of the court di- recting receivers to talie charge of the property of an insolvent rail- road company, including its leased lines, and taking possession thereof by the receivers, does not have the effect to change either the title to the property or the right of possession in the property. The receivers thereby become the mere custodians of the property for the court. Central Trust Co. v. Continental Trust Co., 86 Fed. 517, 30 C. C. A. 235, 58 U. S. App. 605; Tradesman Publishing Co. v. Knox- ville Carwheel Co., 95 Tenn. 634, 49 Am. St. Rep. 943, 31 L. R. A. 593, 32 S. W. 1097, and he may obtain an order that tenants shall attorn to and pay their rent to him. But a receiver of a property of a judgment debtor, appointed in pursuance of proceedings sup- plementary to an execution, be- comes vested with the title of the debtor by virtue of his appoint- ment, and may maintain all actions incidental to a reversionary estate in the land. Porter v. Williams, 9 N. Y. 142, 59 Am. Dec. 519. 3 The original order may be en- larged from time to time as the exigencies of the case may re- quire. "Since the receiver is an officer, or, as he is sometimes called, 'the hand' of the court, it would be singular if he could not, at any time, go to it with his com- plaint, or for instructions in regard to any matter touching the fund placed in his custody." People v. Security L. Ins. & Annuity Co., 79 N. Y. 267, 270; Curtis v. Leavitt, 1 Abb. Pr. (N. Y.) 274. In Smith v. New York Consoli- dated Stage Co., 28 How. Pr. (N. Y.) 377, the court say: "The court has sanctioned the practice of the receiver to ask for instruc- tions regarding the receivership business." In People v. Security L. Ins. & A. Co., 79 N. Y. 267, the court say: "Since the receiver is an officer, or, as he is sometimes called, the hand of the court, it would be sin- gular if he could not at such stage go to it with his complaint or for instructions in regard to any mat- ter touching the fund placed in his custody, and more especially when, as in the case before us, it is in danger through his own error of being unfairly distributed." Receiver of an insolvent corpo- ration has the right to question a transaction whereby insolvent bor- rowed money, paying an alleged usurious rate of interest. James Bradford Co. v. United Leather Co., (Del. Ch.) 95 Atl. 308. 196 LAW OF RECEIVERS. A second source of power of ordinary receivers is to be found in the course and practice of the courts relative to receiverships. The courts exercising chancery juris- diction have established by long usage and experience certain well defined rules relating to the powers of receiv- ers, and it is to these rules so established that we must usually go to determine the scope of authority of the ordinary receiver.^ Statutory receivers, or those appointed pursuant to the requirements of statute, as will be seen elsewhere, derive their general powers wholly from the statute under which they are appointed, and have no powers except those conferred by it, either by express terms or such as can be fairly implied from the general scope of the statute, or as an incident to an express power given.^ The power thus conferred is deemed delegated and re- quires careful consideration by the court in its exercise.^ A receiver by virtue of his office is possessed of limited powers and all persons dealing with him must take notice of such limitations, and contract with him with such 4 Hooper v. Winston, 24 111. 353 ; ate the property in accordance Republic L. Ins. Co. v. Swigert, with the state where the property 135 111. 150, 12 L. R. A. 328, 25 is situated. Act of Congress, N. E. 680; Chautauque County March 3, 1887, §2. The power Bank v. White, 6 Barb. (N. Y.) conferred on statutory receivers 589; Verplanck v. Mercantile Ins. may not always be express but Co., 2 Paige (N. Y.) 438; Booth may be inferred from the general V. Clark, 58 U. S. (17 How.) 322, scope of the statute, as where au- 15 L. Ed. 164. thority is given to hear and deter- 5 Attorney-General v. Life & F. mine the validity of claims, this Ins. Co., 4 Paige (N. Y.) 224. See embraces implied power to admln- Knott v. Morris Canal & Bkg. Co., ister oaths to witnesses. Runyon 4 N. J. Eq. 423; Verplanck v. Mer- v. Farmers & M. Bank, 4 N. J. Eq. cantile Ins. Co., 2 Paige (X. Y.) 480. 438, 452; Attorney-General v. At- 6 Davis v. United States Elec. lantic Mut. L. Ins. Co., 77 N. Y. P. & L.. Co., 77 Md. 35, 25 Atl. 982; 336. Oakley v. Paterson Hank, 2 N. J. A receiver appointed by a fed- Eq. 173; Bangs v. Mcintosh, 23 eral court must manage and oper- Barb. (N. Y.) 591. EFFECT OF APPOINTMENT AND DUTIES. 197 knowledge." This principle is not peculiar to the law of receivership but applies to judicial sales made by minis- terial officers generally. As in dealing with a special agent every one must know that the scope of the receiv- er's powers is limited and special, and his acts at all times subject to modification or annulment. Unless sooner discharged, his powers remain during the continuance of the litigation, and, as a rule, are not suspended during appeal,^ though there are exceptions as will be seen in the sections in which the appellate pro- cedure will be discussed. The appointment of a receiver regularly and legally made at final judgment or decree vests in him all the powers and duties usually pertaining to his office, though a previous irregular and illegal appointment has been made, during the pendency of the action.^ The final action of the court becomes retrospective so far as his acts as receiver are concerned. § 43. General Duties and Care Required of a Receiver. The broad general duties of a receiver are to take charge of and safely keep and account for all of the assets of the estate and to obey all orders of the court having 7 Tripp V. Boardman, 49 Iowa 9 Lutt v. Grimont, 17 111. App. 410- Barron v. Mullin, 21 Minn. 308; Richards v. People, 81 111. 374- Lehigh Coal & Nav. Co. v. 551; Cook v. Citizens' Nat. Bank, r. '. 1 Tj r>^ Q^ M T TTn 42fi "^^ Ind. 256; American Bank v. Central R. Co., 35 N. J. Eq. 426. ^^^^^^^^ ^^ ^^ ^^^_ ^^.^^^^^^ ^.^^ 8 Re Real Estate Associates, 58 ^^^^ ^ Schermerhorn, 9 Paige Cal. 356; Swing v. Townsend, 24 ^^ y.) 372, 38 Am. Dec. 551; Peo- Ohio St. 1. Although the appeal ^^^ ^, Stur'tevant, 9 N. Y. 263, 59 may suspend or vacate the final ^^ pec. 536; Re Stonebridge, 59 decree. Merrill v. Elam, 2 Tenn. Hun 626, 13 N. Y. Supp. 770, 37 Ch. 513; Brien v. Paul, 3 Tenn. N. Y. St. Rep. 617 (affirmed wlth- Ch 357 Stafford v. Union Bank, out opinion in Stonebridge v. Al 57 U. S. (16 How.) 135, 140, 14 den, 128 N. Y. 618, 28 N. E. 253); L. Ed. 876, 878; Schenck ^^. Peay, Russell v. East Anglian R. Co., 1 " Dill. 267, 270, Fed. Cas. No. 3 MacN. & G. 1 04 Ames v. Birken- -,^2451. ' head Docks Trustees, 20 Beav. 332. 198 LAW OF RECEIVERS. control of the receivership.^ Persons dealing with a receiver are chargeable with notice of the fact that his powers are limited and subject to the control of the court appointing him.- In other words, a receiver has no prin- cipal behind him, in the sense of an ordinary agent, for whom he can promise, and hence, unless authorizes! so to do by the court which appointed him, his promises and contracts will bind him individually.^ It is the duty of a receiver to make and file wdth the court, when he is appointed, a list of the property which passes into his hands so that creditors and all persons 1 Demain v. Cassidy, 55 Miss. 320; Southwestern Surety Ins. Co. V. Pacific Coast Casualty Co., 92 Wash. 654, 159 Pac. 788. 2 Knickerbocker Trust Co. v. Green Bay Phosphate Co., 62 Fla. 519, 56 So. 699; Brunner, Mond & Co. V. Central Glass Co., 18 Ind. App. 174, 63 Am. St. Rep. 339, 47 N. E. 686; Stone v. St. Louis Union Trust Co., 183 Mo. App. 261, 166 S. W. 1091. One who was appointed receiver of a fund in litigation, to hold it until further order, though agreed upon by the parties, was bound to take notice that the whole fund was involved, and an assignment to him of an interest in the fund pending his receivership was void as against plaintiff, who recovered an interest therein. Cascaden v. Dunbar, 3 Alaska 671. The purchaser of notes of the receiver of a corporation, signed "Z., Receiver," and indorsed by him personally, took them with constructive notice of the re- ceiver's want of authority to issue them, so that the corporation was not liable thereon. Zielian v. Bal- timore Plant Ice Co., 115 Md. 658, 81 Atl. 22. 3 Acts of a receiver outside of the scope of the authority given him by the court do not bind the court. Farmers' Loan etc. Co. v. Chicago etc. Ry. Co., 42 Fed. 6. A receiver has no principal be- hind him for whom he can prom- ise, and he alone is individually liable on notes executed by him as receiver without express authority, nor can such notes be reformed so as to speak the true intent of the parties to the effect that he was to be bound in his capacity as receiver, and not individually. Peoria Steam Marble Works v. Hickey, 110 Iowa 276, 80 Am. St. Rep. 296, 81 N. W 473. W^here letters which would make receivers liable, individually, if signed as individuals, were signed "receivers" and not "as receivers, ' it was held that the receivers were individually liable, since the word "receivers" was merely descrip- tive of the persons. Guimarin v. Southern Life & Trust Co., (S. C.) 90 3. E. 319. EFFECT OF APPOINTMENT AND DUTIES. 199 interested may know what property belongs to the parties in the case wherein the receiver has been appointed.* All books, documents, and papers in the hands of a receiver are quasi-public in character, and are open to examination, not only by the court, but by persons inter- ested in the estate.^ A receiver occupies a fiduciary relation and is natu- rally, governed by the general rules applicable to trustees. He is bound to exercise the same character of prudence and sldll in handling the receivership property as he would exercise in dealing with his o\Am property.*' He should exercise the same degree of care and diligence in the administration of the receivership which is exercised by a man of ordinary prudence with reference to his own business affairs. When he uses ordinary care and pru- dence, that is, the care and diligence which an ordinarily prudent man uses in handling his own estate, he has ful- filled the measure of his official duty and is not answer- able for losses which occur to the property and assets in his charge ; but when he fails to exercise this degree of care and diligence he becomes answerable for the con- sequences of his neglect or dereliction. He is not an insurer of the safety of the property, since ordinary care is the test of his responsibility. The measure of his responsibility, therefore, is analogous to that of an ad- ministrator or guardian.'^ 4 Heffron v. Rice, 149 111. 216, be presumed that the referee 41 Am. St. Rep. 271, 36 N. E. 562; transcended his authority. Whit- In re New Iberia Cotton Mill Co., ney v. Buckman, 26 Cal. 447, 448. 109 La. 875, 33 So. 903. •> Decker Bros. v. Berners Bay A court may refuse to have Min. & Mill. Co., 2 Alaska 504. issues framed and submitted to a 6 Schwartz v. Keystone Oil Co., jury to ascertain the value of 153 Pa. St. 283, 25 Atl. 1018. property put into the hands of 7 Johnston v. Keener, 23 111. App. a receiver, and the ownership 220, Eskridge v. Rushworth, 3 thereof; since it will be presumed Colo. App. 562, 34 Pac. 482; State that the judge informed himself v Germania Bank of St. Paul (La- as to what he placed in the hands german v. Willius), 106 Minn. 164, of the receiver; and it will not 130 Am. St. Rep. 599; 118 N. W. 200 LAW OF RECEIVERS. The duties of a receiver being fiduciary in character, lie can not delegate the performance of his trust to others. He is an officer of the court for the purpose of executing its orders and directions. If he employs agents to per- form his o^\Ti duties, he will be held liable for their acts.^ If a receiver places funds belonging to the receivership out of his control and in the hands of others for handling, he wdll be held to guarantee their solvency and become answerable for any losses through them.® 683; State v, Germania Bank of St. Paul (Lagerman v. Willius), 106 Minn. 539, 118 N. W. 686; Pangbum v. American Vault etc. Co., 205 Pa. 93, 54 Atl. 508; Groes- beck Cotton Oil etc. Co. v. Oliver, 44 Tex. Civ. 303, 97 S. W. 1092; Chandler v. Cushing-Young Shingle Co., 13 Wash. 89, 42 Pac. 548; United States Blowpipe Co. v. Spencer, 61 W. Va. 191, 56 S. E. 845; Harrigan v. Gilchrist, 121 Wis. 127, 99 N. W. 909; Gutterson etc. V. Lebanon Iron etc. Co., 151 Fed. 72. It is the duty of a receiver of an insolvent institution to faith- fully collect, and enhance the assets of the institution, and ad- minister its affairs to the end that its creditors may receive what is justly due them, and that its stock- holders, if any there be, may receive the residue. State v. State Bank & Trust Co., 36 Nev. 526, 137 Pac. 400. A receiver in renting and col- lecting rents must exercise such care as may reasonably be ex- pected of an ordinarily prudent person under the circumstances, and if through negligence he fails to collect rents, he is liable there- for. Higgins v Shields, 151 Ky. 227, 151 S. W. 391. Where the receiver acts for the best interests of the receivership according to his judgment, he will not ordinarily be held liable for a loss. Filkins v. Adams, 60 111. App. 410. A receiver is not responsible for loss of cattle simply because he permitted them to remain on the range, nor for property destroyed by fire merely because he did not insure it. Hamm v. J. Stone & Sons Livestock Co., 13 Tex. Civ. 414, 35 S. W. 427. 8 A receiver is a trustee for all persons in interest, and can not delegate his trust to another. Broussard v. Mason, 187 Mo. App, 281, 173 S. W. 698. A receiver of a corporation can not make an agreement with its former manager by which the lat- ter shall control certain of the cor- porate business and collect its credits, so as to render payments made to the manager valid, and prevent a second collection of the claims by the receiver. Buchanan V. Hicks, 98 Ark. 370, 34 L. R. A. (N. S.) 1200, 136 S. W. 177. 9 Salway v. Salway, 2 Russ. & M. 215 (affirmed by House of Lords under the name of White v. Baugh, 9 Bligh (N. S.) 181, 3 Clark & F. 44). EFFECT OF APPOINTMENT AND DUTIES. 201 § 44. Liability of Receiver for Funds on Deposit in Bank. A receiver may deposit the funds of an estate coming into liis hands in a bank of good standing and repute; and in determining the character of the bank that degree of care and prudence is exacted which ordinarily is exer- cised by reasonably cautious men in transacting their business of like character and importance. If he uses this degree of care and prudence he is not responsible for any loss, due to a failure of the bank. The same is true in respect to continuing the deposit.^ 1 state V. Corning State Sav. Bank, 128 Iowa 597, 105 N. W. 159; Ficener v. Bott, 20 Ky. Law Rep. 632, 47 S. W. 251; Groesbeck Cot- ton Oil etc. Co. V. Oliver, 44 Tex. Civ. 303, 97 S. W. 1092; Hamm v. J. Stone & Sons Livestock Co., 13 Tex. Civ. 414, 35 S. W. 427. Where a receiver who was ordered to collect certain money and pay it in court at the next term of court, but the Civil War intervened before the next term of court and he deposited it in a bank which became defunct be- cause of the war, it was held that he was liable for the loss of the funds. Barton's Exr. v. Ridge- way's Admr., 92 Va. 162, 23 S. E. 226. Under Rev. St. 1895, art. 1462, which provides that whenever, dur- ing the progress of any cause, any money shall be deposited with the court to await the result of any legal proceeding, the officer having custody thereof shall seal up the identical money and deposit it in a safe or bank vault, accessi- ble to the court, and a statute, in relation to receivers, which pro- vides that a receiver shall have power to take charge and keep possession of the property, and the condition of his bond, as pre- scribed by statute, is that he will faithfully discharge all the duties of receiver and obey the orders of the court, it was held, that the statute has no application to funds coming into the hands of a re- ceiver, and, in the absence of any order of court, a receiver fulfilled the measure of his duty when he deposited funds coming into his hands in banks of such standing and under such circumstances as to characterize his conduct as that of an ordinarily prudent person in the discharge of his own affairs. Groesbeck Cotton Oil & Compress Co. v. Oliver, 44 Tex. Civ. 303, 97 S. W. 1092. But it has been held that when money is in the hands of a re- ceiver at the place of final custody, and he has no further duty in re- spect to it except to preserve it, it is already in court, and he can not part with his custody of it by depositing it in bank, save at his own risk, without some order, leave, or direction authorizing him so to do. Ricks v. Broyles, 78 Ga. 610, 6 Am. St. Rep, 280, 3 S. E. 772. And see State v. Gooch, 97 N. C. 186, 2 Am. St. Rep. 284, 1 S. E. 653. to the same effect where the funds 202 LAW OF RECEIVERS. Receiversliip funds should be kept by the receiver sepa- rate and distinct from his own funds. And if deposited in a bank should be deposited in a separate account in his name as receiver so that the different items can be . traced and shown not to have become mingled with his separate funds. If by mingling such funds with his own he derives a benefit, he is chargeable with interest.^ If the court by an order designates a particular party as the depositary of the court's funds and such party ac- cepts funds with such knowledge, he thereby becomes an officer of the court and may be proceeded against by con- tempt proceedings in order to enforce repayment of the funds. ^ §45. Right of Receiver to Borrow Money. A receiver should not make any disposition of the funds in his possession which will tend to impair them without an order of court.^ Where the order of the court gives to the receiver authority to continue in the possession and management of the property, he may in good faith borrow the neces- sary money for the successful and proper management of such property, and the claim of the lender will be superior to that of bondholders.^ An order authorizing were deposited in a bank in an- terest upon the balances to his other state without authority of credit and a loss occurs, he will be the court. held liable. Drever v. Mandesley, 2 Hooper v. Winston, 24 III. 353; 13 L. J. (N. S.) 433, 8 Jur. 547. Cool V. Jackman, 13 111. App. 560; 3 In re Western Marine etc. Ins. Hodge V. Quiry, 9 Ky. Law Rep. Co., 38 111. 289. 650; Utica Ins. Co. v. -Lynch, 11 i Hooper v. Winston, 24 111. 353. Paige (N. Y.) 520; Matter of Com- 2 Ex parte Carolina Nat. Bank, monwealth Fire Ins. Co., 32 Hun 18 S. C. 289; Re Fifty-four First (N. Y.) 78; Schwartz v. Keystone Mortgage Bonds, 15 S. C. 304. Ex Oil Co., 153 Pa. St. 283, 25 Atl. parte Benson, 18 S. C. 38, 44 Am. 1018; Hinckley v. Oilman etc. R. Rep. 564; Barton v. Barbour, 104 Co., 100 U. S. 153, 157, 25 L. Ed. U. S. 126, 26 L. Ed. 672; Cowdrey 591, 593; Wren v. Kirton, 11 Ves. v. Galveston, H. & H. R. Co., 1 Jr. 377. Woods 331, Fed. Cas. No. 3293. In Where the bank pays him in- this case the court says: "All out- EFFECT OF APPOINTMENT AND DUTIES. 203 lays made by the receivers in good faith in the ordinary course with a view to advance and promote the business >f the road and to render it profitable and successful are fairly within the line of discretion which is necessarily allowed to a receiver entrusted with the man- agement of a railroad in his hands." Greenwood v. Algesiras R. Co. [1894], 2 Ch. 205, 63 L. J. Ch fi70. This case is based upon the fact that there must be an emergency, and that the borrowing of the money is essential to the preserva- tion of the property. In Baniv of Montreal v. Chicago, C & W. R. Co., 48 Iowa 518, a receiver was au- thorized to issue certificates "for money borrowed, materials fur- nished, labor performed, or on ac- count of contracts made by him for the construction or completion of said road or any part thereof," and such certificates so issued were made a first lien on the road. It was held that certificates issued prior to the furnishing of the ma- terial or performance of the labor were void. The furnishing of the material and the performance of the work were prerequisites to the issuing of certificates. This power should be exercised with the acquiescence of all par- lies concerned, if possible, Wal- lace V. Loomis, 97 U. S. 146, 162, 24 L. Ed. 895, 901, and with cau- tion. For a full discussion of the rower in its many phases, see, Credit Co. v. Arkansas C. R. Co., 15 Fed. 46, 5 McCrary 23; Taylor V. Philadelphia & R. R. Co., 7 Fed. 377;.J;fennedy v. St. Paul & P. R. Co., 2 Dill. 448, Fed. Cas. No. 7706; Fnion Trust Co. v. Illinois Midland R. Co., 117 U. S. 434, 29 L. Ed. 963, 6 Sup. Ct. 809; Miltenberger v. Lo- gansport, C. & S. W. R. Co., 106 U. S. 286, 27 L. Ed. 117, 1 Sup. Ct. 140; Jerome v. McCarter, 94 U. S. 734, 24 L. Ed. 136; Cowdrey v. Galveston, H. & H. R. Co., 1 Woods 331, Fed. Cas. No. 3293; Stanton v. Alabama & C. R. Co., 2 Woods 506, Fed. Cas. No. 13296; Meyer v. Johnston, 53 Ala. 237; Vermont & C. R. Co. v. Vermont C. R. Co., 46 Vt. 792, 50 Vt. 500; Hoover v. Montclair & G. L. R. Co., 29 N. J. Eq. 4; Bank of Mon- treal V. Chicago, C. & W. R. Co., 48 Iowa 518. As to power to mortgage, see Burroughs v. Gaither, 66 Md. 171, 7 Atl. 243. And power to invest, see Utica Ins. Co. V. Lynch, 11 Paige (N. Y.) 520; but see Attorney Gen- eral V. North American L. Ins. Co., 89 N. Y. 94. In the case of Meyer v. John- ston, 53 Ala. 237, the power of the receiver to borrow money is elab- orately discussed after an exhaus- tive argument by counsel, and the reasons both for and against the exercise of this power are clearly stated (p. 346). Where a receiver borrowed money and used the same to dis- charge a valid lien on the prop- erty in his care and custody and acted in good faith, it was held proper to allow him credit there- for. Heffron v. Rice, 149 111. 216, 41 Am. St. Rep. 271, 36 N. E. 562. The power to incur expense does not extend beyond what is abso- lutely essential to the preservation and use of the property. Cowdrey v. Galveston, H. & H. R. Co., 93 U. S. 352, 23 L. Ed. 950. Where a receiver authorized to complete certain contracts was 204 LAW OF RECEIVERS. a receiver to borrow money for certain purposes does not authorize liim to purchase goods on credit.^ Although a receiver may have no right to borrow money, yet if he uses money borrowed by him to discharge a valid lien on the property committed to his charge, and acts in good faith in making the payment, he is entitled to credit therefor as against the insolvent debtors who have received the benefit of the payment.* j Where the receiver is properly authorized to borrow money to carry on the business of the receivership, he will not be held personally liable for the sums borrowed where he has not exceeded his authority.^ And where a receiver, authorized to borrow money, did not have suffi- cient funds to take up the original notes when due, their renew^al according to the custom of banks does not work a change in the original loan.^ The source of this power is to be found in the inherent right of the court to preserve the receivership property from waste, damage, or loss. And in case of public corporations the public have interests that are to be pro- tected. The power to borrow money in all cases presup- authorized to borrow from time to The implied authority of a re- time $5000, and to execute notes ceiver in bankruptcy who is con- in his official capacity which ducting the business to purchase would constitute a first lien on the ^^ ^.^edit and borrow money exists estate, and thereafter was author- ^^j^ .^ ^^^ ^^^^^^^ ^^ ^^ ^^^^^.^^^ ized to borrow $1000 to purchase power to borrow conferred by the court. Re C. M. Burkhalter & Co., 182 Fed. 353. certain appliances, and again to borrow $5000 more, and to issue receiver's certificates therefor, such orders should be construed 3 Haines v. Buckeye Wheel Co., together, and created a preference 224 Fed. 289, 139 C. C. A. 525. for such loans to the amount of 4 Heffron v. Rice, 149 111. 216. $11,000, but did not establish for ^^ ^^ gt. Rep. 271, 36 N. E. 562. the receiver a continuing credit, ,^ . „ , , ^ ., 4.1, ,. 1, • 1, . o ^ Hames v. Buckeye Wheel Co., the authority being exhausted on a loan to the amount specified be- ^24 Fed. 289. 139 C. C. A. 525. ing negotiated. People's Sav. Bank ^ People's Sav. Bank & Trust & Trust Co. V. Rogers, 177 Fed. Co. v. Rogers, 177 Fed. 386, 100 386. 100 C. C. A. 618. C. C. A. 618. EFFECT OF APPOINTMENT AND DUTIES. 205 poses authority from the court given for that purpose, based on specific application either by the receiver or plaintiff; and the exercise of the power is with great caution. The power to mortgage is, in principle, the same as the power to issue receiver 's certificates and make them a first lien upon the property. There must be the gravest necessity to justify an order of this kind, and more especially so where the property is not charged with a public trust. ^ The subject will necessarily be further considered in the discussion of receiver's certificates issued on the procurance of loans for the maintenance of the receiver- ship property. § 46. Right of Receiver to Loan Receivership Funds. Where the loaning of money is not the business of a receivership which is being conducted as a going business by a receiver, he naturally has no authority to loan funds belonging to the receivership without specific authority of the court, since to do so would not be in accord with the purposes of his appointment, which is to preserve the estate and distribute it in accordance with the directions of the court.^ Of course, he may make such loans where authorized so to do by the court.- Where the receiver is 7 Burroughs v. Gaither, 66 Md. poration formed a partnership to 171, 7 Atl. 243. perform certain work for the cor- 1 Ryan v. Morrill, 83 Ky. 352; poration from which they derived Darby v. Gilligan, 37 W. Va. 59, a profit, and one of the partners 16 S. E. 507. was appointed receiver for the Receivers have no right to loan corporation and paid the firm a funds coming to their hands as certain sum and made no effort receivers. If they loan such money to recover profits realized by it, and lose it they must stand the the court properly surcharged the loss, except under special circum- receiver for his actions. Tenth stances. Heffron v. Rice, 149 111. Nat. Bank of Philadelphia v. Smith 216, 41 Am. St. Rep. 271, 36 N. E. Const. Co., 242 Pa. 269, 89 Atl. 76. 562. - Where money has been paid Where three officers of a cor- into the hands of a general re- 206 LAW OF RECEIVERS. authorized to loan receivership funds, he must use the utmost good faith in doing so. He should not loan the funds to himself or to a firm of which he is a member or be indirectly concerned in the loan.^ But when the receiver's funds have been loaned without authority, and a note taken therefor, such want of authority in the receiver is no defense to an action on the note.^ And where a receiver loans receivership funds without an order of court but in good faith and the receivership was in fact benefited by the loan he will not be chargeable with interest.^ § 47. Liability of Receiver for Interest on Funds. A fund which is in the custody of the court and can not be paid out without an order of court does not ordinarily bear interest,^ but where a receiver obtains interest on ceiver to the credit of a particular suit, and by him, under an order of court, loaned out, no order should be entered requiring him to pay out and disburse the fund until he has first been ordered to collect it, and it is in his hands, or unless his failure to collect it is attributable to his fault, negli- gence, misappropriation, or mis- management of the fund. United States Blowpipe Co. v. Spencer, 61 W. Va. 191, 56 S. E. 345. 3 If one holding money as re- ceiver lends it to the firm of which he is a member, he is guilty of a breach of trust, but this does not create any lien against the prop- erty of the firm in favor of the persons entitled to the moneys so misappropriated by the receiver. Goldthwaite v. Janney, 102 Ala. 431, 48 Am. St. Rep. 56, 28 L. R. A. 161, 15 So. 560. W^here a receiver loans money to a firm of which he is a partner instead of depositing it in a cer- tain bank as directed by the court, the firm will be liable for its loss, even if they have repaid it to the receiver who had misappropriated • it. Ryan v. Morrill, 83 Ky. 352. 4Coibin v. De La Vergne, 44 N. J. L. 70. 5 Attorney General v. North American etc. Ins. Co., 89 N. Y. 94; Utica Ins. Co. v. Lynch, 11 Paige (N. Y.) 520. 1 Bowman v. Wilson, 12 Fed. 864, 2 McCrary 394; How v. Jones, 60 Iowa 70, 14 N. W. 193; Crawford V. Fickey, 41 W. Va. 544, 23 S. E. 662. A receiver having on hand a fund which is subject to distribu- tion at any time is not chargeable with interest on it. First Nat. Bank v. Wood, 30 Misc. Rep. 278, 63 N. Y. Supp. 324. A trust company acting as re- ceiver held not chargeable with interest on receivership funds de- EFFECT OF APPOINTMENT AND DUTIES. 207 the funds in his charge he must account for the sums so received by him.- He will be chargeable with interest on funds of the receivership withheld beyond the time di- rected by the court to be distributed or placed at the disposal of the court.^ And where a receiver mingled the receivership funds with those of his own and from time to time drew out such sums that made it apparent that he had drawn out the receivership funds for his personal use, he will be charged with interest on the funds. ^ A receiver is not liable for interest on monev withheld posited in its own bank subject to check. Haddock v. Plymouth Coal Co., 237 Pa. 37, 85 Atl. 23. 2 Hooper v. Winston, 24 111. 353; Lonsdale v. Church, 3 Bro. C. C. 41. 3 Johnson v. Moon, 82 Ga. 247, 252, 10 S. E. 193; Commonwealth V. Eagle F. Ins. Co., 14 Allen (96 Mass.) 344; In re Carter, 3 Paige (N. Y.) 146; In re Seaman, 2 Paige (N. Y.) 409; Fetnam v. Kriby, 4 Ir. Eq. 320; Hicks v. Hicks, 3 Atk. 274; Blank v. Jol- land, 8 Ves. 72. Failure of a receiver to obey an order directing him to loan funds in his hands, in the absence of ex- cuse, justifies a charge against him in his settlement of an ac- count equal to the interest he would have received. Cecil v. Clark, 69 W. Va. 641, 72 S. E. 737. Under Code, 1887, 3409 (Va. Code 1904, p. 1811), which makes a receiver liable for moneys com- ing into his hands, and for inter- est thereon on his failing to invest the same, a receiver of funds aris- ing out of the sale of real estate of a debtor who was required, by the court appointing him, to invest the funds, but did not do so and on the contrary kept them in his hands to the time of the applica- tion for the settlement of his ac- counts, is chargeable only with simple interest on the funds, not- withstanding section 3413 (Va. Code 1904, p. 1812) declaring that the interest on all loans to indi- viduals under an order of the court shall become payable on the 1st day of January next after the making of the loan, and annually on the 1st day of January of each succeeding year, until the princi- pal is paid, and unless the prin- cipal be paid when due, compound interest shall be charged thereon. Roller V. Paul, 106 Va. 214, 55 S. E. 558. 4 Utica Ins. Co. v. Lynch, 11 Paige (N. Y.) 520; Hinckley v. Gil- man etc. R. Co., 100 U. S. 153, 25 L. Ed. 591. But the mere fact that a receiver deposited receivership funds in his private account, it not appearing that he used them, will not subject him to be charged with interest. Radford v. Folsom, 55 Iowa 276. 7 N. W. 604; How v. Jones, 60 Iowa 70, 14 N. W. 193. 208 LAW OF RECEIVERS. by him until he could be advised as to his duty in the , premises. ° § 48. Liability of Receiver for Violations of His Trust. While receivers are necessarily clothed with a consid- erable discretion in the management of the trust prop- erty, that fact does not excuse them for dealing with it carelessly or extravagantly.^ The liability of receivers for their acts in the manage- ment of property placed in their custody is official, and not personal, except in instances of their personal mis- conduct, so that a judgment against them is in effect a judgment against the property in their custody.^ A receiver owes duties of a fiduciary nature tow^ard all of the parties to the litigation, although not their agent.^ He is responsible to the court for his personal miscon- duct in respect to the receivership.^ As a general rule, 5 Guignon v. First Nat. Bank, 22 Mont. 140, 55 Pac. 1051, 1097; Mal- comson v. Wappoo Mills, 99 Fed. 633. 1 Hitner v. Diamond State Steel Co., 207 Fed. 616. A receiver acting as the man- ager of a hotel business must nec- essarily exercise his discretion in many cases. If he acts in good faith, and conducts the business as a prudent person would man- age his own business, he is not liable for the loss of a small amount by reason of cashing a draft for a guest. Heffron v. Rice, 149 m. 216, 41 Am. St. Rep. 271, 36 N. E. 562. Where an order has been en- tered directing the receiver to collect certain funds, and he fails to do so, and it appears that such failure is attributable to his mis- conduct or mismanagement in re- lation to the trust, a decree may be entered after giving him an opportunity to be heard charging him personally, or permission may be given to sue him and his sure- ties on his official bond. United States Blowpipe Co. v. Spencer, 61 W. Va. 191, 56 S. E. 345. 2 Hanlon v. Smith, 175 Fed. 192. 3 A receiver appointed by the court in the progress of litigation acts as receiver for all the parties interested; but he is not the agent for the parties in the sense that each one of the parties interested in the litigation is personally severally responsible for his wrongful or negligent acts. City Savings Bank v. Carlon, 87 Neb. 266, 127 N. W. 161. 4 General Share Co. v. Wetley Brick Co., 20 Ch. D. 260, 267; 30 W. R. 445, per Jessel, M. R. EFFECT OF APPOINTMENT AND DUTIES. 209 lie is protected when he acts in good faith in the manage- ment of the estate, but where he acts in the capacity of a guardian of the estate, he will be held to the same accountability as an ordinary guardian.^ He can not use knowledge acquired by him in his capacity as a receiver for the purpose of acquiring a paramount title to prop- erty involved in a litigation which he is conducting for the receivership.^ He must use his best eiforts to collect the assets of the receivership,'^ but it has been held that a receiver is not guilty of such negligence as to make him responsible for losses resulting from the failure of his attorney, acting upon a mistake of law, to bring suits against certain stockholders before the expiration of the statute of limitations, ** althougli he has been held liable for the acts of a clerk employed by him.® But a receiver who has managed a business can not be prevented after the close of the receivership from doing Dusiness with former customers of the business^" con- ducted by the receivership. 5 state V. Gooch, 97 N. C. 186, 2 Am. St. Rep. 284, IS. E. 653. 6 Halman v. Burlen, 198 Mass. 494, 85 N. E. 167. 7 Where two receivers are ap- pointed to wind up the affairs of a corporation and one of them illegally appropriates the receiver- ship funds and the other negli- gently allows him to do so, they will both be liable. Commonwealth V. Eagle etc. Ins. Co., 14 Allen (96 Mass.) 344. A receiver is chargeable with money which, though collectible, he has made no attempt to collect. Tenth Nat. Bank of Philadelphia v. Smith Const. Co., 242 Pa. 269, 89 Atl. 76. A receiver who fails to sell the good will of partnership over which he has been receiver will I Rec. — 14 be held liable for its value. Me- chanics Nat. Bank v. Landauer, 68 W^is. 44, 31 N. W. 160. 8 State V. Germania Bank (La- german v. Willius), 106 Minn. 164, 130 Am. St. Rep. 599, 118 N. W. 683. Where the failure to enforce the liability of stockholders of an in- solvent bank was occasioned by the neglect of an attorney forced on the receiver, who unsuccess- fully sought the appointment of another attorney, the receiver was held not liable for the loss sus- tained. People V. Bank of Staten Island, 146 App. Div. 378, 131 N. Y. Supp. 53, modifying order 127 N. Y. Supp. 906. 9 Gunn V. Ewan, 93 Fed. 80, 35 C. C. A. 213. 10 In re Irish, 40 Ch. D. 49. 210 LAW OF RECEIVERS. § 49. Duty of Receiver Not to Profit from Receivership Trans- actions. From what has been said in the preceding sections it is apparent that, in accordance mth the well-established principles of equity jurisprudence, a receiver is prohib- ited from taking advantage of his position of receiver and thereby deal with receivership property or funds to his own profit. The cases illustrating this rule naturally occur quite frequently in connection with a receiver pur- chasing receivership property and thereby placing him- self in a position whereby his individual interests are brought into conflict with his duty.^ The general rule in this respect is that a receiver will not be permitted to buy- or be interested directly or indirectly in the purchase of receivership property.^ ''The rule has its foundation 1 Hooper v. Winston, 24 111. 353; In re Dugdamonia Shingle etc. Co., 118 La. 242, 42 So. 789; Shadewald V. White, 74 Minn. 208, 77 N. W. 42; Adair County v. Ownby, 75 Mo. 282; Whitesides v. Lafferty, 3 Humph. (Tenn.) 150; Jones v. Gardner, (Tex. Civ.) 112 S. W. 826; Reynolds Ex'r v. Pettyjohn, 79 Va. 327; Roller v. Paul, 106 Va. 214, 55 S. E. 558; Bowman v. Lis- key, 108 Va. 678, 62 S. E. 942. 2 McDonald v. Trojan etc. Co., 56 Hun 648, 10 N. Y. Supp. 91; New Britain Mach. Co. v. Watt, (Tex. Civ.) 180 S. W. 624; Ander- son V. Anderson, 9 Ir. Eq. 23. A receiver appointed by the court can not purchase the prop- erty of which he is receiver with- out leave of the court, even where the sale is made not in the action in which he was appointed, but by a mortgagee selling with leave outside the action. Nugent v. Nu- gent, 1 B. R. Co. 405, (1908) 1 Ch. 546. Also, reported in 77 L. J. Ch. N. S. 271, 98 L. T. N. S. 354, 24 Times L. R. 296, 52 Sol. Jo. 262. 3 A receiver is not allowed to purchase receivership property through an agent or trustee. Alven V. Bond, Flan. & Kel. 196, 3 Ir. Eq. 365. Where receivership property was sold at more than its appraised value, the fact that it was sold to sons of the receiver is no ground for avoiding it. Yetzer v. Apple- gate, 85 Iowa 121, 52 N. W. 118. A sale of property by a receiver to himself, to his wife, or to a cor- poration in which he is a stock- holder and director, is contrary to public policy, and voidable at the election of any one having a beneficial interest in the property. South Georgia Bldg. & Inv. Co. v. Mathews, 7 Ga. App. 452, 67 S. E. 127. A contract made by a receiver with the purchaser at a sale by him, under which a purchaser was to be liable for the receivers com- EFFECT OF APPOIN-TMENT AND DUTIES. 211 in grounds of public policy, and in the peculiar relations sustained by the receiver to the fund, or estate, in his hands. It denies to the receiver the privilege of becoming a purchaser of property pertaining to his trust, entirely independent of the question of whether any fraud inter- vened."* Such a purchase by the receiver is not void and can not be attacked collaterally, althougli voidable.^ It may be avoided at the instance of any one interested in the estate,® or on the other hand it may be ratified.^ pensation at a stated amount or at an amount thereafter to be deter- mined, is contrary to public policy and void in a case where the agreement was not authorized or approved by the court in cliarge of the receivership. Hall v. Stulb, 126 Ga. 521, 55 S. E. 172. In re Dugdamonia Shingle etc. Co., 118 La. 242, 42 So. 789, the receiver of a lumber company sold nearly the entire output of the company to a partnership of which he was a member. Upon the hear- ing of objections to the receiver's account, the court held that the relation between the buyer and the seller demanded the produc- tion of clear and positive proof that the full market price for the lumber had been paid by the com- pany, and that the receiver should be required to support his bare assertion that his firm made no profit out of the transactions, by convincing corroborative evidence of the sales made by or through the firm. 4 Herrick v. Miller, 123 Ind. 304, 308, 24 N. E. 111. 5 Groeltz v. Cole, 128 Iowa 340, 103 N. W. 977. c People V. Merchants Bank, 33 Hun (N. Y.) 97; Herrick v. Miller. 123 Ind. 304, 24 N. E. Ill; Carr v. Houser, 46 Ga. 477, 479; Jewett v. Miller, 10 N. Y. 402, 65 Am. Dec. 751; Eyre v. McDonnell, 15 Ir. Ch. N. S. 534. T Chandler v. Cushing-Young etc. Co., 13 Wash. 89, 42 Pac. 548. Although a receiver, by reason of public policy, is ordinarily pro- hibited from purchasing any por- tion of the receivership property, it does not necessarily follow that all sales in which a receiver is interested as a purchaser should be vacated, that even though such a sale is presumptively irregular, the presumption is not conclusive and the sale is not in itself void, but is simply voidable at the elec- tion of the beneficiaries, and that the conduct of the beneficiaries may preclude them from asserting its invalidity. Hence, where the purchase of the assets of an insol- vent bank by a bank in which the receiver is interested has been permitted by the stockholders of the insolvent bank, or if they have not been injured thereby, the sale will not be vacated. .Jackson v. Clark First State Bank, 21 S. D. 484, 113 N. W. 873. 212 LAW OP RECEIVERS. Where a receiver purchases receivership property he may be held to hold it in trust for the receivership^ and be made to account for the profits derived by him from the transaction,® although this duty to account has been denied in the absence of bad faith on his part.^'' The same general rules naturally prohibit the buying up of claims against the receivership by the receiver or persons with whom he has some arrangements to partici- pate in the profits derived from such transactions. Hence where the receiver buys claims against the receivership at a discount, he will be held to hold them in trust for the receivership and he will not be allowed to profit from such transactions.^^ So, also, where a receiver purchases an outstanding title to property for his wife, she will be held to hold it in trust for the receivership subject to being reimbursed for the amount expended by her with interest. Such a 8 Gilbert v. Hewetson, 79 Minn. lo Wagner v. Swift's Iron etc. 326. 333, 79 Am. St. Rep. 486, 82 V/orks, 16 Ky. Law Rep. 273, 26 N. W. 655; Hammond v. Atlee, 15 S. W. 720. Tex. Civ. 267, 272, 39 S. W. 600. ii Titherington's A d m r. v. 9 He may be required to ac ^odge, 81 Ky. 286. count for the difference between Where a receiver of funds aris- the price at which he purchased it ing out of the sale of real estate of and its real value. Penzel Grocer a debtor against whom a general Co. V. Williams, 53 Ark. 81, 13 S. W. 736; Donahue v. Quacken- creditor's suit has been brought buys up the claims against the debtor, he can not require pay- bush, 75 Minn. 43, 77 N. W. 430; ^^^^ ^^^ ^^^ ^^^^ ^^^^^ ^^ ^^^ French v. Pittsburg Vehicle etc. ^^1^8, but can only recover such Co. 184 Pa. St. 101, 39 Atl. 63; g^^ ^s he paid for them. Roller Pangbum v. American Vault etc. y_ Paul, 106 Va. 214, 55 S. E. 558. Co., 205 Pa. St. 93, 54 Atl. 508. Receiver can not be held liable If a receiver purchases at a sale because his brother has bought up ordered by the court, he may be claims against the estate where it held liable for the appraised value is not shown that the receiver was of the property. In re Sheets Lum- interested in such purchases, ber Co., 52 La. Ann. 1337, 27 So. Luderbach Plumbing Co. v. Its 809. Creditors 121 La. 371, 46 So. 359. EFFECT OF APPOINTMENT AND DUTIES. 213 purcliase is, however, merely voidable and the right to enforce the trust may be waived.^- A receiver can not use the receivership property for himself or use his position as receiver as a basis for exacting some benefits for himself which he otherwise could not obtain. ^^ But it is not improper for a receiver, as an individual, to sell property to the receivership where he does so at a price less than the ordinary price at which tlie property could be purchased. ^^ (3f course, if a receiver wrongfully converts property of the receivership to his own use, he will be held liable personally, since he is liable personally for trespass or torts committed by him.^^ 12 Cook V. Martin, 75 Ark. 40, 5 Ann. Cas. 204, 87 S. W. 625, 1024. 13 In Halman v. Burlen, 198 Mass. 494, 85 N. E. 167, it was held that a receiver can not use the knowledge which he has obtained as receiver to buy a paramount title which at the termination of the litigation he might set up against the person who proves to be the true owner. A contract between a receiver and his surety, whereby he agreed to deposit the receivership funds with the surety and to waive pay- ment of interest, is void. Stone v. St. Louis Union Trust Co., 183 Mo. App. 261, 166 S. W. 1091. Likewise, where the receiver makes an agreement by which he is to receive one-half of the fees to be awarded to his attorney, it will be held to inure to the benefit of the receivership. Hammond v. Atlee, 15 Tex. Civ. 267, 39 S. W. 600. Thus, where a receiver who was in possession of slaves instead of hiring them out used their labor on his own account, he was held accountable to the estate. Bat- taile V. Fisher, 36 Miss. 321. A receiver of a brewing com- pany, who was also in the whole- sale liquor business and distrib- uted the company's product, is not entitled to pay his own license from the funds of the company, notwithstanding that was the prac- tice in the vicinity. Appeal of Pramuk, 250 Pa. 45, 95 Atl. 326. Where one who is a committee of property is also mortgagee, he can not foreclose his mortgage except under the authority of the court. Matter of Carter, 3 Paige (N. Y.) 146. A receiver should not become a mortgagee of the receivership property. Thompson v. Holladay, 15 Ore. 34, 55, 14 Pac. 725. 14 Patterson v. Ward, 6 N. D. 609, 72 N. W. 1013. 15 Kirk V. Kane, 87 Mo. App. 274. The court, in the case just cited, said: "He obtains no immu- 214 LAW OF RECEIVERS. § 50. Duty of Employees and Others in Intimate Control. This same rule of duty not to profit from the receiver- ship also applies to confidential employees of the receiver. Thus where a trusted clerk of the receiver, through his intimate knowledge of its affairs, buys claims against the receivership and makes a profit out of the transactions and invests such profits in real estate the receiver may establish a constructive trust in such property to the extent of such profits.^ Likewise where an officer of a corporation w^hich is in receivership purchases receivership property at a depre- ciated price at a sale in the proceedings which he con- trolled, he will be held to hold such property in trust for the benefit of all persons interested in it.^ § 51. Liability of Person Improperly Assuming to Act as Receiver. Where after the death of a receiver, a solicitor took upon himself to act as receiver without being appointed as such and his conduct of the former receivership was such as to make parties dealing with him believe that he was the successor of the former receiver, he will be held liable for losses for rents and the like caused by his neg- lect of the duties of a properly appointed receiver.^ § 52. Order of Appointment as Protection to Receiver. Acts of a receiver in the course of the receivership done according to the directions of the court and under the court's orders will not subject him to a personal liability.^ nity from liability in such cases sonally, whether liable officially or by reason of his office. He may not." frequently, under color of office, i Gilbert v. Hewetson, 79 Minn. get possession of property which 326, 79 Am. St. Rep. 486, 82 N. W. does not belong to or is not a part 655. of the receivership property and 2 Broussard v. Mason, 187 Mo. his official character ought not to App. 281, 173 S. W. 698. be a defense to his tortious acts i AVood v. Wood, 4 Russ. 558. or deprive parties of their rights. i Eskridge v. Rushworth, 3 Colo. As a wrongdoer he is liable per- App. 562, 34 Pac. 482; W^alsh v. EFFECT OF APPOINTMENT AND DUTIES. 215 Raymond, 58 Conn. 251, 18 Am. St. Rep. 264, 20 Atl. 464; Johnston v. Keener, 23 111. App. 220; Heise V. Starr, 44 111. App. 406; How v. Jones, 60 Iowa 70, 14 N. W. 193; Remington Paper Co. v. Watson, 49 La. Ann. 1296, 22 So. 355; Schmidt v. Gayner, 59 Minn. 303, 61 N. W. 333, 62 N. W. 265; Willis V. Sharp, 124 N. Y. 406, 26 N. E. 974; Piatt v. New York etc. Ry. Co., 170 N. Y. 451, 63 N. E. 532; State V. Port Royal etc. Ry. Co., 45 S. C. 464, 23 S. E. 380; Reardon V. White, 38 Tex. Civ. 636, 87 S. W. 365; Chandler v. Cushing-Young Shingle Co., 13 Wash. 89, 42 Pac. 548;- Davis v. Duncan, 19 Fed. 477; American Bonding etc. Co. v. Bal- timore etc. R. Co., 124 Fed. 866, 60 C. C. A. 52; Pusey etc. v. Penn- sylvania Paper Mills, 173 Fed. 629. The fact that a receiver did not follow the exact terms of the or- ders of court under the advice of counsel may relieve him from be- ing charged with bad faith, but will not relieve him from liability. McCay v. Black, 14 Phila. 635. In Ft. Wayne, M. & C. R. Co. v. Mellett, 92 Ind. 535, it was held that where a receiver was in pos- session of land under decree of the Circuit Court of the United States no action could be main- tained in the state courts to re- cover possession thereof. In such case the court which holds by its receiver is the only court to try the question of title. An order of appointment even though irregular, where nothing has been done to set it aside, will protect the receiver acting under it in good faith. Corey v. Long, 12 Abb. Pr. (N. S.) (N. Y.) 427. A receiver is liable personally as for a trespass or conversion where he takes possession of prop- erty not included in the trust, not- withstanding he takes possession under an order of court. His official character is no defense. Gutsch V. Mcllhargey, 69 Mich. 377, 37 N. W. 303; Kenney v. Ran- ney, 96 Mich. 617, 55 N. W. 982; Kirk V. Kane, 87 Mo. App. 274; Curran v. Craig, 22 Fed. 101; Har- tell V. Tilghman, 99 U. S. 547, 25 L. Ed. 357; Barton v. Barbour, 104 U. S. 126, 26 L. Ed. 672; note to Malott V. Shriner, 74 Am. St. Rep. 289. Where a receiver who was oper ating a business under the order of the court purchased supplies for that purpose with the knowl- edge of the seller, and the goods were billed to him in his official capacity, he will not be personally liable for them, but merely in his official capacity. Olpherts v. Smith, 54 App. Div. 514, 66 N. Y. Supp. 976. Where a receiver appointed in Virginia was ordered to sell cattle belonging to the receivership and pursuant to such order sells them to a resident of the District of Columbia and delivers them to such purchaser, the courts of the latter place will, as a matter of comity, protect the possession of the receiver, since the possessory title of the receiver will follow him into another jurisdiction. Jenkins V. Purcell, 29 App. Cas. (D. C.) 209, 9 L. R. A. (N. S.) 1074. Where the proper administration of an estate makes it necessary for the receiver to take legal ad- vice, and competent counsel is employed whose advice is fol- lowed, the receiver is not liable for consequent losses. State v. Germania Bank of St. Paul (La. 216 LAW OP RECEIVERS. If, however, the receiver goes beyond the order of the court, he will not be protected in respect to such acts.^ german v. Willius), 106 Minn. 164, 118 N. W. 683; State v. Germania Bank of St. Paul (Lagerman v. Willius), 106 Minn. 539, 118 N. W. 686. In re Home Provident etc. Assn., 129 N. Y. 288, 29 N. E. 323, the court protected the receiver as to certain funds paid out by him in good faith under the order of court but required attorneys to whom a portion of the moneys had been paid to return the same. Though money or property in the custody of a receiver may be ap- plicable to the payment of a judg- ment against him as receiver, he is protected by the court's order for expenditures made in reliance of such order while it was in force, though it may be afterward re- versed. Coe V. Patterson, 106 N. Y. Supp. 659, 122 App. Div. 76, rehearing denied, (1908) 108 N. Y. Supp. 1127, 123 App. Div. 914. Receiver can not be treated as trespasser for selling property in his possession pursuant to the or- der of the court by which he was appointed. Neither can the plain- tiff who procured the appointment of such receiver become a tres- passer by advising and aiding him to execute such order. Walling v. Miller, 108 N. Y. 173, 2 Am. St. Rep. 400, 15 N. E. 65. An application by receiver for general creditors to require the re- ceiver of mortgaged property to turn over rents was properly de- nied, where the money had been spent and accounted for under the court's directions. Ball v. Im- proved Property Holding Co. of New York, 220 Fed. 637. 2 Chicago Fire etc. Co. v. United States Book Co., 58 111. App. 293; Piatt V. New York etc. Ry. Co., 170 N. Y. 451, 63 N. E. 532. In Staples v. May, 87 Cal. 178, 25 Pac. 346, it was held that if the receiver appointed in a mortgage foreclosure works ores in lands of the mortgagor, which are not in- cluded in the mortgage foreclosed, he becomes liable as a trespasser for the net proceeds of the ore ex- tracted and the general creditors of the mortgagor may avail them- selves of such liability by proceed- ings supplemental to execution. In Kenney v. Ranney, 96 Mich. 617, 55 N. W. 982, it is held that a receiver should see to it that he sells none but the property covered by the mortgage under the order of court, for its sale, and an action of trover will lie against him for the value of other property held by the mortgagor as bailee and delivered by him to the receiver without demand and without order of court. Cf. Gibbons v. Farwell, 63 Mich. 344, 6 Am. St. Rep. 301, 29 N. W. 855; Pingree v. Detroit, L. & N. R. Co., 66 Mich. 148, 11 Am. St. Rep. 479, 33 N. W. 298; Allen V. Kinyon, 41 Mich. 281, 1 N. W. 863; Scudder v. Anderson, 54 Mich. 122, 19 N. W. 775; Hake v. Buell, 50 Mich. 89, 14 N. W. 710; Daggett V. Davis, 53 Mich. 35, 51 Am. Rep. 91, 18 N. W. 548; Gutsch v. Mc- Ilhargey, 69 Mich. 377, 37 N. W. 303. Where a receiver takes posses- sion of property not belonging to the defendant, he is in much the same position as a sheriff taking property not belonging to the judg- EFFECT OF APPOINTMENT AND DUTIES. 217 If however, a receiver in asking for an order of court to pay certain claims or make certain expenditures makes false representations to the court as to the condition of the receivership and the order is made because of such misleading reports, the receiver will be held personally liable for his disbursements or acts under the order.^ § 53. Rights of Claimants to Property in the Possession of Receiver. Where the receiver holds property, his possession is the possession of the court, and any equitable rights therein claimed by third parties must be asserted by petition and determined by the court appointing the receiver. It is also an equally well recognized rule that where it is alleged and good cause is shown that prop- erty should not pass to a receiver, the court may, on peti- tion, release the same.^ ment debtor under color of an execution. Kirk v. Kane, 87 Mo. App. 274. A receiver ordinarily can not pay out money in his hands by virtue of his office without an or- der of court, general or special. Sullivan Timber Co. v. Black, 159 Ala. 570, 48 So. 870; Buffalo Forge Co. V. Columbus & Hocking Clay Const. Co., 112 N. Y. Supp. 460. If, with or without order of court, a receiver takes property to which he is not entitled, he be- comes a trespasser; and neither the order of appointment nor any order under which he acts will pro- tect him, and he may not only be sued without leave of court, but the court which appointed him can not lawfully enjoin such suit. Het- zel V. Fadner, 162 111. App. 639. Where a receiver under color of his position as receiver obtains possession of property not belong- ing to the receivership, his official position is not a defense to his tortious actions. As a wrongdoer he is liable personally whether liable officially or not. Gutsch v. Mcllhargey, 69 Mich. 377, 37 N. W. 303; Kenney v. Ranney, 96 Mich. 617, 55 N. W. 982. But a receiver is not liable to a claimant where the possession of property was voluntarily delivered to the receiver. Tapscott v. Lyon, 103 Cal. 297, 37 Pac. 225. 3 Gutterson v. Lebanon Iron etc. Co., 151 Fed. 72. 1 If one claims property in the possession of a receiver he should apply to the court for relief. Wood- burn v. Smith, 96 Ga. 241, 22 S. E. 964; Riggs v. Whitney, 15 Abb. Pr. (N. Y.) 388. In Thompson v. McCleary, 159 Pa. 189, 28 Atl. 254, it is held that a creditor having execution under a judgment should apply to the 218 LAW OF RECEIVERS. court which appointed the receiver and ask for a discharge of the property out of its custody so that he may proceed against it. The same doctrine is recognized in Smith V. Earl of Effingham, 2 Beav. 232. In re Christian Jensen Co., 128 N. Y. 550, 28 N. E. 665, it was held that when property had passed to the actual possession of the re- ceiver it could not, without leave of the court first obtained, have been replevied from him in an action against him. The only rem- edy would have been by an action commenced with the leave of court, or by petition to the court appointing the receiv-er. Citing Noe V. Gibson, 7 Paige (N. Y.) 513; Riggs v. Whitney, 15 Abb. Pr. (N. Y.) 388; Chautauqua County Bank v. Risley, 19 N. Y. 369, 75 Am. Dec. 347; Barton v. Barbour, 104 U. S. 126, 26 L. Ed. 672; Evelyn v. Lewis, 3 Hare 472; Ex parte Cochrane. L. R. 20 Eq. Cas. 282. In Robinson v. Atlantic & G. W. R. Co., 66 Pa. 160, it was held that whether certain land belonging to a mortgagor should pass into the hands of a receiver could be deter- mined only by the court appointing the receiver. The court saying: "If a creditor believes that the property was not legally mort- gaged, or for any good reason should not pass into the hands of the receiver, his duty is to apply to the court having appointed the receiver to ask its discharge out of custody, in order that he may proceed against it." See, also, Re Day, 34 Wis. 638. In this case shingles were lawfully in the pos- session of the receiver, and the court held if there had been a mistake in the delivery and they belonged in fact to another part? than the debtor, the remedy of the claimant was by application to the court for redress or for leava to sue. In Wiswall v. Sampson, 55 U. S. (14 How.) 52, 14 L. Ed. 322, it was held that where real estate was in custody of the receiver ap- pointed by a court of chancery, the sale thereof was improper under an execution issued in a judgment at law. It is held that when a party is prejudiced by having a receiver put in his way, the prac- tice has been either to give him leave to bring ejectment or permit him to be examined pro interesse suo. If persons claim to have prior legal or equitable interests to the property in the hands of the re- ceiver, and they desire to avail themselves of such rights, they must apply to the court for pro- tection, even though their right to the possession is clear; and the same practice applies where the property claimed consists of goods and chattels, or other personality, as to real estate. The court say: "The settled rule, also, appears to be that where the subject-matter of the suit in equity is real estate, and which is taken into the pos- session of the court, pending the litigation, by the appointment of a receiver, or by sequestration, the title is bound from the filing of the bill; and any purchaser, pen- dente lite, even for a valuable con- sideration, comes in at his peril." In this case the court examined extensively the English and Amer- ican doctrine in regard to the pos- session of the receiver and the interference therewith and the remedies of claimants thereto. In Russell v. East Anglian R. EFFECT OF APPOINTMENT AND DUTIES. 219 Co., 3 Macn. & G. 104, property in the possession of the receiver was seized under execution on judg- ments against the debtor. It was held that the established rule was that no party could question any order or process of court by dis- obedience; that it was not com- petent for any one to interfere with the possession of the receiver or disobey any order of court, on the ground that the orders were improperly made. The proper course to question their validity was open to all, and this course must be pursued. "It was per- fectly open to the plaintiffs to have applied to the court to be heard pro interesse suo, or to have been heard on a summary application for leave to levy their execution, notwithstanding the possession of the receiver." In Porter v. Kingman, 128 Mass. 141, it is held that a person who has purchased property subject to a mortgage given by the owner to a bank, can not maintain a bill in equity against the receivers of the bank for a cancellation of the mortgage, alleging as a ground false and fraudulent representa- tions of the bank, but if he has any remedy at all he must proceed by petition in the court in which the receiver was appointed. Equi- table rights which are contended as superior to the title made by order of court cannot be passed upon except in the cause in which that title is created, and cannot be set up in an independent suit. Cf. Atlas Bank v. Nahant Bank, 23 Pick. (40 Mass.) 480; Colum- bian Book Co. V. De Golyer, 115 Mass. 67; Wiswall v. Sampson, 55 U. S. (14 How.) 52, 14 L. Ed. 322; Noe V. Gibson, 7 Paige (N. Y.) 513; Robinson v. Atlantic & G. W. R. Co., 66 Pa. 160; Russell v. East Anglian R. Co., 3 Macn. & G. 104; Hills V. Parker, 111 Mass. 508, 15 Am. Rep. 63. In Columbian Book Co. v. De Golyer, 115 Mass. 67, it was held that before property of a corpora- tion in the hands of a receiver could be taken from such receiver and applied to the payment of creditors, a petition in equity in the cause in which the receivers were appointed was necessary. In Hills v. Parker, 111 Mass. 508, 15 Am. Rep. 63, an action of re- plevin was maintained against an agent of the railroad company, whose property was in the hands of receivers, without obtaining leave of court, where it appeared that the corporation had no inter- est in the property replevied, although it was in use by the re- ceiver. It was held that leave to bring an action would be granted by a court of chancery as of course, unless it was clear that there was no foundation for the claim. The appointment of re- ceivers entitles them to the pro- tection of the court as to the property they were directed to take possession of, but does not extend to property not embraced in the decree and of which the debtor never had any title. Parker v. Browning, 8 Paige (N. Y.) 388, 35 Am. Dec. 717; Paige v. Smith, 99 Mass. 395; Leighton v. Har- wood. 111 Mass. 67, 15 Am. Rep. 4. In Atlas Bank v. Nahant Bank, 23 Pick. (40 Mass.) 480, it ap- peared that attachment suits were brought against an insolvent bank, and the receivers filed a petition l^raying that the attachment might be dissolved and the respondents 220 LAW OF RECEIVERS, The broad rules which prevail in such circumstances were shown by the Colorado Court of Appeals in a case^ wherein the court said : ''While it is true that the appointment of a receiver frequently leads to a conflict of rights as to the posses- sion of property, and while it is true that the court having jurisdiction of the estate will not permit third parties to interfere with the receivers' possession without its consent, still the courts never unnecessarily interfere with the rights of third persons to repossess themselves be restrained from other attach- ments; that the petition was a dis- tinct proceeding, unconnected with the original suit against the bank, and was held to be irregular, but that the receivers were entitled to proceed in a summary mode, by a petition filed in the original suit, to obtain a decision of the court upon the rights of attaching cred- itors, and that a supplemental bill was not necessary. If a receiver has property in his possession which is claimed by a person not a party to the suit, and the receiver refuses to turn it over to him, the proper procedure is to intervene by petition setting up his claim, and if the claim is proved, the court will restore it to the owner. Kirkpatrick v. Eastern Milling etc. Co., 135 Fed. 146, 137 Fed. 387, 69 C. C. A. 579. The remedy of a stranger to a suit who claims property in the possession of the receiver or some interest or lien in it is to petition to intervene in the receivership proceeding. Wheeler v. Walton etc. Co., 64 Fed. 664; Winchester v. Davis Pyrites Co., 67 Fed. 45, 14 C. C. A. 300. Where a note payable to a cor- poration is in fact owned by an- other person and such corporation becomes insolvent, its effects pass- ing to a receiver, such receiver may indorse such note to the real owner, and thereby invest him with the legal title. Gibson v. Gutru, 83 Neb. 718, 120 N. W. 201. Where a person claims title to the property in the possession of the receiver under an attachment sale, but is not interfering with the possession, the receiver ought to seek the setting aside of the sale in an independent proceeding. Cherry v. Western Wash. etc. Co., 11 Wash. 586, 40 Pac. 136. Where a receiver wrongfully obtained a warrant for a claim against a city assigned to a third person prior to the receivership, it was proper for the assignee after the appointment to appear in the action in which the receiver was appointed, and ask an order requiring the payment of the pro- ceeds of such warrant to it. Mc- Gill V. Brown, 72 Wash. 514, 130 Pac. 1142. 2 Central Locomotive etc. Works V. Smith, 27 Colo. App. 449, 150 Pac. 241. EFFECT OF APPOINTMENT AND DUTIES. 221 of their own property. Indeed, unless it is made affirma- tively and clearly to appear that for some reason recog- nized by the rules of equity, the rights of third persons ought to be postponed, it is the duty of the court having jurisdiction of the estate to facilitate their efforts to enforce such rights. (Tliis is the plain duty of the court even where the rule is not changed or affected by statute. ) " Where two parties claim the same property or fund in the hands of a receiver, it is proper for the receiver to file a bill of interpleader and compel them to determine as to each other which has a superior right.^ In accordance mth the general rule that the court which first obtains jurisdiction of the subject-matter will retain control to the end of the controversy, it is proper that the receivership court take charge of controversies over the title to property which arise subsequent to the appointment of the receiver, or at least be petitioned for leave to commence the appropriate proceeding to deter- mine the rights of the claimants."' 3 In Winfield v. Bacon, 24 Barb, divorce proceeding between them, (N. Y.) 154, the receiver had a the court should require the rents fund in his hands realized from the and profits which will go to the sale of land to which there were successful party to be placed in two claimants, each of whom had court to await the final outcome commenced a separate action of the divorce suit. Vincent v. against him regarding the fund, Parker, 7 Paige (N. Y.) 65. and had obtained an injunction to 4 In Lanyon v. Braden, (Okla.) prevent him from paying it over. 150 Pac. 677, the court in its offl- In such case it was held that a cial syllabus said: bill of interpleader by the receiver "It is now the established doc- might be maintained against the trine of both the state and federal rival claimants to compel them to courts, that that court, whether interplead and settle the rights state or federal, which first ac- between themselves. quires jurisdiction of the subject- Where there is a dispute be- matter, or of the res, and which tween a husband and wife as to a is first put in motion, will re- portion of property in the hands tain its control to the end of the of a receiver and such contro- controversy, and the possession of vcrsy is about to be settled in a its receiver will not be disturbed 222 LAW OF RECEIVERS. A claimant of real estate in tlie possession of a receiver will not be permitted to bring an action of ejectment against the receiver without leave of conrt,^ and the by the subsequent appointment of a receiver by the other court. Nor is it necessary, in the application of the general doctrine here stated, that the court asserting its exclu- sive control by reason of having been first to take cognizance of the subject-matter should be the first to take actual possession of the property by its "receiver." It followed the case of Farmers' Loan & T. Co. v. Lake St. B. R. Co., 177 U. S. 51, 20 Sup. Ct. 564, 44 L. Ed. 667. The appointment, if made in a court of competent jurisdiction, and in an action where the power to appoint exists, can not be col- laterally attacked. Comer v. Bray, 83 Ala. 217, 3 So. 554; Andrews v. Steele City Bank, 57 Neb. 173, 77 N. W. 342, 9 ^m. Eng. Corp. Cas. (N. S.) 452; Roby v. Title Guar- antee & T. Co., 166 111. 336, 46 N. E. 1110; Carroll v. Pacific Nat. Bank, 19 Wash. 639, 54 Pac. 32. In this connection, see, also, § 40. But the court will not draw to itself by means of the receivership jurisdiction to try disputed titles to property unless the circum- stances are such as to render the common law remedies inadequate or for some reason are unfit for the purposes of the particular case. Merchants & M. Nat. Bank v. Kent, Cir. Judge, 43 Mich. 292, 5 N. W. 627. A receiver should ordinarily be directed to hold, care for, and pre- serve the property until the issues are finally determined. Boothe v. Summit Coal Mining Co., 63 Wash. C^O, 116 Pac. 2C9. Property in the possession of a receiver, appointed by a federal court, is in possession of such court, and can not be taken there- from by subsequent process from a state court. Ohio & M. R. Co. V. Fitch, 20 Ind. 498. The appointment of receiver pendente lite does not determine the rights of litigants to property in controversy; such rights being preserved as they existed when the receiver was appointed. Strebel V. Bligh, 183 Ind. 537, 109 N. E. 45. The receiver may intervene in an attachment suit instituted prior to his appointment. Andrews v. Steele City Bank, 57 Neb. 173, 77 N. W. 342. The prosecution of an action in replevin is not abated by the ap- pointment of a receiver for the defendant in such action. Stearns V. Early, 49 Misc. 614, 96 N. Y. Supp. 837. The proper practice is for the court to grant leave to bring an action or permit the claimant to be examined pro interesse suo. Brien v. Paul, 3 Tenn. Ch. 357; Strain v. Palmer, 159 Fed. 628, 86 C. C. A. 618. A person claiming title to prop- erty in the possession of a re- ceiver should not attempt to ob- tain possession of it by an act of trespass but seek leave of court to sue the receiver. In re Day, 34 WMs. 638 ; Ex parte Cochrane, L. R. 20 Eq. 282. 5 St. Louis etc. R. Co. v. Hamil- ton, 158 111. 366, 41 N. E. 777; Fort W'ayne M. & C. R. Co. v. Mellett, 92 Ind. 535; Potter v. Spa Spring EFFECT OF APPOINTMENT AND DUTIES. 223 court mil not as a rule allow sucli an action to be brought in a court other than that of the receivership.^ § 54. Rights of Receiver Respecting Property in Possession of Claimants. The general powers and functions of a receiver are measured by the order of his appointment or subsequent orders of the court, and the powers conferred in such orders are in some cases limited by statutory provisions.^ A receiver, even though the order of his appointment specifically describes tlie property over which he is ap- pointed receiver, has no right to take the property from the possession of a stranger to the action witliout giving such party his day in court, where such stranger claims title to it.^ The receiver is not required to take property forcibly out of the possession of a stranger, or even of Brick Co., 47 N. J. Eq. 442, 20 Atl. 852. 6 Fort Wayne etc. R. Co. v. Mel- lett, 92 Ind. 535. 1 Dennery v. Superior Court, 84 Cal. 7, 24 Pac. 147; Moore's Estate, 88 Cal. 1, 25 Pac. 915; Wheat v. Bank of California, 119 Cal. 4, 50 Pac. 842, 51 Pac. 47. Receivers pendente lite are mere temporary officers of the court and do not possess the powers of a permanent receiver unless spe- cially conferred on them by the court. Decker v. Gardner, 124 N. Y. 334, 11 L. R. A. 480, 26 N. E. 814. 2 Havemeyer v. Superior Court, 84 Cal. 327, 18 Am. St. Rep. 192, 10 L. R. A. 627, 24 Pac. 121. The receiver must, however, be indifferent as between these dif- ferent claimants to the funds in his hands, and not pay the claims of one claimant without giving others an opportunity to be heard in respect to their claims. People V. Family Fund Soc, 31 App. Div. 166, 52 N. Y. Supp. 867. Money need not be paid a re- ceiver whose right thereto is not established, notwithstanding the party ordered to pay the same may not himself have any right thereto. Burnham v. Barrett, 137 111. App. 119. It has, however, been said that a person is not deprived of his property without due process of law by being compelled to deliver it to a receiver, since a receiver merely holds it subject to the ulti- mate determination of the receiv- ership court as to its ownership. In re Cohen, 5 Cal. 494; Miles v. New South Bldg. etc. Assn., 95 Fed. 919. The above decisions must be considered, however, with a view to the purposes of the receiver- ship. 224 LAW OF RECEIVERS. the defendant, without the express directions of the courtj^* but the court may order property which belongs to a third party to be delivered to him by the receiver.* The court should direct its receiver to demand the deliv- ery of property claimed as part of the receivership prop- erty, and on refusal of such demand initiate proceedings 3 Re Day, 34 Wis. 638; Attorney- General V. St. Cross Hospital, 18 Beav. 601; Ex parte Cochrane, L. R. 20 Eq. 282. In Parker v. Browning, 8 Paige (N. Y.) 388, 35 Am. Dec. 717, the court, speaking through Chancellor Walworth, said: "And if the prop- erty is in the possession of a third person who claims the right to retain it, the receiver must either proceed by suit, in the ordinary way, to try his right to it, or the complainant should make such third person a party to the suit, and apply to have the receiver- ship extended to the property in his hands, so that an order for the delivery of the property may be made which will be binding upon him, and which may be en- forced by process of contempt, if it is not obeyed. Where the prop- erty is legally and properly in the possession of the receiver, it is the duty of the court to protect that possession, not only against acts of violence but also against suits at law; so that a third person claiming the same may be com- pelled to come in and ask to be examined pro interesse suo, if he wishes to test the justice of such claim. But where the property is in the possession of a third per- son, under a claim of title, the court will not protect the officer who attempts by violence to ob- tain possession, any further than the law will protect him; his right to take possession of property of which he has been appointed re- ceiver being unquestioned." A receiver can not ordinarily take possession of property found in the possession of a stranger to the record, who claims title. State V. McClure, 17 N. M. 694, Ann. Cas, 1915B, 1110, 47 L. R. A. (N. S.) 744, 133 Pac. 1063. And where property belonging to the receivership is in the pos- session of officers of the corpora- tion which is defendant, its deliv- ery to the receiver may be sought in the receivership proceeding. Brandt v. Allen, 76 Iowa 50, 1 L. R. A. 653, 40 N. W. 82. An order for the delivery of the possession of property belonging to the receivership may be also directed against the employees and agents of the defendant, al- though they are not parties to the record. In re Cohen, 5 Cal. 494. The same has been applied to the attorney for the defendant. Geisse v. Beall, 5 Wis. 224. 4 A receiver is in the lawful possession of property wher6 it was voluntarily delivered to him by the owner, but he has no au- thority to forcibly take possession of property in the hands of a per- son not a party to the suit, and if he does so, he acts on his per- sonal responsibility. Tapscott v. Lyon, 103 Cal. 297, 37 Pac. 225. EFFECT OF APPOINTMENT AND DUTIES. 225 for its recovery." Courts, however, are always reluctaiit in respect to interfering with the possession of third per- sons claiming the legal title to property in their pos- session which is claimed by the receiver,^ and this is especially true where such parties make a showing of good faith in their claims.' This reluctance does not, 5 If a receiver representing cred- itors brings suit to set aside a transfer of the debtor's property as in fraud of his creditors, and such suit is terminated by a de- cree against the receiver, the cred- itors are bound thereby, and one of them can not subsequently maintain proceedings against the debtor on the ground that the sum transferred was in fraud of his rights. Dohs v. Holbert, 103 Minn. 283, 123 Am. St. Rep. 329, 114 N. W. 961. Where a receiver was appointed for a corporation in one county, and four days later an ancillary receiver was appointed by the court of another county in an un- authorized proceeding, and a bank in the county where the ancillary receiver was appointed refuses to pay over to the original receiver assets in his hands, the court should order its receiver to de- mand payment, and, on refusal, should order the receiver to sue to recover the amount held by such bank. Tenth Nat. Bank v. Smith Const. Co., 227 Pa. 354, 136 Am. St. Rep. 884, 76 Atl. 67. Order requiring delivery of se- cret formulae to a corporation's receiver held improper, on the ground, however, that there was no issue involved in respect to the ownership of them. Brewster v. F. G. Brewster Co., 14K App. Div. 812, 130 N. Y. Supp. 654. I Rec. — 15 6 McCombs V. Merryhew, 40 Ivlich. 721; Cassiiear etc. v. Si- mons, 8 Paige (N. Y.) 273. 7 Levi V. Karrick, 13 Iowa 344; Andrews v. Paschen, 67 Wis. 413, 30 N. W. 712. Where the party in possession of the property claims the legal title under a decree in a mortgage foreclosure, the receivership court upon such a showing ought not to decide the validity of his title upon a mere motion in the receiv- ership proceeding supported by affidavits, but ought to require the parties to determine the question in a form of action which will allow all of the facts to be looked into in a more thorough manner. Gelpeke v. Milwaukee etc. R. Co., 11 Wis. 454. Where the third person is claim- ing under a color of title, the proper practice is for the receiver to commence an independent action for the recovery of the property. Stuparich Mfg. Co. v. Superior Court, 123 Cal. 290, 55 Pac. 985. The court will not on a sum- mary motion determine the rights of a person claiming title to prop- erty under an assignment for the benelit of creditors. Coleman v. Salisbury, 52 Ga. 470. Nor will the rights of a pur- chaser at an execution sale be determined by the receivership court in a summary proceeding, 226 LAW OF RECEIVERS. however, obtain where it is quite apparent that the pos- session of such third party is under a merely colorable or fraudulent transfer, and in such circumstances tJie receivership court may compel the delivery of the prop- erty by proceedings had in the receivership rather than by an independent suit.^ Under the practice employed by the English Court of Chancery, an order was obtained from the court requir- ing the defendant to deliver possession and a writ of assistance or execution w^as then served upon the defend- ant,'' but under our practice it has been customary to require in the order appointing the receiver that the defendant deliver the property described therein to the receiver and then permit the receiver to take such steps as are necessary for him to obtain the possession.^" but will require him to be made a party to the litigation in order to determine his rights. Robeson V. Ford, 3 Edw. Ch. (N. Y.) 441. A writ of assistance will not be awarded to a receiver to com- pel third persons claiming prop- erty in good faith to deliver it to the receiver. Musgrove v. Gray, 123 Ala. 376, 82 Am. St. Rep. 124, 2G So. o43. The court can not summarily order a delivery to the receiver of a railway company of the books of such company which have been sold to and are in the possession of a successor corporation, and this, notwithstanding the fact that the officers of the two companies are identical. Olmsted v. Roches- ter etc. R. Co., 46 Hun (N. Y.) 552. A party is not obliged to turn over money to a receiver pending the determination of the question of his right to retain such fund as his own. Struckmeyer v. Peo- ple, 133 111. App. 336. But a court will not direct its receiver to dismiss an ejectment suit brought by him to recover property alleged to have been pur- chased with money of the estate, on petition of the defendant therein who holds the legal title, except on clear proof that the property was not so purchased. Pakradooni v. Storey Cotton Co., 151 Fed. 607. 8 United States v. Church of Jesus Christ etc., 5 Utah 361, 15 Pac. 473. 9 Green v. Green, 2 Sim. 430. 10 Iddings v. Bruen, 4 Sandf. Ch. (N. Y.) 417. Where a receiver is in charge of the assets of a partnership, the court may make such orders and adopt such measures as are nec- essary to place its property in the hands of the receiver. Ex parte Dickens, 162 Ala. 272, 50 So. 218. EFFECT OF APPOINTMENT AND DUTIES. 227 In the federal courts, and also some state courts, a distinction is made in the practice of procedure based upon the point whether the possession and claim of the third person arose prior or subsequent to the appoint- ment of the receiver. In tlie former circumstances the receiver will be required to obtain possession by a plenary suit, while in the latter circumstances he will be allowed to proceed summarily by petition for a rule to siiow cause in the receivership proceeding.^ ^ Where two receivers were appointed of the same bank, under distinct and independent proceedings, and by tlie terms of their respective appointments each had entire control of all the assets of the bank, they can not with 11 Horn V. Pere Marquette R. Co., 151 Fed. 626. In Bien v. Robinson, 208 U. S. 423, 28 Sup. Ct. 379, 52 L. Ed. 556, after receivers had been appointed by the federal court and an order made enjoining all persons from paying over or transferring any money or assets of the company to any person other than the re- ceivers, an officer of the company gave a person a check on a bank in which it had a deposit. The payee of the check, learning of the appointment, had the check certi- fied, indorsed it and collected it through a third person. There- upon the receivers obtained a rule to show cause why the payee of the check should not be required to pay to the receiver the money collected on the check. The court required it to be done. It was contended in the Supreme Court that the right of the receiver to the fund could not be determined in a summary proceeding, but could only be adjudged in an action at law to recover the pro- ceeds of the check, but that court said: "We think the contention and the assignments of error based thereon are so manifestly frivolous as to be utterly insuffi- cient to serve as the foundation for a writ of error." In Receiver of State Bank v. First Nat. Bank, 34 N. J. Eq. 450, the court under its practice held that the proper procedure in such or similar circumstances was not a rule to show cause, but an action at law by the receiver to collect the debt. In view of Act Gen. Assem. May 19, 1913 (27 Del. Laws, ch. 194), held, that receiver's rule, requiring assignee of company in receivership to show cause why it should not pay over money in its possession to him, was a proper proceeding. Price v. Horrigan Contracting Co., (Del. Ch.) 95 Atl. 345. An order for the delivery of property to a receiver may be en- forced by attachment process. Miller v. Jones, 39 111. 54. 228 LAW OF RECEIVERS. propriety botli act: tlie title of the one is necessarily exclusive of that of the other, and the question of priority in such circumstances must be determined as a legal right. ^^ It has been held that where a receiver has claimed title to property w^rongfully but in good faith, the OA\Tier of the property can not recover damages caused by the property having been in storage pending the settlement of the title question. ^^ A person holding property belonging to a receivership, it has been held, is not bound to deliver it to any one except the receiver in person.^"' Wliere the same receiver is appointed by several courts, the distribution of the fund belongs to the one who was first appointed.^^ § 55. Necessity for Order of Court to Pay Money. In order for a receiver to be certain that his disburse- ment of the funds of the receivership will meet with the approval of the court, it is, of course, essential that he obtain an order of court authorizing the payment.^ And where he has in good faith paid money under an order of court he will be protected in respect to such payment, even though the order authorizing it be subsequently^ reversed.- A receiver who is also a creditor of the receiv- 12 People V. Central City Bank, 14 Panton v. Zebley, 19 How. Pr. 53 Barb. (N. Y.) 412. (N. Y.) 394. 13 The receiver of a seller of isBurrell v. Leslie, 6 Paige certain automobiles in storage, ^-^ y.) 445; People v. Central having wrongfully claimed title ^j^.^ g^^^^ 53 g^^^ (^^ y.) 412. thereto as against the buyer, but ^ x , ^ t, , , . ... ^ f„^^u „,„c 1 State Central Sav. Bank v. havmg acted in good faith, was not liable for damages sustained Fanning Bali-Bearing etc. Co., 118 by the buyer, and due to depre- Iowa 698, 92 N. W. 712; Johnson ciation, etc., during the time re- v. Gunter, 6 Bush (69 Ky.) 534. quired to settle the receiver's 2 In re Home Provident etc. claim. Huxley v. Hayes, 201 Fed. Fund Assn., 129 N. Y. 288, 29 N. E. 899, 120 C. C. A. 413 (affirming 323. judgment, (C. C.) 191 Fed. 943). EFFECT OF APPOINTMENT AND DUTIES. 229 ership should not pay his own claim without an express order of the court made under a full disclosure of the facts and conditions of the receivership property.^ § 58. Power of Receiver to Make Settlements and Compromises. The court in the interest of the estate may authorize and empower the receiver to compromise disputed and doubtful claims, by receiving less than the amount due if it shall appear expedient so to do and to the best inter- est of creditors, stockholders, or those interested.^ And 3 In re Sheets Lumber Co., 52 La. Ann. 1337, 27 So. 809; Gridley V. Conner, 2 La. Ann. 87. 1 State V. Bank of Rushville, 57 Neb. 608, 78 N. W. 281. But a receiver with no other authority than that of being "duly appointed," is not authorized to compromise a claim of the insol- vent. Buffalo Forge Co. v. Colum- bus & Hocking Clay Const. Co., 112 N. Y. Supp. 460; Guardian Sav. Inst. V. Bowling Green Sav. Bank, 65 Barb. (N. Y.) 275; Insurance Commissioner v. Commercial Mu- tual Ins. Co., 20 R. L 7, 36 Atl. 930. An order authorizing the re- ceivers of an insolvent company to compromise claims of the com- pany is one entered in the exer- cise of the court's discretionary power, and can not be set aside unless it appears so unreasonable as to amount to a clear abuse of judicial discretion. MacDonald v. ^tna Indemnity Co., 88 Conn. 571, 92 Atl. 154. In a buyer's action to recover the difference between the .value of logs delivered and the payment made on the purchase price of logs measured, but not delivered, the court properly ordered a receiver to sell the logs delivered and which the buyer was not required to receive, and to apply the pro- ceeds to the seller's indebtedness. Stamper v. Foreman-Earle Co., 158 Ky. 324, 164 S. W. 937. In Monitor Furnace Co. v. Peters, 40 Ohio St. 57C, a receiver of a corporation was appointed to administer the estate for the bene- fit of creditors and stockholders. Before the receiver's appointment the company made sale of its real estate and other property for the alleged purpose of defrauding creditors. Two years after the appointment a judgment creditor filed a bill for the purpose of de- claring the sale void in the same court that appointed the receiver, in which the stockholders, re- ceivers, and creditors were made defendants, and the bill was sus- tained on the ground that it was substantially an application to the court to direct the receiver to do his duty in the case stated. In this case the court can make the proper order as effectively and justly as if instituted by the re- ceiver. In re Croton Ins. Co., 3 Barb. Ch. 642, a receiver of an insolvent corporation, on application, was authorized to compromise dis- 230 LAW OF RECEIVERS. it is proper for tlie court to give tlie receiver general power to compromise w^ith debtors to the estate w^here it appears to him that debtors are unable to pay in full.^ But the power to compromise a statutory liability is extremely doubtful, and wliere it appears that the debtor has fraudulently transferred his property to avoid his legal obligations, or to shield himself from injury and exposure to litigation, the power to compromise should • be withheld from the receiver."^ And a receiver has no puted and doubtful claims by the allowance of so much of said claims as to him should seem just and equitable and to compromise with debtors who are unable to pay in full upon receipts any part of their debts, if it should seem reasonable and for the best inter- est of creditors. This power will not be granted if the debtor has fraudulently con- veyed his property to avoid liabil- ity. In re Certain Stockholders of California Nat. Bank, 53 Fed. 38; Suydam v. Bank of New Bruns- wick, 3 N. J. Eq. 276. See, also, Re Piatt, 1 Ben. 534, Fed. Cas. No. 11211; Kennedy v. Gibson, 75 U. S. (8 Wall.) 498, 19 L. Ed. 476; Hen- derson V. Meyers, 11 Phila. 616; Wilkinson v. Dodd, 40 N. J. Eq. 124, 3 Atl. 360. A receiver of a national bank may compromise. See U. S. Rev. Stat., § 5234. Receivers appointed for an in- solvent corporation in the first instance represent the company and all creditors, and a stipulation made by them with particular creditors binds all, in the absence of seasonable and proper objec- tion. Robinson v. Mutual Reserve Life Ins. Co., 182 Fed. 850. An agreement executed in good faith by the receiver of a trust company and an individual claim- ing an interest in corporate stock in possession of the company, whereby the individual surren- dered his interest in the stock in consideration of his receiving a dividend on a certain claim, is for the benefit of the receivership es- tate because it enables him to more readily dispose of securities forming the assets of the com- pany, and is properly approved by the court. Alexander v. Maryland Trust Co., 106 Md. 170, 66 Atl. 838. 2 In re Croton Ins. Co., 3 Barb. Ch. (N. Y.) 642. This power being subject to great abuse is exercised with caution. And see Kimball V. Lee, 40 N. J. Eq. 403, 2 Atl. 820; Wilkinson v. Dodd (1886), 40 N. J. Eq. 123, 3 Atl. 360; Dodd v. Wil- kinson, 41 N. J. Eq. 566, 7 Atl. 337. 3 In re Certain Stockholders of California Nat. Bank, 53 Fed. 38. In the above case, Judge Ross characterized the compromise with a stockholder of a bank who has fraudulently disposed of his property to avoid a legal liability as "a premium on fraud," and con- trary to fair dealing and good faith. EFFECT OF APPOINTMENT AND DUTIES. 231 autliority to commute a debt.* So, also, the receiver will not be given greater powers than the defendant would have had in respect to the receivership property.^ In determining whether to authorize a receiver to make compromise, the court decides a question of prudence, and should consider the probable validity of the re- ceiver's claim, the difficulties in enforcing it, the delay and expense likely to be thereby occasioned, and the rela- tive amounts of both the assured recovery and the amount surrendered by the compromise. In determining upon the advisability of making such a compromise the court does not determine as a matter of law whether the claims are valid, but merely the proba- bility or possibility of the outcome of the litigation nec- essary to enforce them.*^ An unsuccessful attempt by a receiver to effectuate a compromise will not, of course, interfere with a subsequent action by the receiver on the claim.'^ 4Paxton V. Steele, 86 Va. 311. Such a compromise would be a . g J, ^ surrender of the rights of the bank ■ ■ ■ to a large and unjustifiable extent. 5 Where the statute provides ^^ ^^ ^.^^^ ^^^ ^^^^ ^^ ^^ ^j. that the receiver "upon the order ^^^^^ ^^ ^^^ ^20. of a court of record of competent ^^^ ^^^^^.^ ^ partner in the ab- jurisdiction may sell or compound g^^ce of special authority, or a all bad or doubtful debts," and special course of dealing, has no where it is shown by the evidence power to accept shares in a com- that the claims uncollected seem pany even though fully paid up in to be valid and enforceable to a satisfaction of a debt due the firm, far greater amount than those the court has no jurisdiction in against the bank, the court will winding up the partnership to con- not authorize the receiver to com- fer on a receiver greater power promise all claims for and against than a partner would have had in the bank by surrendering all its this respect. Niemann v. Nie- remaining assets in consideration mann, L. R. 43 Ch. Div. 198. of sufficient money to make a cer- 6 MacDonald v. ^tna Indemnity tain dividend, and particularly Co., 88 Conn. 571, 92 Atl. 154. where the cash on hand is suffi- "^ Stewart v. Larabee, 185 Fed. cient to make the same dividend. 471, 109 C. C. A. 351. 232 LAW OF RECEIVERS. The action of the court in authorizing a receiver to compromise a claim or suit will not be reviewed on appeal in the absence of an abnse of discretion.^ § 57. Appointment of Receiver as Constituting an Act of Bankruptcy. The National Act of Bankrnptcy is intended to supply the remedy for creditors in cases of insolvency of their debtor and, of course, the Bankruptcy Court has exclu- sive jurisdiction of cases coming within the purview of the act. Although at first sight there would appear to be some confusion amongst the decisions in respect to the appointment of a receiver constituting at times an act of bankruptcy, none does in fact exist when the de- cisions are considered in connection with the condition of the act of bankruptcy as it existed at the time of the particular decision or when the particular facts of the case are carefully considered. There is naturally a differ- ence between the decisions in respect to the act of 1898 and those in respect to that act as it stood after the amendment of 1903. ^The amendment of 190.3 to the Act of Bankruptcy of 1898 was as follows: "Being insolvent, applied for a re- ceiver or trustee for his property, or, because of insol- vency, a receiver or trustee has been put in charge of his property under the laws of a state, of a territory, or of the United States." Under this amendment insolvency must be the ground for the appointment of the receiver, while under the original act the appointment of a receiver did not constitute an act of insolvency unless it operated as a preference of creditors by reason of the provisions of the state laws or was applied for fraudulently with the purpose of delaying or defeating creditors.^ 8 state V. Bank of Rushville, 57 Fed. Cas. No. 1420, 3 Fed. Cas. at Neb. 608, 78 N. W. 281. page 417, it is said: 1 In re Bininger, 7 Blatchf. 262, "The design and purpose of the EFFECT OF APPOINTMENT AND DUTIES. 233 A reading of the amendment will show that it prohibits an insolvent applying for a receiver and prohibits others from seeking the appointment of a receiver where the bankruptcy law is that the prop- erty of an insolvent shall be se- cured to their creditors in the very mode pointed out thereby, with all the facilities for its ap- propriation, all the security for its administration, all the safeguards against fraud, all the protection against devices to establish false claims, fictitious debts, and illegal or inequitable preferences, which that act provides, and in the sum- mary manner in which the pro- ceedings may be conducted. It is not, therefore, for the debtors or for the debtors and some of the creditors to say, we can devise a better or safer or more economical mode for reaching the same final result. If it were true, it would be only saying, we will resort to an expedient to defeat the bank- ruptcy law, and our reason there- for is that we think our plan is wiser and better than that which Congress has seen fit to prescribe. But the administration of the property under a receiver in such a suit does not necessarily accom- plish the same result." The court further says: "It seems hardly necessary to add that the taking of the prop- erty by a receiver for administra- tion delays the operation of the act. ... A proceeding which must pass through all the ordinary forms of litigation, and which is susceptible of almost indefinite protraction, through orders, ap- peals, rehearings, etc., is substi- tuted for the summary proceed- ings which the act of Congress provides." This case was decided under the federal act of 1867 (ch. 176, 14 Stat. 517). If the appointment of a receiver secures a preference to some cred- itors by reason of state laws, it was held an act of bankruptcy under the act of 1898. In re Gil- bert, 112 Fed. 951; In re Kersten, 110 Fed. 929; In re Empire etc. Co., 98 Fed. 981, 39 C. C. A. 372. In Mather v. Coe, 92 Fed. 333, two members of a partnership ap- plied to a state court for the ap- pointment of a receiver for the partnership property, alleging in- ability to pay debts, the other members of the partnership did not oppose the proceedings. The application was held to be an act of bankruptcy under the act of 1898 in that the partnership had suffered its property to be trans- ferred by an order of court to be administered under the insolvent laws of a state whereby certain preferences would be allowed to certain creditors for labor and ser- vices. An application by the adminis- trator of a deceased partner for a receiver of the partnership prop- erty is not a concealment or re- moval of property for th« purpose of hindering and defrauding cred- itors or a general assignment. Vaccaro v. Security Bank, 103 Fed. 436, 43 C. C. A. 279. In re Empire Metallic Bedstead Co., 95 Fed. 957 (affirmed in 98 Fed. 981, 39 C. C. A. 372), it was held that an application by a cor- poration under the state laws for dissolution was not a general as- 234 LAW OF RECEIVERS. basis for such appointment is the insolvency of che debtor for whom a receiver is sought. Hence it is apparent that the appointment of a receiver based on grounds other than insolvency or by other petitioners than the debtor on grounds other than insolvency even if the debtor be in fact insolvent, will not constitute an act of bankruptcy under the Bankruptcy Act. Consequently, the question to be determined" is whether a particular application for a receiver in the state courts was based on the ground of insolvency, and particularly so in cases where the pk^adings do not use the term ''insolvency" with a nice regard as to its technical meaning under either the Bank- ruptcy Act or state laws. The court will in such circum- stances look to the record in the state court to deter- mine whether the receiver was in fact appointed ''because of insolvency" or whether the term was merely loosely used in the pleadings and in fact evidence out- side of the record may be adduced in respect to the ques- tion.^ In most cases in which the debtor is not insolvent signment for the benefit of cred- structive one on this question. In itors. that case the court said: The failure of a corporation to "Whether or not respondent resist an application for a receiver committed the act of bankruptcy does not constitute a conveyance alleged— that is, whether or net or transfer of its property within the receiver was appointed be- the bankruptcy act. In re Baker- cause of insolvency— is left by Ricketson Co., 97 Fed. 489. In this petitioners dependent upon the connection, see In re Henry Zelt- record of the receivership proceed- ner Brewing Co., 117 Fed. 799; In ings alone. re Wilmington Hosiery Co., 120 "The complaint therein charged Fed. 180; In re Doscher, 120 Fed. that respondent was engaged in 408; In re Burrell, 123 Fed. 414, developing and operating copper 59 C. C. A. 508; Seaboard Steel mines and reduction works owned Casting Co. v. Wm. R. Trigg Co., by it, that the whole was in an 124 Fed. 75. experimental stage and the actual 2 In re Valentine Bohl Co., 224 market or cash value thereof un- Fed. 685, 140 C. C. A. 225; In re known, that the operations were Butte Duluth Mining Co., 227 Fed. at a loss, that respondent owed 334 debts and was in default, that The case of In re Butte Duluth suits were threatened because Min. Co., 227 Fed. 334, is an in- thereof, that dissipation and un- EFFECT OF APPOINTMENT AND DUTIES. 235 but language is used in the pleadings susceptible of such a construction, it will be found that the condition of af- equal distribution of assets and unfair advantage in payments were imminent, and that respon- dent was without money or credit, and 'is now and for a considerable time last past has been wholly insolvent and unable to pay its just debts and obligations as they mature and fall due in the regu- lar course of business.' The prayer was for a receiver to take charge and operate the property of respondent, to sell when feas- ible, to pay debts, and to dissolve and wind up respondent and dis- tribute any residue to its stock- holders. Respondent's answer ad- mitted all the allegations of the complaint and 'joins in the prayer' thereof. Thereupon the court made an order reciting that upon the pleadings and testimony heard it found all allegations of the com- plaint true, and appointing a receiver to take charge of and operate respondent's plant, subject to future orders. "The bankruptcy act, by the amendment of 1903, provides that it is an 'act of bankruptcy' by any one when 'because of insolvency a receiver or trustee has been put in charge of his property under the laws of a state, of a territory, or of the United States.' It is to be noted that not every receiver- ship, even though to finally ad- minister a debtor's assets, or that results in finally administering an insolvent debtor's assets, is an act of bankruptcy, but those only are such acts as the bankruptcy act so declares. The act has its own definition of insolvency — the popu- lar one — that: " 'A person shall be deemed in- solvent within the provisions of this act whenever the aggregate of his property . . . shall not, at a fair valuation, be sufficient in amount to pay his debts.' Comp. St. 1913, § 9585. "This definition of insolvency in the original act, by familiar rules of construction, applies to the in- solvency mentioned in the afore- said 'act of bankruptcy' introduced into the original act by amend- ment. "Nor do the words of the amend- ment, 'under the laws of a state, of a territory, or of the United States,' manifest a different intent or meaning for the term 'insol- vency.' Rather are they words of limitation, so that a foreign receiv- ership may not constitute an act of bankruptcy. The act contem- plates that a man may be unable to pay his debts as they fall due, and yet not be insolvent. If he has property that at a fair valu- ation in amount equals his debts, so that, though not immediately convertible without sacrifice into money, by indulgence he may eventually so convert it and pay his debts, he is not insolvent, and can not be adjudicated a bankrupt against his will. " 'The law has made its defini- tion of insolvency, whatever the effect may be, and has determined by that definition consequences, not only to the debtor, but to his creditors.' Pirie v. Chicago Title etc. Co., 182 U. S. 438, 451, 21 Sup. Ct. 906, 911, 45 L. Ed. 1171. "And so it is held, and by what seems the better authorities, 236 LAW OF RECEIVERS. fairs was such that the debtor was in imminent danger of that a receivership is not an act of bankruptcy, unless created 'be- cause of insolvency,' as insolvency is defined in the bankruptcy act. See, In re Valentine Bohl Co., 224 Fed. 685, 140 C. C. A. 225, and cases therein cited. Therein is no inconsistency with the decision in the Exploration Mercantile Co. v. Pacific Hardware etc. Co., 177 Fed. 825, 101 C. C. A. 39, though there may be with detached dicta thereof. "The record of the receivership involved in the instant proceed- ings neither directly nor by im- plication makes it to appear that respondent was insolvent within the meaning of the bankruptcy act— that is, that the aggregate of its property at a fair valuation was not sufficient in amount to pay its debts — and so fails to show that because of insolvency as so defined a receiver was put in charge of respondent's property, and so fails to prove that respon- dent committed the act of bank- ruptcy alleged. "It is true that complaint in the receivership declares that respon- dent is 'wholly insolvent'; but the addition to this conclusion or gen- eral statement of the specific and controlling words, 'and unable to pay its debts and obligations as they mature and fall due,' and the other matter of said complaint, indicate the way to allege insol- vency in this state's statutory sense of inability to meet current obligations and not all in the sense of the bankruptcy act. "If the evidence before the court appointing the receiver was other- wise, if therefrom it appeared and the court found that respondent was insolvent in the sense of the bankruptcy act, and because thereof appointed the receiver, it nowhere appears in the record, and petitioners have not under- taken to prove it by extrinsic evi- dence consistent with the record. The power of the state court to appoint the receiver and whether exercised for a right or wrong rea- son, is not material here, further than to determine whether or not the appointment was made 'be- cause of insolvency,' as defined in the bankruptcy act; such appoint- ment alone giving jurisdiction to adjudicate bankruptcy because thereof." In re Valentine Bohl Co., 224 Fed. 685, 140 C. C. A. 225, the peti- tion for a receiver in the state court which was relied on as an act of bankruptcy was filed by the president of the corporation, who was also owner of the majority of its shares of stock. The allega- tions in the receivership petition were as follows : "Said corporation has now no money available for its use, and can not borrow any money, and for a long time has been, and still is, embarrassed by the lack of money to carry on its business, and it is now impossible to carry on said business on account of the lack of money. Said corporation owes a large amount of debts, which it is unable to pay, and checks have been issued which it can not meet, and certain checks issued by it have been protested, and by reason of said unpaid debts and its inability to carry on its business its assets are in danger EFFECT OF APPOINTMENT AND DUTIES. 237 insolvency if a receiver were not appointed to conserve j of waste through attachment and litigation. There is no prospect of its condition improving, and said corporation ought to be dissolved." The court in holding that the receiver was not appointed be- cause of insolvency, said: "We think there is no evidence whatever of the first act of bank- ruptcy charged, viz., concealing or removing property with intent to hinder, delay, or defraud creditors. The petition in the state court was not filed by the Bohl Company, but by an individual stockholder act- ing on his own behalf, who hap- pened to be the president and a director and owner of a majority of the capital stock. The com- pany filed no answer. It was per- haps intended to justify this charge by the form in which the second act of bankruptcy, was charged, viz., that the company suffered and permitted the re- ceiver to be appointed. But the statute describes no such act of bankruptcy. Its language is the appointment of a receiver under the laws of a state 'because of insolvency.' In re Spalding, 139 Fed. 244, 71 C. C. A. 370. The language of the petition, though inartificial, may properly be held to cover such an act of bank- ruptcy. "We think 'because of insol- vency' must mean insolvency as defined by Bankruptcy Act, § la (15). In re Golden Malt Cream Co., 164 Fed. 326, 90 C. C. A. 258; In re Wm. S. Butler & Co., 207 Fed. 705, 125 C. C. A. 223. It is impossible to say that the state court appointed the receiver be- cause of insolvency. The record .A of the court, so far as it is before us, indicates that, if appointed for insolvency at all, it was insolvency in the ordinary sense of inability to meet current obligations. This is sufficient to dispose of the case. However, we may add that the proofs seem to us to show that the company was not insolvent within the meaning of the bank- ruptcy act." /"A person shall be deemed in /solvent within the provisions of (this act whenever the aggregate ' of his property . . , shall not, at a fair valuation, be sufficient in amount to pay his debts." U. S. -Comp. St. 1913, § 9585. In re Muir, 212 Fed. 495, the court said: "The decree of the court is silent as to the reason the receiver was appointed, and in such case the papers in the case may be con- sulted, or evidence aliunde may be produced. Davis v. Brown, 94 U. S. 423, 429, 24 L. Ed. 204; Russell v. Place, 94 U. S. 606, 608, 24 L. Ed. 214; Hooks v. Aldridge (C. C. A. 5th Cir.), 16 Am. Bankr. Rep. 662, 145 Fed. 865, 76 C. C. A. 409; In re Kennedy Tailoring Co. (D. C. Tenn.), 23 Am. Bankr. Rep. 656, 175 Fed. 871. "It certainly can not be the law that because Muir, both plaintiff and defendant, drawing both the bill and answer, had so skilfully drawn the papers as that we can not point to the 'insolvency' as apparent from the fact of the pro- ceedings, we are bound thereby and can not determine the ques- tion upon evidence aliunde. Under the second clause of section 3a(4) of the bankruptcy act, the charge 23S LAW OF RECEIVERS. the assets.' Questions also arise where the debtor, who is insolvent, has been in fact the mo\-Ing party in the of 'insolvency' is an issue to be determined in the bankruptcy court." 3 In re Commonwealth Lumber Co., 223 Fed. 667, it was said: "The petitioners contend that the state court having appointed a receiver 'for the reason that said corporation is utterly insolvent and unable to meet or pay its obli- gations' is a finding which is con- clusive, and adjudication must now follow. There is no doubt that a receiver may be appointed in the state court for a corporation in financial depression, when bank- ruptcy proceedings could not be entertained. The statute of Wash- ington authorizes the appointment of a receiver when a corporation is in imminent danger of insol- vency (section 741, Rem. & Bal. Washington Code), and the state court holds that a corporation is insolvent when it is unable to meet its obligations as they ma- ture in the ordinary course of business (State ex rel. v. Superior Court, 21 Wash. 575, 59 Pac. 483; Nixon V. Joshua Hendy Machine Works, 51 Wash. 419, 99 Pac. 11) ; while under the bankruptcy act, when the assets at a fair valuation do not equal the liabilities, a cor- poration is insolvent (section 1, subd. 15, Bankr. Act). Petitioners rely on In re Maplecroft Mills (D. C), 218 Fed. 659, 661, in which the District Court of the Fourth District held the appointment of a receiver under the South Carolina code provision that a receiver may be appointed when a corporation is 'in iniiniueiil danger' of insol- vency, and at page 673, the court says: " 'Under the evidence in the case now before the court it is found that the only ground upon which the state court, to wit, the Court of Common Pleas for Pickens County, could possibly have made the order of appointment of a re- ceiver and taken possession of, to operate, and eventually liquidate and marshal and distribute, the assets of the Maplecroft Mills, un- der the allegations of the com- plaint, was because of insolvency. The Supreme Court of the State of South Carolina has approved, for the state courts of the State of South Carolina, the same defini- tion of insolvency as that seven in the bankruptcy act (citing case). Where the Court of Com- mon Pleas for Pickens County appointed a receiver because of insolvency, it must be presumed that it found under the laws of South Carolina it was such an in- solvency as is defined to be insol- vency in the bankruptcy act, and that it adjudicated that question as against the Maplecroft Mills, so as to determine it as well for these proceedings as for those in the state court.' "The Circuit Court of Appeals of the First Circuit (In re Wm. S. Butler & Co., 207 Fed. 705. 125 C. C. A. 223), Judge Putnam dis- senting, held that the appoint- ment of a receiver to assume con- trol of the business and conduct the affairs of a corporation until further ordered, on a complaint, answer, and decree, for the reason EFFECT OF APPOINTMENT AND DUTIES. 239 receivership proceeding although the application for the receiver has been prosecuted in the name of others. In such circumstances it becomes a question of fact as that the corporation was unable to meet its obligations as they ma- tured in the ordinary course of business, in the absence of an alle- gation that the corporation's prop: erty, at a fair valuation, was insufficient to pay its debts, was not a finding of insolvency within the act of bankruptcy. The Su- preme Court of Washington recog- nizes a distinction between insol- vency under the bankruptcy act and state statute. State ex rel. v. Superior Court, supra. I do not think that the finding of the state court upon the allegations of the complaint, in the absence of tes- timony, is conclusive of the insol- vency of the corporation in issue, under the bankruptcy act, in this proceeding." The appointment of a receiver for a corporation by a state court, under a statute authorizing such appointment where the defendant "is in imminent danger of in- solvency," on a petition which showed that, while the corpora- tion, by reason of general busi- ness conditions, was unable to meet its obligations, Its assets at a fair valuation were worth nearly double the amount of its indebted- ness, does not constitute an act of bankruptcy, under Bankr. Act July 1, 1898, ch. 541, § 3a (4), as amended by act Feb. 5. 1903, ch. 487, § 2, 32 Stat. 797 (Comp. St. 1913, §9587). Maplecroft Mills v. Childs, 226 Fed. 415, 141 C. C. A. 245, the court saying: "The complaint in the state court, on its face, shows that the corporation was in immi- nent danger of insolvency; but it does not show actual insolvency. It appears from the record in the state court that there were no lien creditors; that there were on July 1, 1913, unsecured debts amount- ing in the aggregate to $176,184.23. It further appears from the peti- tion that the alleged bankrupt had assets amounting in the aggregate to $313,068.20, consisting of prop- erty and plant, $253,489.80, and other assets as follows: $54,096.53, $3790.91, $504.94, $483.68, and $702.34, these amounting in the aggregate, as we have stated, to $313,068.20. Thus it will be seen that it appears on the face of the petition that the assets exceeded the liabilities $140,000. It is also alleged in the complaint filed in the receivership suit that if the property (by which we understand is meant the real estate and plant) were sold at a forced sale it might not bring 50 per cent of its actual value. "However, assuming that this property should be sold at a forced sale and did not bring more than 50 per cent of its true value, nevertheless, by such sale there could be realized the sum of $126,- 744.90. If we add to this the actual value of the quick assets, consist- ing of cash, cotton, stock in pro- cess, goods, insurance, interest, etc., which amounts to $59,578.40, a sufficient sum would b© realized to pay the indebtedness and leave a balance of $10,000," 240 LAW OF RECEIVERS. to whether the debtor procured the appointment of the receiver. If he did so procure it, then the appointment constitutes a violation of the Bankruptcy Act.^ Likewise 4 The case of James Supply etc. Co. V. Dayton Coal etc. Co., 223 Fed. 991, 139 C. C. A. 367, was one which was held to come within this rule, the court saying: "If the receivership was so pro- cured by actual authority of the Dayton Company, and on its be- half, it was as effectively an act of bankruptcy as if the suit had been directly in the name of that company as complainant (Explora- tion Mercantile Co. v. Pacific Hardware etc. Co. [C. C. A. 9], 177 Fed. 825, 839, 101 C. C. A. 39), and the district court so held. Wheeler V. Denver, 229 U. S. 342, 33 Sup. Ct. 842, 57 L. Ed. 1219, contains nothing to the contrary. What is there said respecting collusion relates merely to jurisdiction. Similar holdings are found in Re Reisenberg (Metropolitan Ry. Re- ceivership), 208 U. S. 90, 110, 28 Sup. Ct. 219, 52 L. Ed. 403, and American Brake etc. Co. v. Pere Marquette R. R. Co. (C. C. A. 6), 205 Fed. 14, 18, 123 C. C. A. 322. Here the question of intent to evade the provisions of the bank- ruptcy act is involved. "It is immaterial that the re- ceivership was not ordered be- cause of insolvency. If the cor- poration was actually insolvent at the time receivership was applied for, it is enough. Hill v. Western Electric Co. (C. C. A. 6), 214 Fed. 243, 130 C. C. A. 613. "We are not impressed by the proposition that the application for a receiver by this corporation would not be an act of bankruptcy unless shown to have been ex- pressly authorized by formal • action of its board of directors or stockholders; and the district judge did not so decide. Not only is there nothing in the record to indicate that the managing direc- tor of this British corporation lacked authority to direct such acfion, but the testimony is infer- entially to the contrary, and is specifically that he had complete control of the company's affairs. If Donaldson individually lacked full control, there was testimony that Watson & Co. represented the stock control and, inferen- tially at least, had whatever con- trol Donaldson lacked; and it is perhaps of some interest in this connection that the amended bill in the insolvency proceeding by implication treats the members of Watson & Co. as Whitaker's prin- cipals. We think the record did not impugn the existence of full authority on the part of Donald- son and Watson & Co. to direct the receivership, and thus the commission of an act of bank- ruptcy. Exploration Mercantile Co. V. Pacific Hardware etc. Co. (C. C. A. 9), 177 Fed. 825, 839, 101 C. C. A. 39; In re Maplecroft Mills (D. C), 218 Fed. 659, 673; 1 Remington on Bankruptcy (2d ed.), §152. Moreover, if those placed in full charge of the com- pany's affairs were thus clothed in fact with sufficient power to actu- ally accomplish a legally effective receivership, we can not think the application therefor was any the EFFECT OF APPOINTMENT AND DUTIES. 241 if the appointment of the receiver is applied for by the debtor himself with intent to hinder, delay, and defraud his creditors, the appointment of the receiver will be deemed to be a ''transfer" of the debtor's property within the meaning of the Bankruptcy Act.^ And even less an act of bankruptcy because those responsible therefor had no right, as against the stockholders, to so act. A somewhat contrary- holding was had in Re Wm. S. But- ler & Co. (C. C. A. 1), 207 Fed. 705, 713, 125 C. C. A. 223. How far that decision may have been affected by the law under which the corporation was organized does not appear." The court in Re Muir, 212 Fed. 495, in this connection said: "If Muir was the real plaintiff in the equity case, lurking in the shadow of Burton, Price & Co., the nomi- nal plaintiff, and it also appears from the record in the equity case that Muir is the actual defendant, there was no real cause before the court in the equity case for adjud- ication. A party can not be both plaintiff and defendant, yet such is the effect of the equity proceed- ings, under the facts. If there was no real cause depending before the court in the equity suit, there is surely nothing in the way of this court in determining 'insol- vency.' "It is not necessary, and the court does not undertake, to de- cide whether the receiver in equity was actually appointed on the basis of 'insolvency,' upon the face of the pleadings therein." 5 Thus, In re Muir, 212 Fed. 495, it was said: "Did Muir, by procuring the ap- pointment of the receiver in cqinty, within four months preced- I Rec— 16 ing the filing of the involuntary petition, while insolvent, make a transfer of his property with in- tent to hinder, delay, and defraud his creditors? This question the master has failed to answer. It has already been decided that Muir procured the appointment of the receiver and that he did so while insolvent. "It remains, therefore, for us to consider and determine: (a) Whether there was a transfer of Muir's property accomplished by the receivership; and (b) whether there was the intent to hinder, delay, and defraud cred- itors thereby. "It is not necessary since the amendment of February 5, 1903, that it be to hinder, delay, and defraud. It is sufficient if it be with either intent. "Section 1 (25) of the bank- ruptcy act defines the word 'trans- fer' to 'include the sale and every other and different mode of dis- posing of or parting with property or the possession of property, ab- solutely or conditionally.' Said the Supreme Court of the United States in Pirie v. Chicago Title & Trust Co., 182 U. S. 438, 21 Sup. Ct. 906, 45 L. Ed. 1171, 5 Am. Bankr. Rep. 814: " ' "Transfer" is defined to be not only the sale of property, but "every other mode of disposing or parting with property." All tech^ nicality and narrowness of mean- ing is precluded. The word is used 2-12 LAW OF RECEIVERS. tliougli the purpose of a debtor was not to liquidate liis assets and distribute them among his creditors, the ap- pointment of the receiver will be regarded as an act of bankruptcy where he was in fact insolvent at the time of the application.*' The element of estoppel, however, in its most comprehensive sense, and is intended to include every means and manner by which prop- erty can pass from the ownership and possession of another, and by which the result forbidden by the statute may be accomplished.' "We have already decided that Muir procured the receivership. In general, the effect of the appoint- ment of a receiver is to remove the parties to the suit from the possession of the property, not- withstanding the right to the prop- erty is in no way affected, and he over whose property a receiver has been appointed has no author- ity thereafter to subject it to any legal liability in the hands of the receiver, or to deal with it in any manner which operates as an in- terference with the receiver's pos- session. 34 Cyc. 183, 184. The mere order appointing a receiver of property does not transfer the ownership of or legal title to the property over which he is ap- pointed, without statutory provi- sion to that effect, or where the appointment is pursuant to the general powers of the court and the usual practice in chancery as distinguished from an appoint- ment under statutory provisions conferring special powers and rights. 34 Cyc. 184, 185, and cases cited. Without going into the question of where the title is, upon receivership, at law, the rule is laid down that: " 'In equity, however, it is held that an order for a receiver, when his appointment is completed, vests in him all the property and effects subject to the order with- out an assignment, although as to the legal title to real estate a transfer has been held indis- pensable. 34 Cyc. 186. " 'There was no real estate af- fected by this receivership, and we are of the opinion that title to the personalty vested in the re- ceiver. At any rate, the receiver acquired thereby the possession thereof. The general proposition is well established that, the re- ceiver being the officer or agent of the court from which he de- rives his appointment, his posses- sion is exclusively the possession of the court; the property being regarded as in the custody of the law, in gremio legis for the benefit of whoever may be ultimately de- termined to be entitled thereto. High on Receivers (4th ed.), § 134, p. 153. " 'There is no question but this comes within the very language of section 1 (25) of the bankruptcy act above quoted. We conclude, therefore, that the receivership was a transfer.' " 6 Hill V. Western Electric Co., 214 Fed. 243, 130 C. C. A. 613, the court saying: "Despite the stipula- tion that Rankin would testify that, when applying for a receiver, it was not his purpose to liquidate his assets and distribute 'them to creditors,' the appointment was EFFECT OF APPOINTMENT AND DUTIES. 243 applies to proceedings in bankruptcy by petitioners who have participated in the receivership proceedings which are complained of as an act of bankruptcy. Hence where creditors have selected the state court as the forum in which to administer the estate of the debtor and have induced that court to act in such administration, they can not subsequently repudiate the proceedings and remove the matter to the bankruptcy court.'^ § 58. General Liability of the Receivership for Torts and Negligence. Receivers pendente lite are mere temporary oflEicers of the court and do not possess the powers of a permanent receiver unless specially conferred upon them by the court. They possess no legal powers, and their functions are limited to the care and preservation of the property or fund committed to their charge.^ The power of certain to remove the possession and control of his property to the receiver for administration accord- ing to orders of the court appoint- ing him; and, in view of the con- ceded insolvency of the debtor, it can not for a moment be presumed that the court would have de- clined to enforce the rights of the college and the creditors. The case does not differ, then, from what it would have been if Rankin had admitted insolvency in his petition for a receiver; and hence every reason exists for testing his acts by the paramount rule of the bankruptcy law. Exploration Mer- cantile Co. V. Pacific H. & S. Co., 177 Fed. 825, 840, 101 C. C. A. 39 (C. C. A. 9th Cir.). See, also, Blackstone v. Everybody's Store, 207 Fed. 752, 755, 125 C. C. A. 290 (C. C. A. 1st Cir.), where the ap- plicable rule is tersely stated. though the • fact of insolvency failed of proof. And see reason- ing of Judge Wallace in Re Spald- ing, 139 Fed. 244, 246, 71 C. C. A. 370 (C. C. A. 2d Cir.), although the case itself is not in point; 1 Loveland on Bankruptcy (4th ed.), §155, p. 333; Collier on Bank- ruptcy (8th ed.), 1910, p. 84." 7 In re Commonwealth Lumber Co., 223 Fed. 667. See, also, Simonson v. Sinsheimer, 95 Fed. 948, 37 C. C. A. 337; Lowenstein v. Henry McShane Mfg. Co., 130 Fed. 1007, sustaining the principle that where creditors have elected a forum, they are bound by such election. Cases in apparent conflict are distinguishable on the facts. Lei- digh Carriage Co. v. Stengel, 95 Fed. 637, 37 C. C. A. 210; In re Salmon & Salmon, 143 Fed. 395. 1 Herring v. New York, L. E. & W. R. Co., 105 N. Y. 340, 372, 12 244 LAW OF RECEIVERS. appointment of a receiver of this character is an incident to the jurisdiction of a court of chancery, and is unaf- fected by the character of the parties before it, whether an individual or a corporation, or by the nature of the prop'erty,^ and is usually brought into exercise in mort- gage foreclosure cases. While this class of receivers have many duties and powers peculiar to themselves they are such only as flow from the nature and character of the property committed to their charge. Of course, in case of the foreclosure of railway mortgages, the powers and duties of the receiver are increased 'by reason of the pub- lic nature of the property and the franchises involved, but the title of the receiver is essentially the same in all cases. Except in a few exceptional cases, he is selected not only because of his ability, honesty, and integrity, but because of his not being interested in any manner in the subject-matter of the litigation. Neither will he be per- mitted to become interested in the property in his charge as receiver during the progress of the litigation, nor use such property or funds for purposes of his own personal gain, and all interest and profits derived from the funds or property must be strictly accounted for.^ He must, as we have shown before,* exercise such care in the handling of the affairs of the receivership as a man would pru- dently exercise in handling his own affairs. Hence a receiver, occupying the peculiarly responsible position that he does, both in his attitude to the court and the parties before the court, is required to exercise great care and circumspection over the funds or property en- trusted to him, or whatever other interests that may come N. E. 763; Keeney v. Home [ns. York, W. S. & B. R. Co., 101 N. Y. Co., 71 N. Y. 396, 27 Am. Rep. 60. 478, 5 N. E. 316. A receiver is liable for waste. 3 Battaile v. Fisher, 36 Miss. Turner v. Peoria etc. R. Co., 95 321; see, §49, supra. 111. 134. 35 Am. Rep. 144. 4 See, § 43, supra. 2 United States Trust Co. v. New EFFECT OF APPOINTMENT AND DUTIES. 245 to him as receiver.^ And he will be liable for negligence in the management of the receivership property.*' The liability of the receiver is generally merely in his official capacity unless the negligence or tort is the personal act 5 state V. Gibson, 21 Ark. 140 Walker v. Morris, 14 Ga. 323 Kaiser v. Kellar, 21 Iowa 95 Henry v. Kaufman, 24 Md. 1, 87 Am. Dec. 591; Devendorf v. Dick- inson, 21 How. Pr. (N. Y.) 275; Iddings V. Bruen, 4 Sandf. Cli. (N. Y.) 417; Reynolds's Exr. v. Pettyjohn, . 79 Va. 327; Salway v. Salway. 2 Russ. & M. 215. Where a receiver was appointed in a case in which a large number of important interests were held by various parties — held, that as he became vested with the title of all the property involved in the suit, by virtue of the decree ap- pointing him, he was entitled to the carriage of the decree into the master's office to compel the de- livery of the property to him and that he was responsible for the exercise of his best judgment and good faith to all parties interested and was not to be controlled by any of the parties. Iddings v. Bruen, 4 Sandf. Ch. (N. Y.) 417; Moore v. Duffy, 74 Hun (N. Y.) 78, 26 N. Y. Supp. 340. 6 He is responsible for the value of property which by diligence would have come to his posses- sion, but has become lost by his omission to act. Clapp v. Clapp, 49 Hun (N. Y.) 195, 1 N. Y. Supp. 919; Thurman v. Cherokee R. Co., 56 Ga. 376; Henderson v. Walker, 55 Ga. 481; Sloan v. Central Iowa Ry. Co., 62 Iowa 728, 16 N. W. 331; Ohio & M. R. Co. v. Davis, 23 Ind. 553, 85 Am. Dec. 477; Nichols v. Smith, 115 Mass. 332; Paige v. Smith, 99 Mass. 395; Fifield v. Northern R. R., 42 N. H. 225; Klein v. Jewett, 26 N. J. Eq. 474; In re Union Bank, 37 N. J. Eq. 420; Cardot v. Barney, 63 N. Y. 281, 20 Am. Rep. 533; Meara's Admr. v. Holbrook, 20 Ohio St. 137, 5 Am. Rep. 633; Potter v. Bunnell, 20 Ohio St. 150, 159; Cleveland, C. & C. R. Co. V. Keary, 3 Ohio St. 201; Ex parte Brown, 15 S. C. 518; Ex parte Johnson, 19 S. C. 492; Erwin V. Davenport, 9 Heisk. (Tenn.) 44; Newman v. Davenport, 9 Baxt. (Tenn.) 538; Lyman v. Central Vermont R. Co., 59 Vt. 167, 10 Atl. 346; Bluraenthal v. Brainerd, 38 Vt. 402, 91 Am. Dec. 349; Hornsby v. Eddy, 56 Fed. 461, 5 C. C. A. 560; Winboum's Case (Missouri Pac. R. Co. V. Texas P. R. Co.), 30 Fed. 167; Central Trust Co. v. Wabash, St. L. & P. Ry. Co., 26 Fed. 12. But see Central Trust Co. V. Wabash, St. L. & P. Ry. Co., 30 Fed. 344; Brydon v. Stewart, 2 Macq. H. L. 30. A receiver is liable for money paid as a dividend to a person not entitled to it when ordinary care would have prevented it. Todd v. Meding, 56 N. J. Eq. 83, 38 Atl. 349. And where goods are committed to him for sale, and through negli- gence or bad faith he fails to realize the full value, he will be liable for the real value but not the speculative value. Demain v. Cassidy, 55 Miss. 320. 246 LAW OF RECEIVERS. of the receiver himself. In such event it is a charge against the receivership property.'^ 7 In those cases where a re- ceiver may be sued without leave of the court which appoints him, it is doubtless competent for a person injured by his negligence or misconduct to pursue him at once in a court of law by an action for damages. Malott v. Shimer, 153 Ind. 35, 74 Am, St. Rep. 278, 54 N. E. 101. Generally a receiver is respon- sible only for neglect, but if he by his appointment assumes the duties of a guardian his liability will be measured by that of a guardian. State v. Gooch, 97 N. C. 186, 2 Am. St, Rep. 284, 1 S. E. G53. Receiver is not liable for per- conal injuries growing out of the negligence of a co-employee. Brown v. Comer, 97 Ga. 801, 25 S. E. 176. The liability of a receiver for the torts of his employees and agents, when he himself is free from fault, is in his official capa- city. In such capacity he is an- swerable for their torts. Fullerton V. Fordyce, 121 Mo. 1, 42 Am. St. Rep. 516, 25 S. W. 587; Murphy v. Holbrook, 20 Ohio St. 137, 5 Am. Rep. 633; International etc. Ry. Co. V. Bender, 87 Tex. 99, 26 S. W. 1047; Memphis & C. R. Co. v. Hoechuer, 67 Fed. 456, 14 C. C. A. 4.-. 9. He will be liable personally for trespass and torts committed by him, his official position being no protection in such cases. Staples V. May, 87 Cal. 178, 25 Pac. 346; Hills V. Parker, 111 Mass. 508, 15 Am. Rep. 63. But see Walling v. Miller, 108 N. Y. 173, 2 Am, St. Rep. 400, 15 N. E. 65; Manning v. Monaghan, 1 Bosw. (N. Y.) 459, 23 N. Y. 539; Kenney v, Ranney, 96 Mich. 617, 55 N. W. 982; Gutsch v. Mcllhargey, 69 Mich. 377, 37 N. W. 303; Kartell v. Tilghman, 99 U. S. 547, 25 L. Ed. 357; Curran v. Craig, 22 Fed. 101. A receiver who is himself free from fault is not personally liable for the negligence of his em- ployees in operating the business in his charge. McGhee v. Willis, 134 Ala. 281, 32 So. 301; Bartlett V. Cicero Light etc. Co., 177 III. 68, 69 Am. St. Rep. 206, 42 L. R. A. 715, 52 N. E. 339; Erskine v. Mcllrath, 60 Minn. 485, 62 N. W. 1130; Vanderbilt v. Central R. Co., 43 N. J. Eq. 669, 12 Atl. 188; Keat- ing V. Stevenson, 21 App. Div. 604, 47 N. Y. Supp. 847; Cardot v. Bar- ney, 63 N. Y. 281, 20 Am. Rep. 533; McNulta V. Lochridge, 141 U. S, 327, 12 Sup. Ct. 11, 35 L. Ed. 796. But if the receiver incurs ex- penses and charges without suffi- cient funds in his hands to meet them, he may become personally liable. Rogers v. Wendell, 54 Hun (N. Y.) 540, 7 N. Y, Supp. 781, 8 N. Y. Supp. 515, And a judgment against a re- ceiver must be against him offi- cially and payable from the re- ceivership funds. Woodruff v. Jewett, 37 Hun (N. Y.) 205, 115 N. Y. 267, 22 N. E. 156; Davis v. Duncan, 19 Fed. 477. The proceed- ing is in the nature of a pro- ceeding in rem. It seems, how- ever, that he may waive the right to be sued officially only. Camp V. Barney, 4 Hun (N. Y.) 373; Newell V. Smith. 49 Vt. 255. EFFECT OF APPOINTMENT AND DUTIES. 217 In other words, the damages resulting from the negli- gence of the agents or servants of a receiver are a charge upon the receivership estate of the character of operating expenses and are payable out of the net income or in case of a sale of the assets of the receivership out of the sale proceeds.^ Although a note may have been handed to a receiver that he might allow it as a mortgage debt, he promising to attend to it, and negligently failing to do so, he can not be held answerable as re- ceiver in a court of chancery for such neglect. The liability is a personal one solely, to be enforced at law. Keene v. Gaehle, 56 Md. 343. The liability of a receiver for the negligence or torts of his ser- vants and employees is not an individual one, but merely in an official capacity. McNulta v. Bnsch, 134 ni. 46, 24 N. E. 631; McNulta V. Lockridge, 137 111. 270, 31 Am. St. Rep. 362, 27 N. E. 452 (affirmed in 141 U. S. 327, 12 Sup. Ct. 11, 35 L. Ed. 796); Ersldne v. Mcllrath, 60 Minn. 485, 62 N. W. 1130; Gray V. Grand Trunk W. Ry. Co., 156 Fed. 736, 84 C. C. A. 392. In such case the liability is offi- cial. McNulta V. Lockridge, 137 111. 270, 31 Am. St. Rep. 362, 27 N. E. 452, 141 U. S. 327, 35 L. Ed. 796, 12 Sup. Ct. 11; McNulta v. Ensch, 134 111. 46, 24 N. E. 631; Combs V. Smith, 78 Mo. 32; Bon- ner V. Mayfleld, 82 Tex. 234, 18 S. W. 305; Texas & P. Ry. Co. v, Geiger, 79 Tex. 13, 15 S. W. 214. Damages for loss of property through the negligence of a re- ceiver in possession of a storage warehouse may be charged against the property when it is turned over to its owner. Shedd v. See- feld, 230 111. 118, 120 Am. St. Rep. 269, 13 L. R. A. (N. S.) 709, 82 N. E. 580. 8 Bartlett v. Cicero Light etc. Co., 177 111. 68, 69 Am. St. Rep. 206, 42 L. R. A. 715, 52 N. E. 339; Knickerbocker v. Benes, 195 111. 434, 63 N. E. 174. A claim for a tort as a rule ranks as an unsecured claim. Pennsylvania Steel Co. v. New York City R. Co., 165 Fed. 457. One claiming a right of action for a tort against a corporation in the hands of a receiver can not sue the receivers, either at law or in equity, for the damage so suf- fered by him. Healy v. Defiance City Bank, 160 111. App. 625; Healy v. Smith, 160 111. App. 627. Where the receiver of an insol- vent trust company continues, under order of the court, to col- lect for a bank the rents of a lot mortgaged to it, as the trust com- pany had done, the bank is not necessarily liable to a tenant from whom the rents are collected for the negligence of the receiver's employee in repairing the mort- gaged lot. Carlon v. City Savings Bank, 91 Neb. 790, 137 N. W. 852. The liability of a receiver fqr damages caused by the negligence of their servants in operating prop- erties under his control is gener- ally regarded as an official and 248 LAW OF RECEIVERS. The rule in this respect was stated in the following language in an early case:^ ''A receiver, as such, upon principle and authority, is not personally liable for the torts of his employees. Were he so liable, few men would take the responsibility of such a trust; it is only when he himself commits the w^rong, that he is held personally liable. The proceed- ing against him, as receiver, for the wrongs of his employees, is in the nature of a proceeding in rem, and not a personal liability. Knicker- bocker V. Benes, 93 111. App. 305. Under Rev. Stat., 1895, arts. 1472 et seq., relating to the application of funds in the hands of a receiver and the liability of property after redelivery, the owner will not be responsible for liabilities of the re- ceiver for torts on the redelivery of the property without sale, un- less the property is equal to such claims in value or such liability has been imposed on the owner by the decree as a condition of the return. Klrby Lumber Co. v. Cun- ningham, (Tex. Civ.) 154 S. W. 288. Rev. Stats., art. 3017, authorizing an action for the death of any per- son caused by the wrongful act, negligence, unskilfulness, or de- fault of another, does not author- ize an action against the receiver of a private corporation for death caused by his negligence. Parker v. Dupree, 28 Tex. Civ. 341, 67 S. W. 185. The judgment, therefore, should not be rendered against a receiver individually, but as receiver, pay- able out of the funds held by him in that capacity, in due course of administration of his receivership. McNulta V. Ensch, 134 111. 46, 24 N. E. 631; Robinson v. Kirkwood, 91 111. App. 54; Louisville South- ern Ry. Co.'s Receivers v. Tucker's Admr., 105 Ky. 492, 49 S. W. 314; Camp v. Barney, 4 Hun (N. Y.) 373; Eddy v. Prentice, 8 Tex. Civ. App. 58, 27 S. W. 1063. It is the settled doctrine of the federal courts that a receiver is not personally liable for injuries arising through negligent opera- tion of the property not due to his personal negligence, but an action against him for such injur- ies is in law one against the receivership, in which the judg- ment recovered can be enforced only against the property or funds in his hands, and which can not be maintained after the receiver- ship has been closed and the re- ceiver discharged. Gray v. Grand Trunk Western Ry. Co., 156 Fed. 736, 84 C. C. A. 392. 9 Davis v. Duncan, 19 Fed. 477, See, also. Farmers Loan & T. Co. V. Central R. Co., 7 Fed. 537, 2 Mc- Crary 181. The judgment for damages re- sulting from a tort committed by an employee of a receiver should be against the receiver in his official capacity, to be paid by him in the course of the administra- tion of the receivership. McNTulta v. Ensch, 134 111. 46, 24 N. E. 631. EFFECT OF APPOINTMENT AND DUTIES. 249 renders tlie property in his liands, as such, liable for com- pensation for such injuries." If the receiver commits a tort while acting beyond the scope of his authority, he will be personally liable there- for.^" However, a receiver is not liable for a tort com- mitted by the defendant prior to his appointment.^^ While a court of chancery appointing a receiver will throw around him its shield of protection in all necessary cases, yet it can not be recognized as a defense to a suit at law for a breach of any obligation or duty which was fairly and voluntarily assumed by him as receiver, that he is an officer of court acting under a decree of a court of chancery. The obligations and duties which the re- ceiver assumes are, in all cases, and like all other persons, to be measured by the nature and character of the busi- ness which he engages in. Thus it can not be contended that the receiver who is the mere custodian of property, answerable only for its safe keeping and due return when called upon for that purpose, occupies a similar position with like responsibilities to the receiver, who by virtue of his official position is placed in possession of, and is charged with the management and control of a railway where he by virtue of his undertaking assumes the func- tions of a common carrier, and where in his dealings he is constantly brought in contact with the public. In the latter case his responsibilities are largely increased. The 10 Curran v. Craig, 22 Fed. 101; N. W. 303; Kenney v. Ranney, Bank of Montreal v. Thayer, 7 Fed. 96 Mich. 617, 55 N. W. 982. 622, 2 McCrary 1; Kartell V. Tilgh- Where a receiver becomes a man 99 U S 547 25 L. Ed. 357- trespasser by reason of forcibly Barton v. Barbour, 104 U. S. 126, ^^^''""^ possession of property con- 9fi I FH 9,79 trary to an order restraining him from doing so, he will be liable And where a receiver wrongfully ^g ^^^j^ trespasser. Manning v. takes possession of property, he Monaghan, 1 Bosw. (N. Y.) 459. will become personally liable for ii Northern Pac. R. Co. v. Hef- the tort even though he acted lin, 83 Fed. 93, 27 C. C. A. 460; under his official authority. Gutsch Dillon v. Oregon etc. R. Co., 75 V. Mcllhargey, 69 Mich. 377, 37 Fed. 949, 250 LAW OF RECEIVERS, very nature of tlie business carries with it extraordinary duties and corresponding liabilities, and hence it is that courts are more disposed to charge tliis class of receivers with a greater degree of responsibility, and recognize in the public, and those dealing with them, greater pri\i- leges and greater facilities for relief, not only in matters purely ex contractu but more especially in matters ex delicto}^ Where the receivership estate is chargeable for the damages resulting from a tort, it is immaterial that suc- cessive receivers have been appointed, since the receiver- ship is continuous regardless of changes in the personnel of the receiver, who is merely the arm of the court. ^^ § 59. Right of Receiver to Make Repairs. The receiver derives his power, primarily, from the court, and his official action, duties, and responsibilities are measured by the scope of the order which, after his qualification, constitutes him receiver, and such supple- mentary orders and directions as he may subsequently receive in the due administration of the estate or matters in controversy. His discretionary powders are limited, as a rule, to those acts and transactions which are incident to the general scope of authority given to him. He is an offi.cer of the court, and in this sense has been considered the hand of the court, and as such he has been held bound to render to the court a strict account of his official action.^ As courts of equity, and those exercising equi- table jurisdiction, have extended their jurisdiction, along with the general growth of remedial jurisprudence, the functions of the receiver have been increased very mate- 12 Bliimenthal V. Brainerd, 3S Vt. i Chancellor Bland, in William- 402, 91 Am. Dec. 349; Sprague v. son v. Wilson, 1 Bland Ch. (Md.) Smith, 29 Vt. 421, 70 Am, Dec. 424. 418; Verplanck v. Mercantile Ins. 13 Knickerbocker v. Banes, 195 Co., 2 Paige (N. Y.) 438. 111. 434, 63 N. E. 174. EFFECT OF APPOINTMENT AND DUTIES. 251 lially as compared with receiversliips in the earlier stages of English and American courts.^ The receiver, occupying a position of perfect inde- pendence, so far as the parties are concerned, appointed by the court by reason of such relation, and reflecting as he does the impartiality of the court as between conflict- ing interests, is not the agent or special representative of the contestants or either of them. Neither the law nor the court will permit him in his administration to mani- fest the slightest inclination towards one party or the other. He is a trustee of the strictest character, conserv- ing the interests of all parties with special favors for none,^ and the property and funds confided to his care 2 "In the progress and growth of equity jurisdiction, it has be- come usual to clothe such officers with much larger powers than were formerly conferred." Mr. Justice Swayne in Davis v. Gray, 83 U. S. (16 Wall.) 203, 219, 21 L. Ed. 447, 452. 3 Day V. Postal Tel. Co., 66 Md. 354, 7 Atl. 608; Commonwealth v. Franklin Ins. Co., 115 Mass. 278; First Nat. Bank of Detroit v. E. T. Barnum Wire & Iron Works, 60 Mich. 487, 27 N. W. 657; Green v. Bostwick, 1 Sandf. Ch. (N. Y.) 185; Deyendorf v. Dickinson, 21 How. Pr. (N. Y.) 275; Curtis v. Leavitt, 1 Abb. Pr. (N. Y.) 274; Brown v. Northrup, 15 Abb. Pr. N. S. (N. Y.) 333; Corey v. Long, 43 How. Pr. (N. Y.) 492, 497; Brown v. War- ner, 78 Tex. 543, 22 Am. St. Rep. 67, 11 L. R. A. 394, 14 S. W. 1032; Davis V. Duke of Marlborough, 2 Swanst. 108; Portman v. Mill, 8 L. J. Ch. N. S. 161. The receiver does not in any special sense represent the party upon whose motion he is ap- pointed, more than any other party to the cause. He owes an equal duty to all, and is responsible to the court alone. Baker v. Backus Adm'r, 32 111. 79; Beverley v. Brooke, 4 Gratt. (Va.) 187, 208; First Nat. Bank of Detroit v. E. T. Barnum Wire & Iron Works, 60 Mich. 487, 27 N. W. 657; Union Nat. Bank v. Bank of Kansas City, 136 U. S. 223, 34 L. Ed. 341, 10 Sup. Ct. 1013; Lottimer v. Lord, 4 E. D. Smith (N. Y.) 183; Snow V. Winslow, 54 Iowa 200, 6 N. W. 191. He is not to be controlled by the representatives of any party to the suit. Iddings v. Bruen, 4 Sandf. Ch. (N. Y.) 417. His powers and duties are meas- ured by the order of court making the appointment and the estab- lished rules and practice of such court. Battle v. Davis, 66 N. C. 252. See. also, Skinner v. Maxwell, 66 N. C. 45, 68 N. C..400; Booth v. Clark, 58 U. S. (17 How.) 322, 15 L. Ed. 164; Green v. Bostwick, 1 Sandf. Ch. (N. Y.) 185; Hunt v. Wolfe, 2 Daly (N. Y.) 298, 303; 252 LAW OF RECEIVERS. are in custodia legis, and these it is his duty to guard and preserve with scrupulous care.^ This position of trust and independence he continues to occupy until the litigation is brought to an end, and it is judicially ascertained to whom the property or its possession rightfully belongs, after which he becomes the representative of such successful party; or where the property is sold for the benefit of creditors, he is the hand of the court and the agent of the creditors in the distri- bution of the proceeds. He is in no sense, however, the representative of those who are not parties to the suit, or become such during its progress.^ Van Rensselaer v. Emery, 9 How. Pr. (N. Y.) 135; Corey v. Long, 43 How. Pr. (N. Y.) 492, 497; Deven- dorf V. Dickinson, 21 How. Pr. (N. Y.) 275; Kaiser v. Kellar, 21 Iowa 95; Snow v. Wlnslow, 54 Iowa 200, 6 N. W. 191; Hooper v. Winston, 24 111. 353; EUicott v. Warford, 4 Md. 80; Williamson v. Wilson, 1 Bland Ch. (Md.) 418; Cobum V. Ames, 57 Cal. 201. Where property is placed in the hands of a receiver, upon a decree for the plaintiff, the receiver's duties, as such, are at an end, and he holds merely as trustee for the plaintiff, and the goods can be levied on in his hands, for the plaintiff's debts. Very v. Watkins, 64 U. S. (23 How.) 469, 16 L. Ed. 522. And see Lottimer v. Lord, 4 E. D. Smith (N. Y.) 183; In re Colvin's Estate, 3 Md. Ch. 278; Ellicott V. W^arford, 4 Md. 80; King V. Cutts, 24 Wis. 627; Meier V. Kansas Pac. Ry. Co., 5 Dill. 476, Fed. Cas. No. 9395. In respect to the dissolution of corporations, where by the act of dissolution the corporation in ef- fect makes an assignment for the benefit of its creditors, in which case the receiver takes only the rights of the corporation such as could be asserted in its own name, and therefore in such case is the representative of the corporate body itself and not of Its creditors or shareholders. Republic Life Ins. Co. v. Swigert, 135 111. 150, 12 L. R. A. 328, 25 N. E. 680. 4 Ashurst V. Lehman, 86 Ala. 370, 5 So. 731; Gayle v. Johnson, 80 Ala. 388; Cobum v. Ames, 57 Cal. 201, Hooper v. Winston, 24 111. 353; Corey v. Long, 43 How. Pr. (N. Y.) 492, 497; Devendorf v. Dickinson, 21 How. Pr, (N. Y ) 275; Hunt v. Wolfe, 2 Daly (N. Y.) 298, 303; Skinner v Maxwell, 66 N. C. 45, 68 N. C. 400; Battle v. Davis, 66 N. C. 252. 5 Howell V. Ripley, 10 Paige (N. Y.) 43. In a case where a creditor's bill is filed in behalf of the complainants therein, and not in behalf of other creditors, the receiver is not necessarily a trus- tee for the benefit of all creditors, but for the benefit of those cred- itors in whose behalf he is ap- pointed. Young V. Clapp, 147 111. EFFECT OF APPOINTMENT AND DUTIES. 253 In handling the receivership, a receiver should exercise the same degree of discretion which an ordinarily pru- dent man of business exercises in the management of his own affairs.*^ From the general nature of the duties of a receiver to preserve the property we believe that the authority to make such reasonable repairs to the property as would appear to be necessary to prevent the property from de- preciation and decay would be a duty on the part of the deceiver. But the power of the receiver to make repairs without an order of court was under the early decisions regarded as very limited,' although allowances for re- pairs were allowed where it was shown that the expend- itures were essential to the preservation of the property or for the lasting benefit of the estate,^ or where the 176, 32 N. E. 187, 35 N. E. 372; Russell V. Chicago Trust & Sav. Bank, 139 111. 538, 17 L. R. A. 345, 29 N. E. 37; Bostwick v. Menck, 4 Daly (N. Y.) 68; Manley v. Ras- siga, 13 Hun (N. Y.) 288. 6 McKennon v. Pentecost, 8 Okla. 117. 56 Pac. 958. 7 Hooper v. Winston, 24 111. 353; Attorney General v. Vigor, 11 Ves. Jr. 563; Ex parte Hilbert, 11 Ves. Jr. 397. s Central Trust Co. v. Wabash etc. R. Co., 52 Fed. 908; Thornhill V. Thornhill, 14 Sim. 600; Blunt v. Clitherow, 6 Ves. 799; Attorney General v. Vigor, 11 Ves. 563. But in Wyckoff V. Scofield, 103 N. Y. 630, 9 N. E. 498, it was held that a receiver in a foreclosure suit has no authority without the consent of the court to make re- pairs. In Edee v. Strunk, 35 Neb. 307, 53 N. W. 70, an order appointing a receiver was regular on its face and apparently within the juris- diction of the court and therefore prima facie valid under which the receiver collected money and ap- plied the same in payment of taxes and for repairs which were necessary, such an order is a suf- ficient justification in a suit brought against the receiver to re- cover rents collected by him after the order appointing him has been vacated for want of sufficient no- tice of the application. If, how- ever, the receiver claims rights or property he, in such case, is re- quired to show a valid appoint- ment, though it is unnecessary to show each step taken in the pro- ceeding. (See Johnson v. Powers, 21 Neb. 292, 32 N. W. 62, distin- guished.) Cf. In re O'Connor, 65 Hun 620, 19 N. Y. Supp. 971, 47 N. Y. St. Rep. 415; Rockwell v. Merwin, 45 N. Y. 166. A receiver is not authorized without a previous order of court to incur any expense on account 254 LAW OF RECEIVERS. receiver acted in good faith for the best interests of the estate or where it was necessary to act quickly in order to prevent damages.^ It may be said in a general way that before the court will make an allowance for such jjurpose without an order previously authorizing expenditures, it must appear that had application been made the court A\ithout doubt would have granted the order in the first instance.^" If, however, he spends any large amount without the authority of the court he does so with a risk of having such items as do not meet with the court's approval dis- allowed in his accounts,^^ and if in the making of repairs he disregards the orders of the court not to spend money on repairs, his payments will be disallowed.^^ The proper practice for the protection of the receiver is to provide in general terms in the order of appoint- ment of the receiver for the making of repairs, and, of course, in the event of the making of substantial repairs to obtain an order of court authorizing them.^^ The power of the court to authorize the receiver to make repairs, and charge the expense to the estate, is of property in his hands beyond n Graham v. Noakes (1895), 1 what is absolutely essential to its Ch. 66. preservation and use as contem- ^2 See Blunt v. Clitherow, 6 Ves. plated by his appointment. Cow- '^^• _,, . TTDTTDu 13 Where the receiver of a rail- drey v. Galveston, H. & H. R. R. , . ^ ., , * ^u . ^ „„ . -.«,-« I'oad IS by the order of the court Co., 93 U. S. 352, 23 L. Ed. 950. ^. . ^ \. *• ^v, ^ ^ „ ' directed to continue the opera- oThe court may leave to the ^j^^^g ^^ ^j^^ ^.^^d and keep the discretion of its receiver the price property in repair, he may make to be paid for work which he is g^g^ repairs without further or- authorized to contract for. Girard (jers of the court. Mercantile Life Ins. A. & T. Co. v. Cooper, Trust etc. Co. v. Southern Iron 162 U. S. 529, 40 L. Ed. 1062, 16 ^^r Line, 113 Ala. 543, 21 So. 373. Sup. Ct. 879; Heffron v. Milligan, j^.^ order to change the location 40 111. App. 291; Thornhill v. ^j ^ railroad and the building of Thornhill, 14 Sim. 600; McCartney ^ bridge should be made only upon V. Walsh, Hayes 29, note. the report of a master showing. 10 Brown v. Hazlehurst, 54 Md. the necessity. Hand v. Savannah 26. etc. R. Co., 10 S. C. 406. EFFECT OF APPOINTMENT AND DUTIES. 255 much more liberal, and necessarily must be, in case of receiverships of railways, where not only the interests of the parties are involved, but the convenience of the public is to be conserved.^^ A railroad receiver may con- tract with another company for exchange of track facih- ties.i^ But there is a limitation on the power of the receiver to make contracts, and he has no right to make a contract involving large outlays that may extend be- yond the lifetime of the receivership.^*^ § 60. Expenditures for Supplies, Labor, and the Like. ^It may be stated as a general proposition that the ordi- nary outlays where the amounts are small, and which are necessary to preserve and protect the property from loss or injury, may be made by the receiver as fairly within the line of discretion which is necessarily allow^ed to him, intrusted, as he is, with the faithful and successful man- agement of the property.^ In cases, however, involving 14 Hoover v. Montclair & G. L. lace v. Loomis, 97 U. S. 146, 24 R Co, 29 N. J. Eq. 4; Stanton v. L. Ed. 895. Alabama & C R Co., 2 Woods 506, i Kneeland v. American Loan & Fed Cas No. 13296; Bright v. T. Co., 136 U. S. 89, 34 L. Ed. 379, North 2 Phill 216; Jerome v. Mc- 10 Sup. Ct. 950; Union Trust Co. Carter 94 U S 734 24 L. Ed. 136; v. Souther, 107 U. S. 591, 27 L. Ed. Morison v Morison, 7 DeG. M. & 488, 2 Sup. Ct. 295; Miltenberger Q 214 V. Logansport, C. & S. W. R. Co., 'is Jourdan v. Long Island R. Co., 106 U. S. 286, 289, 27 L. Ed. 117, 12 Hun (N Y) 657; see further 119, 1 Sup. Ct. 140; Wallace v. under title of Railroads. Loomis, 97 U. S. 146, 24 L. Ed. 16 Chicago Deposit Vault Co. v. 895; Missouri Pac. R. Co. v. Texas McNulta, 153 U. S. 554, 38 L. Ed. & P. Ry. Co., 41 Fed. 319. 819 14 Sup. Ct. 915. In Teutonia Bank etc. Co. v. In Barton v. Barbour, 104 U. S. Security Brewing Co., 137 La. 1046, 126 26 L. Ed. 672, the court says: 69 So. 833, the court said: "It 'has come to be settled law "The argument that the provi- that a court of equity may, and in sion in act 212 of 1910 authorizing most cases ought to authorize its a receiver to borrow money and receiver of a railroad property to issue certificates therefor, to be keep it in repair, and to manage taxed as costs, excludes the idea and use it in the ordinary way that he may incur debts for neces- until it can be sold to the best sary supplies, does not appear to advantage of all interested." Wal- us to be well founded. The law- 256 LAW OF RECEIVERS. large outlays his business sagacity would suggest, and it is the duty of the receiver to apply to the court for its sanction and authority for the contemplated expenditure,^ Assuming this application to have been made, it becomes a matter of importance to determine the scope of power the court will exercise in authorizing its receiver to make expenditures upon the trust property in the shape of supplies, labor, improvements, etc. maker, we think, proceeded upon the theory that a receiver to whom authority is granted to con- duct as that of a going concern the business of a corporation of which he is placed in charge would have the right to incur debt for the material and supplies neces- sary to the business as an incident to that authority, but that, in the event of his being obliged to bor- row money, something more spe- cific in the way of a grant might be required, either for the borrow- ing or the issuance of the certifi- cates evidencing the transaction, or, as is quite likely, it may have been considered that, whilst au- thority to buy supplies on credit might be safely conferred, author- ity to borrow money had best be exercised under the eye of the court in each instance. Whilst, therefore, the right of one who should lend money to a receiver without obtaining the certificate required by the statute to recover from the receivership may well be doubted, that fact does not bear upon the right of the seller of necessary supplies so to recover, since, as we have stated, the exer- cise of the right by the receiver to buy such supplies is incidental to <^he discharge of the duty im- posed upon him." In Kneeland v. Bass Foundry & Mach. Works, 140 U. S. 592, 35 L. Ed. 543, a claim was allowed for supplies furnished to a receiver, appointed on the application of a judgment creditor, and ordered to be paid from the proceeds of sale, where so far as the record showed that was the only fund available for its payment and where the sup- plies were necessary for the con- tinued operation of the road, and had gone into the general prop- erty covered by the mortgage, which was sold at the foreclosure sale, upon the authority of Fos- dick V. Schall, 99 U. S. 235, 25 L. Ed. 339; Miltenberger v. Lo- gansport, C. & S. W. R. Co., 106 U. S. 286, 27 L. Ed. 117, 1 Sup. Ct. 140; Union Trust Co. v. Souther, 107 U. S. 591, 27 L. Ed. 488, 2 Sup. Ct. 295; Wallace v. Loomis, 97 U. S. 146, 24 L. Ed. 895; Burnham V. Bowers, 111 U. S. 776, 28 L. Ed. 596, 4 Sup. Ct. 675. A temporary receiver is not liable as such on a contract for the employment of a truckman; where he has not been authorized to make such contract. Meyer v. Lexow, 1 App. Div. 116, 37 N. Y. Supp. 67. 2 Cowdrey v. Galveston, H. & H. R. Co., 1 Woods 331, Fed. Cas. No. 3293. EFFECT OF APPOINTMENT AND DUTIES. 257 The right to incur such expenditures being curbed by the limitation that they be reasonable and essential for the preservation of the property, it necessarily follows that each case must be determined by a consideration of the nature of the property constituting the receivership estate and the general purpose of the receivership. The question naturally arises in connection with the operation of the receivership property as a going business. § 61. Conducting the Receivership as a Going Business. Both in England and this country, the law of receiver- ship has been extended by statutory enactment to many subjects, not pre\dously embraced in the ordinary chan- cery jurisdiction, and the powers, duties, and relationship of the receiver have been likewise greatly increased, and in many cases, particularly with regard to insolvent cor- porations, he is vested with all the property and effects of the corporation, the power to sell and dispose of the same and distribute the proceeds to its creditors and stockholders. The functions of this class of receivers are sui generis and a resort to the statute must be had in order to ascertain the extent of their powers. / Considerable confusion exists amongst the decisions in respect to the right of a court to conduct the receiver- ship as a going concern, but we believe that the principle governing the rule to be followed in such cases is of such a clear-cut character that no difficulty ought to exist in applying it to concrete cases. The principle which should always be adhered to in such circumstances is that the main purpose of the receivership is the preservation of the property constituting the receivership estate. If the business in the hands of the receivership is one of such a nature that a cessation of business will result in a loss of the property or a great depreciation in its value, the court should direct the receiver to continue such opera- 1 Roc. — 17 258 LAW OF RECEIVERS. tion,^ otherwise and ordinarily a receiver does not con- (^ tinue the business as a going one indefinitely.. Such a 1 The case of Appeal of Pramuk, 250 Pa. 45, 95 Atl. 326, is an in- stance where the receiver of a brewing company which was "manufacturing and selling malt and brewed liquors," was author- ized by the court to carry on the business and allowed to borrow $25,000 to be used in replenishing stock and supplies and renewing equipment essential to continue the business as a going concern. The business was carried on for thirty-five months, when it was ad- judged a bankrupt in the federal court. The bankruptcy court in In re Consumers Albany Brewing Co., 216 Fed. 988, with the consent of more than 90 per cent of the bond- holders, consented to an order directing the trustee to run a brewery as a going concern on the ground that it was essential to the protection and preservation of the estate. An order authorizing a receiver to borrow given sums of money to carry on the business does not entitle him to purchase goods on credit in excess of such amount. Haines v. Buckeye Wheel Co., 224 Fed. 289, 139 C. C. A. 525. The object of appointing a re- ceiver is to preserve the property for the benefit of all parties inter- ested, and this object is some- times best attained by continuing a business, which will be done where the interests of all parties will be best preserved by doing so. Knickerbocker v. McKindley Coal etc. Co., 172 111. 535, 64 Am. St. F^ep. 54, 50 N. E. 300. A receiver appointed on appli- cation of a subscriber to secure the location of a factory, for the purpose of protecting the interests of the subscriber, should not be authorized to continue the busi- ness generally, but only to collect debts and protect the property. Vance v. Shiawassee Circuit Judge, 102 Mich. 342, 60 N. W. 761. The receivership of an insolvent company was created at the in- stance and for the benefit of its bondholders though the bill there- for was filed by the trustees for creditors, to whom it made an as- signment, the expenses of the ef- fort to carry on the business through the receivers will be pre- ferred to the claim of the bond- holders, because of having ob- tained release of a steamer of the company from a libel, though the decree authorizing the receivers to obtain the release provided the bondholders should be subrogated to the right of the libelant. Jack- son Coal & Coke Co. v. Phillips Line, 114 Va. 40, 75 S. E. 681. A court of equity is not in gen- eral authorized to empower a receiver of a mere private corpor- ation, having no duty to perform a service of a public nature, to incur liabilities in the operation of the property of the corporation, and to give such liabilities priority over existing lien-holders who are not parties to the receivership proceedings, and have not con- sented to or acquiesced therein, in the absence of some special equity in favor of general cred- itors. But in respect to railroad and other public service corpora- tions in the operation of which the EFFECT OF APPOINTMENT AND DUTIES. 259 condition would doubtless arise where the value of the business consists largely in its good will or location as a rublic have an interest, where the duty to preserve the property and the public interest requires a con- tinuance of the operation, and per- haps in other peculiar and special cases, owing to the nature of the I)roperty and the rights of the par- ties therein, a court of equity may, in the exercise of an extraordinary power committed to it for the pub- lic good, direct its receiver to maintain and operate the property of the corporation. Knickerbocker Trust Co. v. Green Bay Phosphate Co., 62 Fla. 519, 56 So. 699. If a manufacturing concern with a quantity of raw material is in re- ceivership, court may direct ac- cumulated raw material manufac- tured into marketable product and to this end can authorize receiver to contract debts. American Pig Iron etc. Co. v. German, 126 Ala. 194, 85 Am. St. Rep. 21, 28 So. 603. A receiver acting as manager of a hotel is not answerable for a small sum of money loaned to a guest. Heffron v. Rice, 149 111. 216, 41 Am. St. Rep. 271, 36 N. E. 562. In Truman v. Redgrave, 18 Ch. D. 547, the court appointed man- agers to carry on the business of a hotel. A receiver who, without an or- der of court, employs a person to manage a hotel owned by the com- pany over whose property he is receiver, and afterwards leases it to such manager without notice to a person furnishing the hotel with supplies, becomes personally liable. Sayles v. Jourdan, 50 Hun 604, 2 N. Y. Supp. 827, 19 N. Y. St. Rep. 349. A managing receivership of a private business corporation is never undertaken, except with the view of winding up its affairs and the sale of its property; the busi- ness being taken over and con- tinued in order that the whole may be disposed of in the end as a going concern. And where such receivers have conducted the busi- ness for eleven months at a loss, contracting a large indebtedness which they have no means of pay- ing, and who failed to keep cost sheets which would have shown the condition of the business and as were kept by like concerns, will be charged with personal liability for so much of such indebtedness as might have been prevented by proper care and attention to the conduct of the business. Gutter- son & Gould V. Lebanon Iron etc. Co., 151 Fed. 72. Where a receiver of a corpora- tion is managing the property with a view to primary operation and contingent liquidation instead of the opposite, the remedy is by proceedings to compel him to per- form his duty. Burton v. R. G. Peters Salt & Lumber Co., 190 Fed. 262. The court appointing a receiver may not authorize the receiver to continue the business, in the ab- sence of consent of prior contract lien creditors. Stacy v. McNich- olas, 76 Ore. 167, 144 Pac. 96, 148 Pac. 67. A court can not, by means of a receivership in aid of execution, conduct the business of a private partnership as it might that of a railroad or other business charged with a public duty. First Nat. 260 LAW OF RECEIVERS. going business at a particular place or in its organized sales system. A condition which would result in great Bank v. Cook, 12 Wyo. 492, 2 L. R. A. (N. S.) 1012, 76 Pac. 674, 78 Pac. 1083. A receiver appointed to take charge of a stock of groceriea pending litigation can not conduct a general grocery business tliere- with, unless specifically ordered by the court to do so. Face v. Hall, 183 Mich. 22, 148 N. W. 777. In United States Inv. Corp. v. Portland Hospital, 40 Ore. 523, 56 L, R. A. 627, 64 Pac. 644, 67 Pac. 194, a receiver was appointed over a hospital and directed to operate it. The receiver's possession of property does not justify him, without an order of court ex- pressly authorizing him, or the business is such as to impera- tively require it, to open a busi- ness with the property or moneys in his hands. Hence he has no authority unless expressly author- ized by the court, or the business is such as to imperatively require him, to open a drug business with the property or moneys in his hands and employ therein his son, who is not a druggist, and run a physician's office in connection therewith. Terry v. Martin, 7 N. M. 54, 32 Pac. 157. Leave to continue the business was ordered in the following cases: Dayton v. Wilkes, 17 How. Pr. (N. Y.) 510; Graham v. Graham, 2 Vict. Rep. 145. In Cake v. Mohun, 164 U. S. 311, 17 Sup. Ct. 100, 41 L. Ed. 447, a case where the expenditures of a receiver in operating a hotel weie given precedence over a debt se- cured by mortgaso, the Supreme Court of the United States said: "While, as a general rule, a re- ceiver has no authority, as such, to continue and carry on the busi- ness of which he is . . . receiver, there is a discretion on the part of the court to permit this to be done when the interests of the parties seem to require it; and in such cases his power to incur ob- ligations for supplies and ma- terials incidental to the business follows as a necessary incident to the office," citing Barton v. Bar- bour, 104 U. S. 126, 26 L. Ed. 672; Thompson v. Phenix Ins. Co., 136 U. S. 287, 10 Sup. Ct. 1019, 34 L. Ed. 408. The conditions imposed by act No. 159 of 1898 and No. 212 of 1910 on a receiver's exercise of authority to borrow money, held not to prevent him from incurring debts necessary to carry on the brewing business placed in his hands. Teutonia Bank & Trust Co. V. Security Brewing Co., 137 La. 1046, 69 So. 833. In Roberts v. Bowen Mfg. Co., 169 N. C. 27, 85 S. E. 45, the court said: "The title of a receiver re- lates only to the time of his ap- pointment, and valid liens existing at that time are not divested thereby. Bank v. Western Caro- lina Bank, 127 N. C. 432, 433, 37 S. E. 461; Pelletier v. Greenville Lumber Co., 123 N. C. 596, 68 Am. St. Rep. 837, 31 S. E. 855; Fisher v. Bank, 132 N. C. 776, 44 S. E. 601; Kneeland v. American Loan & Trust Co., 136 U. S. 89, 34 L. Ed. 379, 10 Sup. Ct. 950. In Interna- tional Trust Co. v. Decker Bros., EFFECT OF APPOINTMENT AND DUTIES. 261 loss might also occur in mining operations, caused by the filling of the mine with water or by the drilling of other ioil wells near oil wells in the hands of a receiver, thereby / causing a migration of the oil to such new wells. Another 'distinction which is well recognized is the operation of public utilities. In such cases the right of the public to have the public utility operated as a going concern has been universally regarded as a valid reason for the issu- ance of receiver's certificates for the continuance of the business. A detailed discussion of the decisions in respect to public utilities and mining operations will be under- taken in the sections relating to those topics. The ques- tion also crops out in the cases involving the issuance of receiver's certificates. In fact, the propriety of continu- ing the business is generally the question which is the fundamental one when a request is made by the receiver to issue receiver's certificates, since the desirability of continuing the business is generally apparent where the assets of the receivership are sufficient for that purpose without a resort to receiver's certificates. Another ques- tion wliich often arises in this connection is the one whether the expenses incidental to the operation of the business should take priority over contract liens, such as mortgages and the like, or be payable only out of the income. In this respect the rule is that-Mcpenses incurred 152 Fed. 78, 81 C. C. A. 302, 11 business, and to make the same a L. R. A. (N. S.) 152, the court, first and paramount lien upon the quoting from International Trust corpus of the property, superior Co. V. United Coal Co., 27 Colo. to that of prior lien-holders, with- 246, 60 Pac. 621, 83 Am. St. Rep. out their consent.' Union Trust 59 said: Co. v. Southern Sawmills & L. '■ 'We are of opinion that, in ad- Co., 166 Fed. 193, 92 C. C. A. 101." ministering the affairs of an ordi- A receiver can not, without dis- nary insolvent private business cretion of the court, incur any ex- corporation for which a receiver pense beyond what is absolutely has been appointed, a court of essential to the preservation and equity has not the power to au- use of the property. Cowdrey v. thorize the receiver to incur in- Galveston H. & H. R. R. Co., 93 debtedness for carrying on the U. S. 352, 23 L. Ed. 950. 262 LAW OF RECEIVERS. by the receiver in tlie operation of the property not necessary for the care and preservation of the property should be paid as far as possible from the income of the property, but any balance of the operating expenses must share with the general expenses of the receivership.^ It is, however, the duty of receivers on ascertaining that the business of the receivership is being conducted at a loss to make no payments to its creditors except pro rata, and for preferences given after that time they will be held personally accountable to other creditors.^ 2 Stacy V. McNicholas, 76 Ore. 167, 144 Pac. 96, 148 Pac. 67. The appointment of a receiver to protect and preserve property pending litigation does not ipso facto affect the status of liens existing upon the property; but, where a receiver is lawfully ap- pointed at the instance and for the benefit of lien creditors, all proper charges, expenses, and lia- bilities incurred as incident to duly conferred receivership powers and duties may be a charge upon- the earnings and corpus of the property superior to the lien creditors who take part in or expressly or impliedly con- sent to or acquiesce in the receivership proceedings. Knick- erbocker Trust Co. V. Green Bay Phosphate Co., 62 Fla. 519, 56 So. 699. In Ellis V. Vernon Ice, Light & Water Co., 86 Tex. 109, 23 S. W. 858, the Supreme Court of Texas said: "The conduct of a business that has proved insolvent is not likely to yield a net income, and, if the creditor of the receiver could only look to such income for the satis- faction of their claims, he would be unable to obtain credit, and the operation of the works would be impracticable. Accordingly, the rule is that the expense of admin- istering and preserving the prop- erty is to be charged, first, upon the net income, and, if that be not sufficient, then upon the property itself or its proceeds upon sale." In First National Bank v. Ewing, 103 Fed. 168, 43 C. C. A. 150, the United States Circuit Court of Appeals held that receiver's cer- tificates and operating expenses for which no certificates had been issued were equally entitled to precedence over the claims of the holder of first and second mort- gages on a railroad, and that, though the bank, holder of the mortgage bonds, was not a party to the proceeding in which the re- ceiver was appointed, its president was aware of the receivership and of the application for authority to issue certificates, and was bound by that action. 3 Gutterson & Gould v. Lebanon Iron & Steel Co., 151 Fed. 72. Where a receiver continues without the court's order, the oper- ations of the company placed in its charge, as a going concern, and thereby sustains a loss, such loss must be borne by the receiver. EFFECT OF APPOINTMENT AND DUTIES. 263 Where a receiver is directed by the court to contiime the business of the receivership, he will be obligated to pay as part of the operating expenses of the business pay^ ments to an injured employee due him under a work- men's compensation act, since such payments are re- garded as part of the compensation due him for services rendered and in legal effect not distinguishable from ordinary wages.^ and the amount of the same de- ducted from his commissions. Vil- lere v. N§w Orleans Pure Milk Co., 122 La. 717, 48 So. 162. 4 Wood V. Camden Iron Works, 2'21 Fed. 1010. In the above case the court said: "Before the appointment of the receiver the defendant corporation had become liable to make certain weekly payments to some injured employees and to the representa- tives of some who had been killed, in accordance with the pro- visions of the New Jersey em- ployers' liability act (P. L. 1911, p. 134). As respects one employee, payments were required to be made pursuant to a judgment of the Common Pleas Court of Cam- den County, N. J.; but no suits had been instituted for the others. The defendant corporation made the payments to which the per- sons were respectively entitled, until the receiver was appointed. The receiver has now petitioned the court for instructions as to whether he should continue to make these payments. "It is urged, on behalf of the receiver, that as long as he con- tinues to run the business of the defendant he is obligated, under the provisions of the above-men- tioned statute, to continue to make the weekly payments, I think his contention is correct. The act provides that, when an employer and an employee shall, by agreement, either express or implied (as therein provided), ac- cept the provisions of section 2 of the act, compensation for per- sonal injuries, or for the death of an employee, shall be made by the employer without regard to the negligence of the employer, according to the schedule con- tained in the act. The schedule provides for weekly payments, based on the amount of the em- ployee's wages and the extent of the injury received. It has been held by the Supreme Court of New Jersey, in Interstate Telephone & Telegraph Co. v. Public Service Electric Co., 86 N. J. L. 26, 90 Atl. 1062, that the obligations and rights thus created are contrac- tual, and that the payments which the act requires to be made to the injured employee, or to his repre- sentatives in the event that he is killed, are part of the compen- sation of the employee for ser- vices rendered, and, in legal effect, are indistinguishable from ordi- nary wages. Mr. Justice Swayze, in writing the opinion of the Su- preme Court, said (on page 1063) : " 'It [the compensation provided for in the act] is none the less compensation for labor done be- 264 LAW OF RECEIVERS. The powers of active receivers, to wliom are confidod the management of going concerns, are necessarily much broader than tlie powers of passive receivers, who merely preserve the property, collect the assets, and report the fund to the conrt for distribution.^ cause the statute directs that its paj'ment shall be distributed over a certain number of weeks in the future.' "I think that the logical result of such construction is that the contract of employment, provided for in the statute, is to pay, in consideration of work to be done, so much during the time the em- ployee is working, and, if he shall be injured, his wages shall be con- sidered to have been increased in the proportions allowed by the statute for the time therein pro- vided, the excess to be payable at certain designated periods in the future. "Paragraph 8 of section 2 of this act provides that: " 'Such agreement . . . shall bind the employee himself, and for compensation for his death shall bind his personal representatives, his widow and next of kin, as well as the employer, and those con- ducting his business during bank- ruptcy or insolvency.' "As before shown, one of the terms of the agreement is that, if the employee shall be injured, the employer, in consideration of the work which the employee has done, shall make the deferred pay- ments at specified times. The act specifically provides that the agreement shall bind 'those con- ducting the employer's business during bankruptcy or insolvency.' it therefore follows that a re- ceiver, who is conducting the busi- ness of the original employer dur- ing insolvency, as in this case, is, by the terms of the act, bound to make the payments which the employee (or his representatives) was entitled to receive from the original employer during the time that he conducts the business. It is thus a burden placed upon the continuance of the business. If, in any given case, it is deemed proper that the business of the employer should be continued dur- ing bankruptcy or insolvency, or any part thereof, the law provides that the agreement which was originally entered into between the employer and the injured em- ployee, and every part thereof, must be fulfilled by the receiver to the same extent as the em- ployer would have been compelled to fulfill it. It therefore follows that, as the requirement to make the weekly payments to the em- ployee, or his representatives, is a burden cast by the law upon those who continue the business, the payments to be made by the receiver must be classed as oper- ating or administrative expenses. "The receiver will therefore be instructed to continue to make the payments as long as he continues to conduct the business, such paj'- ments to be considered operating expenses, and paid in the same way as wages of other employees are paid." 5 State Bank of Virginia v. Do- mestic Sewing Mach. Co., 99 Va. EFFECT OP APPOINTMENT AND DUTIES. 265 But even though the receiver is empowered to under- take new enterprises, such power should be exercised with great caution and only under exceptional circumstances.® Funds to operate a private business should not ordi- narily be authorized if these funds, represented by receiver's certificates, are to be given priority over bond- holders' mortgage liens. '^ In some instances receivers have been empowered to complete construction work under way at the time of the appointment of the receiver, or start new enterprises,* but most of such cases arise in connection with the com- pletion of public utilities which were not completed for lack of funds and for the completion of which receiver's certificates are issued. An order appointing a receiver of a corporation, with power to administer its affairs for the best interest of all, does not confer upon the receiver power to continue the operations of the corporation and incur liabilities as a going concern, but such power must be given in express and precise language.^ 411, 86 Am. St. Rep. 891, 39 S. E. manufacture of proprietary arti- 141- cles involving secret formulas. 6 Fidelity Title & Trust Co. v. Merrell v. Pemberton, 62 Ga. 29. Kansas Natural Gas Co., 219 Fed. The court will not as a rule 614. order its receiver to operate a T Central Trust & Sav. Co. v. business which has not yet been Chester County Electric Co., 9 Del. commenced. Merrell v. Pember- Ch. 247, 80 Atl. 801. ton, 62 Ga. 29. sit is sometimes necessary for Where a construction company the receiver to complete contracts became insolvent, and a receiver partially executed. Taylor v. was appointed, he may continue Neate, L. R. 39 Ch. Div. 538. See, the work, and persons furnishing also, Meridian News & Pub. Co. v. labor or material at his request Diem & W. Paper Co., 70 Miss. are entitled to be first paid. Gui- 695, 12 So. 702. marin & Co. v. Southern Life & Nor in a matter involving the Trust Co., 100 S. C. 12, 84 S. E. violation of a contract will the 298. court through its receiver set up o Villere v. New Orleans Pure a new business, or engage in the Milk Co., 122 La. 717, 48 So. 162. 266 LAW OF RECEIVERS. The order in such cases should be broad in its terms so as to give the receiver the large discretionary powers / necessary for the proper handling of a business enter- prise. And it is, of course, more advisable to obtain gen- eral or special orders authorizing the receiver to conduct the receivership as a going business in advance of doing so than to take the risk of having the expenses incidental .^thereto refused on an accounting. ^*^ Where the receiver is directed to continue the business of the receivership, the court will not interfere with the exercise of his discretion in the emplojnuent of the agents and servants for that purpose unless he abuses such discretion.^^ Where the order of the court merely authorizes the receiver to borrow a definite sum for the purpose of con- tinuing the business, the receiver's powers in the prose- cution of the business are limited, and it was held that he has no authority to make purchases on credit and bind the estate in his hands for the payment of the debts so contracted without the express authority of the court.^^ It is different, where the order of the court directing him to continue the business does not contain language limiting his powers in the prosecution of the business. ^^ 10 Allen V. Hawley, 6 Fla. 142, 13 The power to continue busi- 164, 63 Am. Dec. 198; Lehigh Coal ness of a bankrupt corporation & Nav. Co. V. Central R. Co., 41 through a receiver or trustee im- N. J. Eq. 167, 3 Atl. 134; Jackson plies the power to make debts, to V. De Forest, 14 How. Pr, (N. Y.) provide for their payment, and to 81; Heatherton v. Hastings, 5 Hun borrow money for urgent necessi- (N. Y.) 459; Marten v. Van ties. In re Erie Lumber Co., 150 Schaick, 4 Paige (N. Y.) 479; Fed. 817. Langdon v. Vermont & C. R. Co., Where a receiver is appointed 54 Vt. 593 ; Clarke v. Central R. R. to run a hotel and make such pur- & B. Co., 66 Fed. 16; Piatt v. Phil- chases as may be necessary, he adelphia & R. R. Co., 65 Fed. 660; has implied authority to purchase Continental Trust Co. v. Toledo, on credit, in the absence of any St. L. & K. C. R. Co., 59 Fed. 514. provisions thereto in the order of 11 Taylor v. Sweet, 40 Mich. 736. appointment. Highland Ave. etc. 12 Haines V. Buckeye Wheel Co., R. Co. v. Thornton, 105 Ala. 225, 224 Fed. 289, 139 C. C. A. 525. 16 So. 699. EFFECT OF APPOINTMENT AND DUTIES. 267 Under an order appointing a receiver and authorizing him to continue the business of the receivership, operate its factory and purchase all necessary supplies and ma- terials and employ hands for that purpose, those dealing with him are bound to know that he possesses limited powers and that he is constantly subject to the orders of the power which created him. They must also be held to know that he can make no contract effectual against the trust which was not first authorized or subsequently rati- fied.i* Where, under special circum- stances or conditions, or in pecu- liar classes of property such as public service corporations, a court of equity appoints a receiver at the instance and for the benefit of lien creditors, and upon a proper showing confers on him authority to operate the property for the benefit of the creditors, all proper expenses and liabilities in- curred in the operation may be a first charge on the income from the property, or, if it is insuffi- cient, on the corpus of the prop- erty to the exclusion even of the prior liens. Knickerbocker Trust Co. V. Green Bay Phosphate Co., 62 Fla. 519, 56 So. 699. Under the "companies act" of 1862, which provided that the offi- cial liquidator should have power, with the sanction of the court, "to carry on the business of the com- pany, so far as may be necessary for the beneficial winding up of the same," it was held that the word "necessary" as used in the act had sole reference to the "beneficial winding up" of the business of the company, and not with a view of its continuance in business, no matter if the contin- uance of the business would be beneficial to the shareholders. In re Wreck, Recovery, and Salvage Co., L. R. 15 Ch. Div. 353. In Teutonia Bank etc. Co. v. Security Brewing Co., 137 La. 1046, 69 So. 833, the court said: "We are of opinion that the au- thority vested in, and the duty imposed on, the receivers, to oper- ate the brewery as a going con- cern, carried with it the authority to Incur such expenses as were necessary to the performance of that duty, and that the expenses so incurred fall within the cate- gory and enjoy the privileges es- tablished in favor of law charges." In Cake v. Mohun, 164 U. S. 311, 41 L. Ed. 447, 17 Sup. Ct. 100, the receiver was expressly authorized by the order of the court "to carry on and manage the business of keeping said hotel in substantially the same manner as it has here- tofore been carried on," and it was held that the receiver had power to incur obligations for sup- plies and materials incidental to the business. i^Brunner, Mond & Co. v. Cen- tral Glass Co., 18 Ind. App. 174, 63 Am. St. Rep. 339, 47 N. E. 686. In the above case the court said: "Under the order of appointment. 268 LAW OP RECEIVERS. Where a business is being operated as a going concern with the knoAvledge or consent of secured creditors, they are estojjped to deny that supplies furnished to the re- ceiver should be paid in preference to the debt due them.^^ the receiver had the right to apply money in his hands belonging to the trust at the time he entered upon the discharge of his duties, or money received thereafter from its earnings, for such purposes as were necessary, in his judgment, within the purview of the order, to carry on the business, talking the rislv, if any, that tlie court would approve his action. The order was not, we think, broad enough to authorize him to bind the trust by a contract for sup- plies for a period of ten months in advance, without the sanction of the court. Without such sanc- tion, the court would be free to deal with it as it deemed just; to modify, approve, or disregard it entirely. It was in the power of the court to close up the receiver- ship at any time, and the exercise of this discretion was not to be hampered by a contract of the receiver extending engagements for stated periods." A receiver is the agent of the court, and those who deal with him do so with reference to his authority as receiver; the nature and extent of which they must take notice, and those who sell goods to a receiver do so on the faith of the property or business of the receivership, and with pre- sumed knowledge of the receiver's authority. Knickerbocker Trust Co. v. Green Bay Phosphate Co., 62 Fla. 519, 56 So. 699. 15 Teutonia Bank & Trust Co. v. Security Brewing Co., 137 La. 1046, 69 So. 833. In the above case the court said: "It is clear, therefore, that the Teutonia bank not only knew what was done and being done, but that it provoked the action; and this court can hardly be expected to believe that the Interstate Bank was not equally well informed. "In Knickerbocker v. McKindley Coal & Mining Co., 172 111. 535, 50 N. E. 300, 64 Am. St. Rep. 54, it was said by the Supreme Court of Illinois in regard to the opera- tion of a hotel: " 'The appellants are estopped from saying that appellees should not be paid for the coal and gro- ceries furnished by them to the receiver, when the receiver was running the hotel with their con- sent (and acquiescence) and with their furniture and fixtures. It is impossible to conceive how a hotel can be operated properly without coal and without groceries.' "And so it may be said here. It is impossible to conceive how a brewery can be operated without malt, hops, coal, wagons, horses, lights, etc., and it would be absurd to suppose that those necessities would be furnished by persons dealing in them to receivers placed in charge of a going brew- ery for the benefit of the creditors as well as its owners, if those in- terested parties were at liberty at any time to appropriate the prop- erty of the concern to the payment EFFECT OF APPOINTMENT AND DUTIES. 269 Where a receiver of a corporation is ordered by tlie court to operate the property in the usual course of busi- ness, and purchases necessary ^oods, and the sale is to him as receiver, and there is no assumption of personal liability and no fraud, the receiver is, in general, not liable individually^ for the purchases. ^^ But where such a receiver operates the property at a loss contrary to prior statements made by him in his accounts and in an answer to a petition for his removal, he will be charged personally with such losses. ^^ In England, it is customary for the court to appoint a manager of a business or undertaking for the purpose of winding up and selling it. It is an interim manage- ment the necessity for which is the result of the jurisdic- tion to wind up and sell as a going concern. ^^ Under such an appointment the manager is, however, merely to carry the business on in accordance with the general course of that particular business. ^^ of their debts, and leave the debts Ch. D. 547; Taylor v. Neate, 39 so created through their agency Ch. D. 538; Makins v. Percy Ibbot- and for their advantage unpaid. son & Co. (1891), 1 Ch. 133; Whit- "It is said that the operation of ^e^ v- Challis (1892), 1 Ch. 64. the brewery did not inure to the ^^ Gardner v. London etc. Ry., advantage of the bondholders, bjit ^- ^- ^ Ch. App. 201, 212, Cairns, was altogether disastrous, which ^- ^- ^^^^' "^ow I apprehend that is quite true. But the experiment nothing is better settled than that was theirs, nevertheless, and, as ^^^^ '^°"i't ^o^s not assume the the profit would have been theirs. management of a business or un- if it had proved successful, they, dertaking except with a view to and not the persons who fur- ^^^^ winding up and sale of the nished, on credit, the means with business or undertaking. The which it was carried on, should management is an interim man- bear the loss." agement; its necessity and its justification spring out of the 16 Hillsborough Grocery Co. v Ingalls, 60 Fla. 105, 53 So. 930. jurisdiction to liquidate and to sell; the business or undertaking 17 Covington v. Hawes-La Anna jg managed and continued in or- Co.. 245 Pa. 73, Ann. Cas. 1915D, ^er that it may be sold as a going 1254, 91 Atl. 514. concern, and with the sale the isSheppard v. Oxenford, 1 K. management ends." & J. 491; Steer v. Steer, 2 Dr. & lo Taylor v. Neate, 39 Ch. D. Sm. 311; Truman v. Redgrave, 18 538. CHAPTER ly. GENERAL. RULE AS TO WHO MAY BE APPOINTED RECEIVER. § 62. The General Rule. In the selection of a person to act as receiver tlie court exercises a judicial discretion which is governed by certain well defined principles. Although a receiver is not a public officer,^ he is, as has been show^n before, an officer of the court or, as has been frequently stated, an arm of the court. His acts in so far as he executes the orders and directions of the court are acts of the court itself and he must account to the court for all of his acts. But he also sustains an important trust relationship toward the parties interested in the receivership. Hence, it is apparent that he must be a person competent to per- form the duties required of him in the dual capacity just mentioned.- He should be a person unexceptional to all of the interested parties^ and indifferent and impartial 1 Cohnen v. Sweenie, 105 Mich. thousands." In re Empire City 643, 63 N. W. 641. Bank, 10 How. Pr. (N. Y.) 498; 2 Simpson v. Ottawa & P. R. Co., Williamson v. W^ilson, 1 Bland. Ch. 1 Ont. Ch. Chamb. 99; Supton v. (Md.) 418; Smith v. New York Stephenson, 11 Ir. Eq. 484; Wynne Consol. Stage Co., 28 How. Pr. V. Lord Newhorough, 15 Ves. Jr. (N. Y.) 208; In re Empire City 283; Tharpe v. Tharpe, 12 Ves. Jr. Bank, 10 How. Pr. (N. Y.) 498; 317; Taylor v. Life Association, Perry v. Oriental Hotel Co., L. R. 3 Fed. 465, 13 Fed. 493. 5 Ch. App. 420; Cookes v. Cookes, In making the appointment, all 2 DeG. J. & S. 526; Wynne v. private considerations and prefer- Lord Newhorough, 15 Ves. Jr. 283. ences are not to be considered; 3 Hooper v. Winston, 24 111. 353; "No man and the counsel of no Baker v. Backus, 32 111. 79; Kaiser man has a right to complain that v. Kellar, 21 Iowa 95; Williamson he or his particular friend is not v. Wilson, 1 Bland. Ch. (Md.) 418; appointed a receiver; especially Ellicott v. Warford, 4 Md. SO; where the assets, as in these bank Merchants' Nat. Bank v. McLeod, cases, to be entrusted to his re- 38 Ohio St. 174; Waters v. Carroll, sponsibility are counted not by 9 Yerg. (Tenn.) 102; Richards v. thousands but by hundreds of Chesapeake & O. R. Co., 1 Hughes (270) WHO MAY BE APPOINTED RECEIVERS. 271 as to all the parties.^ The decisions in respect to tlie propriety of appointing various persons as receivers do 28, Fed. Cas. No. 11771; Simpson V. Ottawa & P. R. Co., 1 Ch. Chamb. 99; Brant v. Willoughby, 17 Grant Ch. (Ont.) 627; Wilson v. Poe, 1 Hog. 322; Corey v. Long, 43 How. Pr. (N. Y.) 492, 497; Devendorf v. Dickinson, 21 How. Pr. (N. Y.) 275; Osborn v. Heyer, 2 Paige (N. Y.) 342; Brown v. Northrup, 15 Abb. Pr. N. S. (N. Y.) 333; Curtis v. Leavitt, 1 Abb. Pr, (N. Y.) 274; Van Rensselaer v. Emery, 9 How. Pr. (N. Y.) 135. A person not familiar with the business of the receivership, it has been held, ought not to be ap- pointed even though he agrees to be directed by a person who is familiar with it. Lupton v, Stephenson, 11 Jr. Eq. 484. 4 The receiver should be a per- son who is indifferent as between the parties. Spring Valley Water Co. V. San Francisco, 225 Fed. 728, 140 C. C. A. 209. In Northern Brewery Co. v. Princess Hotel, 78 Ore. 453, 153 Pac. 37, the court said: "A receiver is a ministerial of- ficer of the court of equity which appoints him. He is presumed to be indifferent as between the par- ties to the suit, and holds the property committed to him in trust for all the parties interested therein, his title and possession being that of the court. State v. Norfolk etc. R. Co., 152 N. C. 785, 67 S. E. 42, 26 L. R. A, (N. S.) 710, 21 Ann. Cas. 692. " 'The general principle, very well settled in the books,' says Mr. Chief Justice Winslow in Bar- telt V. Smith, 145 Wis. 31, 129 N. W. 782, Ann. Cas. 1912A, 1195, 1197, 'is that a party to the cause will not ordinarily be appointed receiver unless both parties con- sent, or there are special circum- stances present which make such an appointment clearly for the best interest of all concerned. The reason is that the receiver is an officer of court, whose buiness it is to administer his trust impar- tially for the benefit of all con- cerned, and hence he should have no special interests which might influence him in his conduct of the trust in matters where his inter- ests and the interest of any party to the action may clash.' "The plaintiff herein, being a corporation, could act only by its agents, one of whom was Paul Dauschel, its treasurer. Though the defendants Anderson, Paget, and Thacher consented to the ap- pointment of a receiver, it can not be said, from an inspection of the transcript before us, that they acquiesced in Dauschel's selection, or waived any objection they might have had against him by reason of his interest in the sub- ject-matter of the suit as the plain- tiff's representative." A receiver should be an impar- tial and indifferent person. Neither a party to a suit or a trustee, whose business it is to watch a receiver, should be appointed. These rules, however, relax in the interests of all the parties, and are, therefore, not without excep- tion. Watson V. Cudney, 144 111. App. 624. A receiver should be impartial, and it is improper to appoint as receiver the agent of the petition- 272 LAW OF RECEIVERS. not, in fact, go further than hohl that the person selected should be impartial in his treatment of the interested parties. If he is an impartial person, it is immaterial what particular relationship he sustains to the receivership estate or parties thereto, although courts do not or- dinarily place themselves in the position of being criti- cised for appointing persons who by their status or re- lationship to the parties or fund might be presumed to be biased. Of course, an officer of a corporation who has been guilty of mismanagement or unfaithful acts result- ing in bringing the corporation to the condition in which a receivership is necessary will not be appointed a re- ing creditor, in absence of cir- cumstances showing his special fitness, or the propriety of ap- pointing one so closely connected with the parties in interest. Vir- ginia-Carolina Chemical Co. v. Hunter, 84 S. C. 214, 66 S. E. 177. A receiver should generally be one who is indifferent between the parties, and subject to no influence except to conserve the property for the benefit of those finally en- titled thereto. Graham v. Hund- ley Dry Goods Co., (Mo.) 177 S. W. 600; Farmers' Loan etc. Co. V. Northern Pac. R. Co., 66 Fed. 169. It has been held that he should have no personal interest in the property. Runyon v. Farmers' & M. Bank, 4 N. J. Eq. ^0; William- son v. Wilson, 1 Bland. Ch. (Md.) 418; Ellicott v. Warford, 4 Md. 80; but see Atkins v. Wabash, St. L. & P. R. Co., 29 Fed. 161; Tripp v. Chard B. Co., 21 Eng. L. & Eq. 53. It is a rule of general applica- tion that a receiver should be a person wholly impartial and in- different toward all parties inter- ested in the fund or property to be administered, and, generally speaking, officers and directors of a corporation involved in insol- vency should not be appointed to the position. Although this rule is not inflexible, it should be ob- served where such officers or directors have by their bad man- agement contributed to the insol- vency. Coy v. Title Guarantee . tition of the estate on the ground I Rec— 21 322 LAW OF RECEIVERS. In a suit to annul probate, the court upon the applica- tion of the acting executor appointed a receiver where it was shown that the opposing party had notified the cred- itors of the estate not to pay the acting executor, since such acts on his part tended to hinder the collection and preservation of the estate.*^ Where there is a contest between parties interested in an estate, growing out of the validity of a will, and a receiver has been appointed prior to the appointment of an administrator pendente lite, and the contest is likely to be protracted, it is proper to order the receiver to turn over to the administrator pendente lite the personal and real estate belonging to the testate. This is based upon the fact that the orphans' court appointing the administrator is the proper court for the adjudication of the matters in dispute, and the jurisdiction of the chan- cery court was temporary and for the purpose of pre- serving the property until such time as the proper court appointed a person with full power to protect and pre- serve the property.^** § 83. Whether Receivership After Judgment in Will Contest. Under the provisions of the New York statute relating to the contest for the revocation of a will and confining the issue to whether the writing produced is or is not the last will of the testator, it has been held that the court that certain devises by the will 9 Marr v. Littlewood, 2 M. & and deeds placed in escrow as pro- C. 454. vided in the will were invalid and ^^ ^ court of chancery can not ap- a receiver was sought. The court P^^^^^ a receiver after the granting of letters pendente lite by the or- phan's court, and if such receiver has been appointed prior thereto, presumptively valid and that the j^j^ ^^^^^^ ^^^^^ ^^t^, ^^^ g,^^^^ court in such circumstances would ^nd he will be discharged and not disturb the possession of the directed to deliver over the prop- parties where no danger of loss erty to such administrator. In re or insolvency was shown. Colvins Estate, 3 Md. Ch. 278. refused to make the appointment on the ground that the devise was TRUST ESTATES AND FIDUCIARY RELATIONS. 323 can not appoint a receiver after final judgment to pre- serve the real property pending an appeal. The title to the property in such a case passes to the heirs at law and possession must be recovered in the proper form of action for the recovery of the possession of real prop- erty.^ §84. Receivership Where Executor or Administrator Is Charged With Fraud, Mismanagement, or Waste. There must be a strong case made for the appointment in order to justify a court in interfering in the matter of trustees who have been appointed, or authorized to act under the orders of another court of competent jurisdic- tion, and especially so in the case of executors who are presumed to have been appointed by reason of some pecu- liar fitness or confidence reposed in them by the testator.^ 1 Johnson v. Cochrane, 91 Hun 163, 36 N. Y. Supp. 287. 1 Haggarty v. Pittman, 1 Paige (N. Y.) 298, 19 Am. Dec. 434; Burt V. Burt, 41 N. Y. 46; Bev- erley V. Brooke, 4 Gratt. (Va.) 1S7, 208; Bainbridge v. Blair, 4 L. J. Ch. N. S. 207: Smith v. Smith, 2 Younge & C. 361; Mid- dleton V. Dodswell, 18 Ves. Jr. 286. In Shannon v. Davis, 64 Miss. 717, 2 So. 240, it is held that where an administrator has been ap- pointed and has partially admin- istered the estate, a receiver is improper, though it might have been proper to appoint in the flrst Instance. In Perrin v. Lepper, 56 Mich. 351, 23 N. W. 39, it was held that in the absence of proof of waste on the part of the adminis- trator, or danger to the estate, the appointment would not be made. Cooley, J., says: "Receivers are not appointed by way of punish- ment of parties, and especially of dead parties, for their miscon- duct." The court, however, will not hesitate where the adminis- trator is seeking to administer property the title to which appears to be in another. Hill v. Arnold, 79 Ga. 367, 4 S. E. 751; cf. Stairley V. Rabe, McMull. Eq. 22; Middle ton V. Dodswell, 18 Ves. Jr. 68. And see Rendall v. Rendall, 1 Hare 152, where the vice chancellor reviews the English doctrine upon this subject. And in Haines v. Carpen- ter, 1 Woods 262, Fed. Cas. No. 5905, the court refused to enter- tain a bill to appoint a receiver upon the ground that the executor had qualified and given bond for the discharge of his trust and had taken possession of the estate un- der the provisions of the will of the testator, where the allegations were made on information and be- lief. The court says: "The prop- erty is in gremio legis; the juris- diction of the parish court has 324 LAW OF RECEIVERS. Eemedies in cases in which fraud is charged being par- ticularly within the protection of courts of equity, a re- ceiver will be appointed where an executor or adminis- trator is charged with such fraud and danger of loss to the estate is imminent,^ But if fraud is charged against an administrator for the purpose of displacing him with a receiver, such charges must be alleged with certainty and specifically set forth. ^ In such cases the rule was stated by the New York court^ in the following language : ''The court looks to the security and preservation of the property, and ought not to interfere pending the liti- gation when the plaintiff's right is not perfectly clear and the property itself, or the income arising from it, is not shown to be in danger ; and it is acknowledged to be the rule in several of the English cases that there must be some evil actually existing, or some evidence of danger to the property or a strong special case of fraud in tlie attached to the assets; they are in against trustees, but the principle the hands of a trustee who is re- is applicable to executors and ad- quired to account only to the court ministrators as well. See, also, which appointed him, and this Hugonin v. Basely, 13 Ves. Jr. 105; , , „,„ +^ +„i,^ t-v,^ Middleton v. Dodswell, 18 Ves. Jr. court has no power to taKo the ' 286; Lloyd v. Passingham, 16 Ves. Jr. 69. In another case in the Irish chancery court it has been ob- served that such an interference is, to a certain extent, giving re- lief—in fact, depriving defendants of a present use and enjoynaent of the estate and, so far, a decision pro tempore against them; and, 2 Rutherford v. Douglas, 1 Sim. therefore, without some strong & St. lln; Watkins v. Brent, 1 necessity, the court ought not to M. & C. 102; Dimes v. Steinberg. ^^ ^^^ ^^^ ^^ ^.^^^^^ ^^^ existing 2 Sm. & G. 75; Vernon v. Kinzie, possession until, from a view of 2 U. C. Jur. 40. ^^^ whole case and by a regular 3 Powell V. Quinn, 49 Ga. 523. adjudication, it can pass upon the 4 Willis V. Corlies, 2 Edw. Ch. right. Houlditch v. Lord Donegal, (N. Y.) 281. This was a case 1 Beatty 402, 16 Ves. Jr. 59. assets from the possession of that trustee and compel him to account here." In Wanneker v. Hitchcock, 38 Fed. 383, it was held that where the probate court had full power to protect the interests of all par- ties a receiver would not be ap- pointed. TRUST ESTATES AND FIDUCIARY RELATIONS. 325 defendant clearly proved to induce the court in this stage of the cause to take the property under its care," And speaking upon the general subject of the appoint- ment of receivers in cases where fraud is alleged as the ground for such appointment Lord Eldon in Lloyd v. Passingham^ said the court must not only be satisfied of the existence of the fraud but must be morally sure that upon the hearing of the cause the party would, under those circumstances, be turned out of possession, but it must see some danger to the intermediate rents and profits. Where it appears that the conduct of an administrator is such as to hinder and delay the collection of the assets of an estate, a court of chancery has power, and it is its duty, to appoint an administrator to collect and hold the assets, and, ha\dng acquired jurisdiction for that pur- pose, it may retain it for the purpose of finally settling the estate,^ And likewise where the executor or administrator is guilty of such misconduct as jeopardizes the safety of the estate, receivers have been appointed over the estate for the purpose of preserving and safeguarding it.'^ 5 In this respect see, also: Clark assets in the hands of an executor V. Ridgely, 1 Md. Ch. 70; Handle V. or administrator there must be Carter, 62 Ala. 95; Ex parte Wal- actual misconduct or fraud, and ker, 25 Ala. 81; Hitchen v. Birks, immediate danger of loss. Randle L. R. 10 Eq. 471. v. Carter, 62 Ala. 95, and Ex parte 6 Du Val V. Marshall, 30 Ark. Walker, 25 Ala. 81. 230. A receiver should not be ap- Where it is shown that the exec- pointed to take the assets out of utor is guilty of misconduct, and the hands of legally appointed was not a safe custodian and was representatives of a decedent, ex- Insolvent and the estate is insc^- cept in cases of manifest danger vent, a receiver will be appointed. of loss or destruction to the as- In such case it is not necessary sets. West v. Mercer, 130 Ga. 357, to establish an exhaustion of legal 60 S. E. 859. remedies. Harmon v. Wagener, 33 Where, in an action to establish S. C. 487, 12 S. E. 98. an equitable claim against an es- 7 To justify the appointment of tate, it did not appear that the a receiver to take the custody of administrators were guilty of 326 LAW OF RECEIVERS. waste or mismanagement, a re- ceiver should not be appointed over tlie estate. Crawford v. Wil- son, 139 Ga. 654, 44 L. R. A. (N. S.) 773, 78 S. E. 30. The advance by the executors to the widow of less than half of the cash on hand, which was prima facie a community fund, does not authorize the appointment of a re- ceiver pending an action by the heirs to recover their alleged in- terest in the estate, and for par- tition, upon the ground of mis- application of the funds and re- fusal to allow the plaintiffs free access to the books of deceased, where the widow's interest in the estate is apparently largely in ex- cess of the amount paid her, and she was otherwise without means of support. Harris v. Hicks, 13 Tex. Civ. 134, 34 S. W. 983. Where decedent's real property, worth $100,000, was claimed by the state as having escheated and also claimed by defendant under an alleged will and by another claiming to be decedent's only heir at law, and the lands having been sold for municipal taxes, the rents were being collected by the pur- chasers at the tax sale, a mort- gagor having also filed foreclosure proceedings, defendant as adminis- tratrix having in no way at- tempted to protect the property, and it appearing that the conflict- ing claims will produce prolonged litigation, a receiver was properly appointed to protect the property. McCarter v. Clavin, 72 N. J. Eq, 642, 66 Atl. 599. In Harmon v. Wagener, 33 S. C. 487, 12 S. E. 98, a suit was insti- tuted by the executor for the sale of land and to marshal assets and to enjoin creditors from suing at law, in which general creditors Intervened, and asked to have a receiver appointed on the ground that the executor was guilty of misconduct in his management of the estate, and was not a safe custodian thereof, and was insol- vent. It was also held that the judgment and execution returned in such case was unnecessary, for the reason that the principle has no application in a suit to marshal assets, or in a suit to compel an administrator or executor to ac- count. Cf. Pelzer v. Hughes, 27 S. C. 408, 3 S. E. 781; Austin v. Morris, 23 S. C. 393, 408. In Mid- dleton V. Dodswell, 13 Ves. Jr. 266, Lord Erskine said: "But if a mani- fest abuse of the trust by wasting the property appears, which does appear in this instance, not from a single act but an habitual and prospective course of dealing, bringing the property into danger, can it be said that this court ia not to treat an executor as any other trustee? And an executor may say that unless he is proved to be insolvent, the court is to overlook the misapplication and refuse a receiver." In this case the application was before answer. The marriage of an executrix to a second husband in necessitous cir- cumstances where there were in- fant children by the first marriage was held sufficient ground for the appointment of a receiver in Dillon V. Lady Mount Cashell, 4 Bro. P. C. 306; Lake v. De Lambert, 4 Ves. Jr. 593. In Stairley v. Rabe, Mc- Mul. Eq. (S. C.) 22, it appeared that the executrix had managed the estate judiciously, but subse- quently married a second husband possessing no qualifications for the management of such an estate, but TRUST ESTATES AND FIDUCIABT RELATIONS. 327 The charges of mismanagement and misconduct which form the basis of the ground for the appointment of a receiver in lieu of an executor or administrator must not be made merely upon information and belief.^ Where, however, the executor admits that he has wasted and misappropriated the trust funds but refuses to give the details thereof and has also allowed his co- executor to do the same, the court very properly appoints a receiver.^ was young, of limited means, and without experience and with little aptitude for any occupation. Cf. Jenkins v. Jenkins, 1 Paige (N. Y.) 243; Gildersleeve v. Lester, 68 Hun (N. Y.) 532, 22 N. Y. Supp. 1026. Where there is a waste and mis- appropriation of the funds of an estate, a receiver will be ap- pointed. In re Wells, L. R. 45 Ch. Div. 569. In re Fowler, L. R. 16 Ch. Div. 723. "It is made the duty," says the chancellor, "of trustees of leasehold property to keep it free from forfeiture out of the rents, if no other fund is applicable." A receiver was appointed be- cause of the misconduct of one of three executors and devisees in trust, the other two consenting to the appointment. Middleton v. Dodswell, 13 Ves. 268. The will of a testator was pro- bated in Chicago as his place of domicile, and a general executor was appointed. Decedent owned property in New York City of the value of some $3,000,000, including a valuable residence and art col- lection, but the executor took no steps for ancillary administration there for three years, and in the meantime the property was in pos- session of the widow, who asserted an adverse claim to a large part of the estate. The art collection was not only given no care, but taxes amounting to $200,000 were left unpaid, and a mortgage on a part of the real estate was allowed to be foreclosed for non-payment of interest. When the executor applied for appointment as ancil- lary administrator, his application was contested by the widow, who procured an injunction in Chicago restraining him from proceeding therewith. The estate was largely indebted, and a foreign creditor whose claim for a large amount had been allowed filed a bill in equity in the federal court in New York on behalf of itself and all other creditors, praying the ap- pointment of a receiver, that the court administer the property there, and for general relief. The court held that the fact that a part of the property was in the posses- sion of the widow under an ad- verse claim thereto was not ground for denying a receiver. Underground Electric Rys. Co. v. Owsley, 176 Fed. 26, 99 C. C. A. 500. 8 Haines v. Carpenter, 1 Woods 262, Fed. Cas. No. 5905. 9 Price's Executrix v. Price's Executors, 23 N. J. Eq. 428. 328 LAW OF RECEIVERS. But where the charges in respect to misconduct and insolvency on the part of the executor are fully denied, it has been held that a receiver should not be appointed.^*^ The charges of misconduct must be of a serious charac- ter and tend to endanger the safety of the estate.^^ xV receiver will not be appointed where the alleged cause of complaint occurred during the lifetime of the intestate, and where there is no allegation of mismanagement against the administrator.^^ §85. Effect Where Mismanagement Based on Account Ap- proved by Probate Court. Where an executor has rendered his accounts to the probate court and that court has passed upon them, a court of equity will not re-examine them in order to sus- tain a charge of waste and mismanagement against the executor. In such a case the probate court has jurisdic- tion of the examination of the accuracy of such accounts 10 Fairbairn v. Fisher, 57 N. C. ment of a receiver. The court 3C)o held that the question of the 11 That one of three executors legality of the devise was resting of an estate without bond has been in equilibrio, and could not be con- seen a few times playing cards for sidered in the motion ; that the money is not sufficient cause for mixing of the trust funds with his the appointment of a receiver own was of itself no ground for pending an action by the heirs to the appointment; that in the ab- recover their alleged interest in sence of danger this was no breach the estate, and for partition, where of duty; and that there was no a large number of business and case in which the court appointed professional men in the commu- a receiver merely because the nity where such executor lives measure could do no harm, and affirm his integrity of character still less where the trustee was and his entire fitness for the trust. such under the appointment of a Harris v. Hicks, 13 Tex. Civ. 134, testator. 34 S W. 983. ^- Perrin v. Lepper, 56 Mich. 351, Orphan Asylum Society v. Mc- 23 N. W. 39. There was no show- Cartee, 1 Hopk. Ch. (N. Y.) 429. ing whatever that the property In this case a bill was filed by a was being wasted by the corn- legatee under a will against trus- plainant administrator, or that the tees to obtain the benefit of the estate was unsafe in his hands, devise, and also for the appoint- and a receiver was refused. TRUST ESTATES AND FIDUCIAEY RELATIONS. 329 and another court will not base its action upon alleged errors therein.^ § 86. Mere Disagreement Between Several Executors as to Management. A mere disagreement between two executors in respect to the proper management of the estate is not sufficient ground for the appointment of a receiver of the property of the estate.^ §87. Receivership on Failure to Obey Orders of Court or Directions in the Will. A receiver may be appointed where a trustee fails to pay money due from him pursuant to an order of court. ^ In one case a receiver was appointed on account of laches of the heirs who had been substituted as trustees to execute a devise to charity.- Where a will empowers and authorizes a devisee to take any and all proper and necessary steps to enforce payment of an annuity to her, the appointment of a receiver to collect the rents, issues, and profits and apply them to the pajanent of the annuity, is a matter within the discretion of the court.^ To authorize the court to appoint a receiver, it is suffi- cient that the executor has not done what he could to get in the personal estate of the testator, that he has left a considerable portion of it outstanding on improper secur- ities, and that he has not raised a certain sum, as directed 1 Simmons v. Henderson, Freem. and based as to general power Ch. (Miss.) 493. under the Judicature Act of 1873, 1 Fairbairn v. Fislier, 57 N. C. § 25, sub. 8. See, also, Whiteley 390. V. Learoyd, 56 L. T. 846. 1 In re Coney, L. R. 29 Ch. Div. 2 Attorney General v. Bowyer, 993. In this case the trustee had 3 Ves. Jr. 714. absconded; and it was decided 3 Gee v. Gee, 107 111. App. 313 upon the authority of Leathes v. (judgment affirmed, 204 111. 588, Leathes, Weekly Notes, 1882, p. 71, 68 N. E. 515). 330 LAW OF RECEIVERS. by the testator's will, for the maintenance and education of an infant legatee.^ But where trustees have a discretion in regard to the doing or not doing of a particular thing, as in the pay- ment of interest, it is improper for the court to make an order w^hich will take from the trustees this discretion. Thus, where trustees under a will w^ere directed to set apart and invest a sum of money, and were authorized in their absolute discretion from time to time, and at such time or times as they should think proper, to pay or apply the whole or any part of the income to or for the benefit of the judgment debtor, in such a manner and in all re- spects as they should think proper, the money will not be ordered paid to the receiver.^ § 88. Effect of Insolvent Character of Executor or Adminis- trator. The court wdll not appoint a receiver in lieu of an executor or administrator where the only ground of com- plaint alleged is the poverty or financial irresponsibility of the person acting in this relationship. There must be some danger of loss to the estate from some acts on the part of such executor or administrator for which he will not be able to answer by reason of his insolvency.^ In 4 Richards v. Perkins, 3 Y. & not appear to be any change for C. 307. the worse, at least in the property 5 Queen v. Lincolnshire & Dixon or credit of the executor, since the County Judge, L. R. 20 Q. B. Div. death of the testator or even the 167. making of his will; the mere pov- 1 In North Carolina R. Co. v. erty of the executor does not au- Wilson, 81 N. C. 223, the trustee thorize the court against the will loaned part of the funds to a firm of the testator to remove him by of which he was a member, which placing a receiver in his place, subsequently failed; and it was There must be in addition some held that the trustee's insolvency maladministration, or some danger and unsuccessful management of of loss from the misconduct or his own business might be consid- negligence of the executor, for ered in passing upon the question. which he will not be able to an- In Fairbairn v. Fisher, 57 N. C. swer by reason of his insolvency." 390, the court says: "There does Howard v. Papera, 1 Madd. 142; TRUST ESTATES AND FIDUCIARY RELATIONS. 331 other Avords, even if the estate be in clanger it must be also shown that the party in possession is irresponsible Gladdon v. Stoneman, 1 Madd. 143, note; Johns v. Johns, 23 Ga. 31; Anonymous, 12 Ves. Jr. 4. Where the executor who is in- solvent and carrying on the busi- ness of the testator pursuant to his directions, and there is suffi- cient property to pay the debts of the estate, refuses to pay debts or use the assets for that purpose, a receiver will be appointed on the application of a creditor. Wil- lis V. Sharp, 46 Hun (N. Y.) 540. Nor will the fact that it appears that the executrix is a person of little or no fortune be sufficient in the absence of proof of misman- agement; nor is the fact of a dis- pute in another court concerning the probate sufficient. Knight v. Duplessis, 1 Ves. Sr. 324. In How- ard V. Papera, 1 Madd. 142 (Am. ed., p. 86), the vice chancellor says: "No misapplication or abuse of trust is made out against this executrix, and it would be too much to take the administration of this testator's property out of her hands merely because she is poor, a circumstance known to her husband, the testator, when he ap- pointed her executrix." Cf. Glad- don V. Stoneman, note to last case cited; Jenkins v. Jenkins, 1 Paige (N. Y.) 243; Price's Ex'x v. Price's Ex'rs, 23 N. J. Eq. 428. In Anonymous, 12 Ves. Jr. 4, the question before the court was upon the sole ground that the executrix had no property other than an an- nuity of £20 given her by the tes- tator, and that therefore a receiver should be appointed, and Sir Wil- liam Grant says: "There is no doubt that in several instances, as, if the executor has wasted the ef- fects, or in other respects has mis- conducted himself, this court will Interfere. But has the court ever taken the disposition out of the hands of the executor on account of his mean circumstances — for it comes to that? You must prove the unfitness of the person. In this case the only ground is that she is not a person of property. ... If any misconduct, waste, or improper disposition of the assets were shown the court would in- stantly interfere." Cf. Gray v. Gaither, 74 N. C. 237. In a bill by a ward charging waste and insolvency on the part of an administrator, a receiver may be appointed. Ware v. Ware, 42 Ga. 408. In Gray v. Gaither, 74 N. C. 237, an executor converted his land and personal estate into notes and money, and the court held the estate to be insecure. It was also held that though the trus- tee was insolvent, if the testator knew of that fact it would not be ground for removal. Where it does not appear that real and personal property of the decedent will be insufficient to pay the decedent's debts, the court will not appoint a receiver of the rents and profits of the real estate. Mc- Kaig V. James, 66 Md. 583, 8 Atl. 663. If a sole executor or trustee be- comes bankrupt, there is a case for the appointment of a receiver. In re Johnson, L. R. 1 Ch. 325; In re Hopkins, 19 Ch. D. 61. If a testator has selected an in- solvent debtor as his executor, 332 LAW OF RECEIVERS. or that his bond is insufficient.- Although it is not ordi- narily deemed sufficient ground for the appointment of a receiver in lieu of an executor that he is in poor or mean circumstances, still the court will do so where in addition to such circumstances it is shown that he is of bad charac- ter and intoxicated habits.^ And a receiver was ap- pointed in one case where the executor who was insolvent had not only mismanaged the estate but was about to leave the country.^ It is held that an actual adjudication of bankruptcy of the executor or administrator presents a strong circum- stance for his displacement by the appointment of a re- ceiver, although such an appointment will be made with- out prejudice to an application by the heirs or next of kin.^ with full knowledge of his insol- vency, the court will not on the mere fact of such insolvency inter- fere by appointing a receiver. Gladdon v. Stoneman, 1 Madd. 143n; Stainton v. Carron, Co., 18 Beav. 146, 161. But in such a case, the court may interfere on behalf of creditors if the estate is not more than suffi- cient to cover their claims. Old- field V. Cobbett, 4 L. J. Ch. N. S. 272. In such circumstances it will not be inferred from the circum- stances of the will having been made some time before the insol- vency, and not altered afterwards, that the testator had a deliberate intention to intrust the manage- ment of his estate to an insolvent executor. Langley v. Ha- ke, 5 Madd. 46. In Smith v. Smith, 2 Y. & C. 361, the fact that the administrator was an uncertificated bankrupt, and was not appointed to his of- fice by the testator, but had taken out administration, was held net a sufficient reason to induce the court to appoint a receiver before answer, where several of the par- ties interested declined to join in the application. 2 Haines v. Carpenter, 1 Woods 262, Fed. Cas. No. 5905. 3 Everett v. Prytheigh, 12 Sim. 365. 4 Chappell V. Akin, 39 Ga. 177. The allegations of the bill in this case were that the executor was insolvent, unmarried, extravagant, engaged in no settled business, in- tending soon to move to Honduras, and was badly managing his own business, and threatened to sell the trust property. r. Gladdon v. Stoneman, 1 Madd. 142 (Am. ed., p. 86); Steele v. Cobham, L. R. 1 Ch. App. 325. TRUST ESTATES AND FIDUCIARY RELATIONS. 333 But a receiver will not be appointed of a decedent's estate because an executor lias become bankrupt since the death of the testator where there is a co-executor who is willing to act.^ A receivership is proper when the testamentary trustee, although exempted by the will from giving security, is a man of limited means, and engaged in a hazardous busi- ness, and an injunction has been obtained by the next friend of an infant beneficiary restraining the trustee from disposing of the assets.'^ Where there were several executors and all but one were insolvent, it was suggested as proper practice to appoint a receiver to act in conjunction wdth the solvent executor provided he would so act, but in the event of his not consenting to do so to order the receiver to act gen- erally in lieu of all the executors,* but it has also been held that part of the estate can not be taken from one executor and given to a receiver so as to allow him to co-operate with the other receiver.** § 89. Receiver in Lieu of Executor Conditioned on Failure of Executor to File Security Bond. The appointment of a receiver being within the discre- tion of the court, it is proper for the court to make the appointment of a receiver contingent upon the alternative of the executor or administrator in possession furnishing 6 Bowen v. Phillips (1897), 1 the solvent executor if he would Ch. 174, 66 L. J. Ch. N. S. 165. consent to act with the receiver, 7 Bowling V. Scales, 2 Tenn. but otherwise would appoint the Ch. 63. receiver to act generally in lieu 8 In Jenkins v. Jenkins, 1 Paige of all the executors. (N. Y.) 243, three out of four exec- 9 A receiver must be of the whole utors were insolvent and the estate. Hence it is improper for actions of the executors in the a court of equity to take part of handling of the estate were such an estate from one executor and that the settling of the estate was give it to a receiver so as to allow unduly delayed. The court sug- him to co-operate with the other gested that it would appoint a re- executor. Fairbairn v. Fisher, 57 ceiver to act in conjunction with N. C. 390, 331 LAW OF RECEIVERS. a bond to secure the safety of the estate.^ And following the principle that the security of the estate from loss or undue depreciation is the main purpose of a receivership in connection with estates of decedents, the court will refuse to appoint a receiver where the bond furnished by 1 In this connection see § 15, supra, for a discussion of the prin- ciples involved in such action by the court. While it is undoubtedly the law that the probability that a com- plainant will ultimately be entitled to relief is a material element for consideration by the court in the appointment of a receiver, mere defects of pleading or parties, cur- able by amendment, will not pre- vent such action, if there are gen- uine rights to be protected and preserved; and where an answer and cross-bill in an administration suit by an executor alleges that the testator gave defendant cer- tain personal property, that the executor took the property into his custody, that a devastavit has been committed by him, that he has converted much of the estate to his own use and is insolvent, that a large quantity of personal prop- erty belonging to the estate is in his hands, in which the defendants are interested, and that the de- fendants' interest in the estate will be jeopardized for want of security, and asks that the execu- tor be required to give bond, or that the assets be placed in the hands of a receiver, and the execu- tor fails to give bond when re- quired, it is proper to appoint a receiver. Hurt v. Hurt, 157 Ala. 126, 47 So. 260. In an administration suit by an executor for a discovery and ac- counting, a cross-bill alleged cer- tain shortcomings of the executor, as well as his insolvency, and asked that he be required to give bond, or for a receiver for the assets of the estate. An order requiring the executor to give bond by a date fixed directed that the question of a receiver be post- poned, to be thereafter considered on motion of either party to the cause. The executor failed to give the required bond, and a receiver was thereupon appointed without further notice to the executor. It appeared from the showing that the executor was insolvent, had given no security, had made no inventory of the assets of the es- tate, and there was evidence that he had converted assets to his own use. The appellate court held that the chancellor was justified in appointing the receiver without further notice. And where the order required the executor to give bond to keep and perform and pay a 1 1 decrees rendered against him in the cause, the con- dition prescribed is in legal effect no more than the requirement of Code 1896, 66, that an executor's bond be conditioned to perform all the duties which may be or are required of him as such execu- tor or administrator, and the order appointing a receiver for failure of the executor to give the re- quired bond is not erroneous on account of the required conditions of the bond. Hurt v. Hurt, 157 Ala. 126, 47 So. 260. TRUST ESTATES AND FIDUCIARY RELATIONS. 335 l]ie executor or administrator is ample to protect the estate in every way.- And likewise where the executor is not only solvent but willing to secure the plaintiff in what- ever rights he may be entitled to on final hearing, the appointment of a receiver is properly refused.^ But where an executor without an order of court is converting all of the assets of the estate into money and there are circumstances indicating that the estate is not properly secured, the court may direct that the executor furnish a bond sufficient to protect the estate or in default of doing so that a receiver be appointed.* § 90. Consent or Acquiescence in the Appointment. There are cases in which a receiver will be appointed to take the place of trustees appointed under a will, as where some of the trustees refuse to act and all the parties are before the court consenting to the appoint- ment.^ Where a receiver is appointed on account of the mis- conduct of one of two executors and the one not charged with misconduct had not qualified until after the commis- sion of the misconduct but did so prior to the appoint- ment of the receiver, the management of the estate will 2 On an application to appoint 3 A receiver of a decedent's es- a receiver of assets in the hands tate should not be appointed with- of executors, where both of the out giving a defendant, who is executors are solvent and one of them worth many times the value of the interests of the plaintiffs in the estate, and the court has ^"^"^ '^^^^"^' ^^ ^PP^rtunity to enjoined any disposition of the ^^^^ ^ sufficient bond to protect realty which one of the defen- ^^^ petitioner in whatever rights dants in the proceeding had pur- ^^ "^^^ ^^ ^^'^ ^'^ establish at the chased from the directors, and a ^"^^ hearing. Bivins v. Marvin, bond was exacted from the execu- ^^ ^^- ^^^' ^^ ^- ^- ^2^- tors sufficient to protect petition- - Gray v. Gaither, 74 N. C. 237. ers, a refusal to appoint a receiver i Brodie v. Barry, 3 Meriv. 695, was proper. West v. Mercer, 130 citing Beaumont v. Beaumont, not Ga. 357, 60 S. E. 859, reported. shown to be entitled to at least half the estate and to be per- 336 LAW OF RECEIVERS. not be turned over to the newly qualified executor where be acquiesced in the appointment and took no appeal therefrom,- § 91. Right of Surety to Have Receiver Appointed. The court will not appoint a receiver in lieu of an administrator on the application of a surety on the bond of the administrator, where the purpose is to require the administrator to secure the bondsman on account of his liability for his principal.^ But it has been held that a receiver will be appointed at the instance of heirs or sureties upon the administrator's bond if there is danger of loss or other injury to their interests.^ The proper rule in such circumstances should be that if the misconduct of the executor or loss to the estate has already occurred, the surety merely has his right of action against his principal for moneys paid out by rea- son of his suretyship, and if the danger is merely antici- patory, he has a right to withdraw from the bond. Of course he may, if the facts and circumstances will warrant it, have a receiver appointed over the property of his principal in his individual capacity. y § 92. Rights of Personal Receiver or Administrator. The fact that a judgment is rendered against an admin- istrator in his personal capacity and a receiver is ap- 2 Fraser v. City Council of not entitled to the relief. Cf. Charleston, 19 S. C. 384. Walker v. Drew, 20 Fla. 908, as to 1 Delaney v. Tipton, 3 Hayw. a surety of a deceased debtor and (4 Tenn.) 14. In this case Delaney, his right to have a receiver; and the surety on the administrator's Stenhouse v. Davis, 82 N. C. 432, bond, filed a bill and asked for an as to the right of a surety of a order on the administrator to give purchaser at an administrator's security to him, and in default "ale. of so doing that a receiver be ap- 2 Thompson v. Orser, 105 Ga. pointed to take possession of the 482, 30 S. B. 626. assets. Held, that the plaintiff was TRUST ESTATES AND FIDUCIARY RELATIONS. 337 pointed over his property in aid of the judgment creditor, does not entitle such receiver to collect the rents due the administrator in his official capacity. And in the event that such receiver has collected such rents, they may be recovered back by the tenants who have paid them an;tates of Insane Persons. § 102. The General Rule. A receiver may be appointed over the estate of a per- son pending a judicial proceeding in respect to his sanity in order to prevent waste or mismanagement of his prop- erty.^ Such a receiver is an ad interim one and is ap- traordinary aid by the appointment A receiver may be appointed of receivers pendente lite are that over the estate of a lunatic pend- the person seeking the relief has ing the return of the inquisition, shown at least a probable interest Ii- re Kenton, 5 Bin. (Pa.) 613. In the property, and that there is Where a person is of weak mind, danger of its being lost unless a a receiver may be appointed over receiver is allowed.' " his estate in a proceeding by his 1 In re Misselwitz, 177 Pa. St. next friend in his behalf. Edwards 359, 35 Atl. 722; Lowe v. Lowe, v. Edwards, 14 Tex. Civ. 87, 36 1 Tenn. Ch. 515; In re Fountain, S. W. 1080. 37 Ch. Div. 609. Under Act of May 28, 1907 (P. L. 350 LAW OF RECEIVERS. pointed with power to take possession of the estate and also with leave to be appointed ad litem in actions pend- ing against the alleged insane person.^ But a receiver should not be appointed in such case where the appli- cant for the appointment of the receiver has no lien upon the property of the defendant or interest therein.^ Where 292), providing for the appoint- ment of a guardian for insane or feeble-minded persons unable to care for their property, and au- thorizing the court to make an allowance for the support of the ward and his family, it is within the sound discretion of the court of common pleas to appoint a tem- porary receiver of the estate of an insane or feeble-minded person. In re Parke's Case, 41 Pa. Sup. Ct. 531. In re Hybart, 119 N. C. 359, 25 S. E. 963, it was held, under the Act of 1889, a receiver might be appointed for an insane person on motion, after due and proper no- tice. 2 Re Pountain, L. R. 37 Ch. Div. 609. In this case the order was made ex parte. 3 The harsh remedy of appoint- ing a receiver and of granting an injunction before trial on the merits of the case should not be exercised, where the applicant for such remedies has no lien upon the property of the defendant, and no interest therein or claim thereto. Atlanta etc. Ry. Co. v. Carolina Portland Cement Co., 140 Ga. 650, 79 S. E. 555, and cases cited. Therefore, where two adult and married daughters instituted a proceeding in the court of ordi- nary, in accordance with Civ. Code 1910, §§ 3089 et seq., seeking to have their father adjudged to be an imbecile and incapable of managing his property and to have a guardian appointed for him, and he, not having been notified of j such proceeding, and without ap- ' pearing in the court of ordinary or in anywise becoming a party to such proceeding, filed a verified ' petition against such daughters in the superior court, wherein he al- leged that he was perfectly sane and fully capable of managing and caring for his property, that he was not committing any waste, and that the defendants had no inter- est in or claim to any of his prop- erty, that he did not owe a cent to either of them, or to any one else, and that the defendants had not instituted the proceeding in the court of ordinary in good faith, but were influenced in bringing such proceeding solely on account of their enmity against the present wife of petitioner, the stepmother of the defendants, on which peti- tion an interlocutory injunction was granted, and where the de- fendants answered such petition, denying its material allegations, and filed a cross-petition against their father, averring his imbe- cility, and in consequence thereof his inability to manage and care for his property, and praying that a receiver be appointed to take charge of all of his property, and that an injunction be granted, en- TRUST ESTATES AND FIDUCIARY RELATIONS. 351 the estate of an insane person has been managed by a trustee or committee, upon the death of the insane person, it was held proper for the court to appoint a receiver to take charge of the estate until proper probate proceed- ings may be instituted, and thereupon the receiver will be directed to turn the property over to the probate admin- istrator,^ although in a subsequent case in the same state it was held that where such a committee had been appointed prior to the death of the insane person the appointment of a receiver pending a contest of the dece- dent's will was unnecessary.^ The appointment of a re- ceiver in cases of this character, as in other receivership cases, is within the discretion of the court, and the court may refuse to make the appointment.^ Where a receiver is appointed merely pending proceed- ings to determine whether the person is insane and the person is adjudged sane in such proceedings, the receiver will be discharged and his compensation and expenses allowed.^ A receiver of the property of an insane person is under the same duty to account to the court as in other cases, joining him from interfering with 4 in re Colvin's Estate, 3 Md. the property in the hands of the Ch. 278, 288. receiver, the judge of the superior In this connection see King v. court upon an interlocutory hear- King, 6 Ves. Jr. 172; Edmunds v. ing, where both sides submitted Bird, 1 Ves. & B. 88; Bull v. Oliver, evidence tending to substantiate 2 Ves. & B. 96; Atkinson v. Hen- their respective contentions, erred shaw, 2 Ves. & B. 85, and Richards in appointing a receiver for all the v. Chave, 12 Ves. Jr. 462. property of the father, except his 5 Curtis' Estate v. Piersol, 117 farm upon which he resided, and Md. 170, 83 Atl. 87. "other properties" which the judge 6 In re Ferror, L. R. 3 Ch. App. found to be "ample and more than 175. sufficient to support him and his 7 In re Sulk, 74 N. J. Eq. 736, immediate family," and in grant- 70 Atl. 661. ing an injunction against any in- The receiver of an insane person terference with the property in the will not be discharged without hands of the receiver. Gartrell v. grounds for the same being pre- McCravey, 144 Ga. 249, 86 S. E. sented. In re Lytle, 3 Paige (N. Y.) 932. 251. 352 LAW OF RECEIVERS. and if deemed proper a reference may be ordered to as- certain tlie exact condition of the estate.^ § 103. Who May Be Appointed Receiver. The same principles apply in the selection of the re- ceiver of an insane person as in other circumstances; namely, that the person selected should not occupy such a relation toward the insane person that he will be placed in a position where he will be obliged to pass upon the propriety of his own actions. Hence the court in making such appointment should not select the solicitor of the in- sane person/ even wdiere it is stated that no one else is willing to accept, nor a Master in Chancery if his ac- counts are to be passed upon by another master.^ 4. Estates of Infants. § 104. General Eule Applicable. The same general principles apply in respect to the ap- pointment of a receiver over the estate of an infant as apply to that of the estate of a decedent or of a trust estate. And similarly to the practice as shown by the de- cisions, relief by the appointment of a receiver has been more frequent in the English practice than in the Ameri- can practice. In all these classes of cases the large pro- tective features of the statutes and the broad jurisdiction which has been assumed by the courts for the protection of wrongs of every conceivable sort have made the neces- sity for receiverships in estates which are already under the protection of the courts very infrequent. However, there are occasions when the remedy of a receivership s Lowe V. Lowe, 1 Tenn. Ch. is the same as in cases of receiver- 515. ship. The theory of the case may 1 Ex parte Pincke, 2 Meriv. 452. be sound, but evidently its applica- 2 Ex parte Fletcher, 6 Ves. Jr. tion in many cases would be a 427. This was a case for the ap- matter of discretion. Cf. Re Fer- pointment of a committee of a rior, L. R. 3 Ch. App. 175. lunatic's estate, but the principle TRUST ESTATES AND FIDUCIARY RELATIONS. 353 for the protection of an infant's estate will be found to be the most effective for its safety and preservation. Such circumstances would doubtless arise where great speed would be necessary in order to prevent a threatened loss or damage. The older cases on the subject are illustrative of the general principles applicable. As early as 1727, the Parliament of England, sitting as a Court of Appeals, held that where a testator by will named his widow as guardian of his minor children it was beyond the power of the Court of Chancery to change the will of the testator in this regard, in the absence of proof of misbehavior on the part of such testamentary guardian.^ It has remained the law, supported by reason and authority, from that time to this, that where a trustee has been appointed by a testator as executor or as guar- dian, the court, in the absence of strong proof, will not in- terfere with such selection by the appointment of a re- ceiver.2 Thus a receiver may be appointed for the estate of an infant if his father is insolvent or of bad character or there is danger of his rents being lost.=^ So also where the mother was dead and the father was a man of irregular habits and the minors inherited by way of their mother.^ 1 Dillon V. Lady Mount Cashell, receiver, upon the principles upon 4 Bro. C. P. 306. which it interposes in the trustees 2 Even though a guardian is ap- and executors. Duke of Beaufort pointed by will under the statute, v. Berty, 1 P. W. 704. the court may appoint a receiver. Middleton v. Dodswell, 18 Ves. Gardner v. Blane, 1 Ha. 381. Jr. 268. In this case Lord Erskine Guardians appointed by will said: "It is for the testator, not under the statute have no more the court, to say in whom the trust power than guardians in socage, for administration of the effects and are but trustees. If it be shall be reposed." Cf. Stairley v. made to appear that the estate of Rabe, McMul. Eq. (S. C.) 22. an infant is likely to suffer by 3 Ex parte Mountfort, 15 Ves. the conduct of his guardian, the 449, n. court will interpose and appoint a -i Re Connicks, 2 Ir. Eq. 2G4. I Rcc. — 23 354 LAW OF RECEIVERS. Likewise where the mother of infant children, who had been appointed by her husband executrix and guardian of the children, married a man in necessitous circumstances, a receiver was appointed.^ A receiver was appointed upon the application of minor heirs where the executrix of the estate intrusted the man- agement of the estate to her husband, who w^as not man- aging it properly and involving it in debt.^ § 105. On Refusal of a Trustee or Executor to Act. A receiver will be appointed to protect the interests of an infant where trustees or others appointed to protect his rights refuse or fail to act in that behalf.^ The ap- pointment in such circumstances is made on the ground that the estate is endangered by the failure of having a person in charge or control of it. § 108. In Actions on Behalf of Infants to Disaffirm Contracts. In an action to disaffirm contracts or other transactions made by infants it is proper to appoint a receiver where 5Willon V. Lord Mountcashell, should, instead of being paid to 4 Bro P C 306 t^® infant's guardian, be adminis- ^ . , ^ K Tv/r„A/r,,i vn tered by the court, through a 6 Stairley v. Rabe, McMul. Kq. . -r^, j t^- ^-ii- r^^ « oLa.li cj- receiver. Edgewood Distilling Co. (S. C.) 22. ^ Rosser's Admr., 116 Va. 624, Where the income of property gg g. E. 716. belongs to a mother and the prop- j Where two are appointed and erty itself to her children, and the one declines to act, the court will husband and trustee with the con- appoint a receiver on behalf of an sent of the wife so manage prop- infant cestui que trust, with lib- erty that debts are incurred which erty to either of the trustees to become a charge upon the future offer himself. Tait v. Jenkins, 1 income of the property, a receiver Younge & C. Ch. 491. may be appointed. Robert v. Tift, Where there had been several 60 Ga. 566. trustees, one of whom was dead, The homestead allowance to one abroad, and the business fell minors, inuring to their benefit, exclusively on one, and application under Code, 1904, § 3635, till they was made for a receiver, the act- are of age, or marry, after which ing trustee consenting, a receiver the creditors are entitled to the was appointed, Tidd v. Lister, 5 principal, consisting of money, Madd. 433. TRUST ESTATES AND FIDUCIARY RELATIONS. 355 there are circumstances showing danger to the property- involved.^ Thus where an infant bought property and mortgaged it to secure the purchase price and upon default the mort- gagee took possession of the property and also other property belonging to the infant which he was about to sell, the court in an action to disaffirm the transaction ap- pointed a receiver.2 § 107. Who Is Eligible for Appointment. Following the principles which we have already dis- cussed, one whose duties are such that he would be placed in the position of acting as a judge of his own acts on behalf of the interests of others if he were appointed receiver, should not be appointed receiver over the estate of an infant. Thus the next friend of an infant should not be ap- pointed receiver of its property, since it is his duty to watch the accounts and acts of the receiver.^ And for the same reason it is not proper to appoint a trustee or executor for such a purpose.^ But, on the other hand, it was held that a person who has acted as receiver of the property and is for that reason familiar with it and who was appointed as trus- tee and executor of the will under which the infant 1 Where the facts and circum- 2 v. JoUand, 8 Ves. Jr. 72. stances warrant an action for re- Cf. Sykes v. Hastings, 11 Ves. Jr. scission of contract entered into 363; Sutton v. Jones, 15 Ves. Jr. during minority and for cancella- 584. Lord Eldon, in Sykes v. Hast- tion of notes, chattel mortgage, ings, supra, says: "The appoint- etc, the plaintiff had a right to ment of a trustee as receiver is apply for the appointment of a extremely rare; and only where receiver. Moser v. Renner, (Mo. he will act without emolument. App.) 179 S. W. 970. . . . The principle of the court 2 Skinner v. Maxwell, 66 N. C. is that the trustee shall not be 45, 68 N. C. 400. receiver if any other can be pro 1 Stone v. Wishart, 2 Madd. 63. cured." 35 S LAW OF RECEIVERS. tenant takes as a life tenant, is properly appointed to act as receiver on behalf of the interests of the infant.^ § 108. Effect of the Appointment and Duties Thereunder. The appointment of a receiver for the estate of an in- fant, it has been held, does not put the infant out of pos- session.^ And where a receiver is appointed in lieu of a guardian removed, he is not invested with the powers of a guardian, but acts under the control of the court until another guardian is appointed.^ A receiver for the estate of an infant will be liable to the infant for interest if he fails to invest the funds when they are sufficient for such a purpose.^ But a receiver ought not to invest the funds of the re- ceivership mthout an order of court. And where he is directed to invest funds belonging to the receivership and report from time to time to the court in respect to the matter but invests it T\'ithout making such reports and the fund is lost, he may be held liable for its loss even though he acted in good faith.^ The general opinion, however, is that the receiver will not be liable if he manages the funds of the infant in the same manner as a reasonably prudent man w^ould do. Thus it was held that he would not be liable to the infant for funds paid to relieve tenants who had been impov- erished by the failure of crops.^ 3 Newport v. Bury, 23 Beav. 30. to his credit as receiver, on which 1 Sharp V. Carter, 3 P. Wms. 379. deposit he was paid interest by ■„T.„. n-, TVT o the banlt, which afterwards failed, 2 Temple v. Williams, 91 N. C. ^ ,. v,, * *i, i ^ „ v,^ ^ he was liable for the loss, as he had failed to report to the court 3 Hicks V. Hicks, 3 Atk. 274. the manner in which he had in- 4 Where a receiver was ap- vested the infant's estate, although pointed to take charge of an in- he had acted in the best faith, fant's estate and invest the same. State v. Gooch, 97 N. C. 186, 2 Am. and report to the court annually, St. Rep. 284, 1 S. E. 653. and he deposited a portion of the 5 Jackson v. Jackson, 2 Hogan money in a bank in another state 238. TRUST ESTATES AND FIDUCIARY RELATIONS, 357 The infant should be allowed a reasonable time after coming of age within which to examine the accounts of the receiver.'^ But where a receiver has accounted to a guardian of an infant he will not be required to account again to the infant/ § 109. When Such a Receiver Will Be Discharged. A receiver of an infant is naturally subject to dis- charge or removal as in any other case and for like reasons. We will discuss the grounds for such discharge or removal in the chapter devoted to that subject. Where a receiver has been appointed over the estate of several infants it has been held that he will not be dis- charged until all have reached their majority.^ And he should not be discharged until the infant has had an opportunity to examine his account.^ 6 Matter of Van Home, 7 Paige i Smith v. Lyster, 4 Beav. 227. (N. Y.) 46; Wildridge v. McKane, 2 Wildridge v. McKane, 2 Moll. 2 Moll. 547. 547. 7 Palmer v. Truby, 136 Pa. 556, 20 Atl. 516. CHAPTER VI. CONTROVEBSIES AND RELATIONS ARISING OUT OF MARRIAGE. 1. Separate Property of Wife. § 110. In General. Receivers have been appointed in numerous cases over the estates of married women in the English practice.^ But a receiver will not be appointed of separate estate of a married woman which has restraints on anticipation where the plaintiff obtained leave to enter final judg- ment for a debt against her but delayed entering it for three months when he knew that arrears had just become due and then entered judgment and applied for a re- ceiver.^ And where the separate property of a married woman has restraints from anticipation by her such restraints are not removed by the death of the husband, and the court will not appoint a receiver over it on behalf of her creditor.^ § 111. In Action Against Married Woman Doing Business as Sole Trader. In an action by creditors to charge the separate prop- erty of a married woman doing business as a sole trader with the payment of debts contracted by her, a receiver may be appointed over her property where it is showTi that there is danger of the property being wasted or 1 Bryant v. Bull, 10 Ch. D. 153; 2 Colyer v. Isaacs, 77 L. T. N. S. Re Peace and Waller, 24 Ch. D. 198. 405; Hill V. Cooper (1893), 2 Q. B. 3 Pelton r. Harrison (1891), 2 85; Hood Barro v. Heriot (1896), Q. B. 422. N. C. 174; Cummins v. Perkins (1899), 1 Ch. 16. (358) CONTROVERSIES ARISING OUT OF MARRIAGE. 359 placed beyond the reach of her creditors. Such a suit would be in the nature of a sequestration of her prop- erty as in the case of a creditor's bill, and it is customary in such cases to appoint a receiver.^ § 112. In Action by Wife to Establish Her Separate Interest. In an action by a married woman against her husband to establish her separate interest in property in his pos- session, the remedies of sequestration and attachment are not so adequate and complete as to prevent the ap- pointment of a receiver. Consequently, under a statute which authorizes the appointment of a receiver in an action ''between partners or others jointly owning or interested in any property or fund on the application of the plaintiff or any party whose right to or interest in the fund or the proceeds thereof is probable and where it is shown that the property or fund is in danger of being lost, removed, or materially injured," a receiver may be appointed in such an action and thus prevent him from disposing of her interest therein and converting the proceeds to his own use where the character and condi- tion of the property are such that the interest of the plaintiff can be best protected by the appointment of a receiver.^ § 113. Controversies Arising Out of Marriage Settlements. Wliere by the marriage settlement the husband and wife were to mutually enjoy certain premises but the wife having procured a divorce, the husband who was in- 1 Todd V. Lee, 15 Wis. 365. converting the proceeds to his own 1 Shaw V. Shaw. 50 Tex. Civ. 363. "«e. and for a divorce, a receiver m S W 223 °' *'^® property could be ap- pointed solely upon plaintiff's afR- In an action by a wife against ^^^^^ therefor, notwithstanding de- her husband to establish her sep- fendant's denial, by affidavit, of arate interest in property in his all the allegations of the petition, possession, and to prevent his dis- Shaw v. Shaw, 51 Tex. Civ. 55, 112 posing of her interest therein, and S. W. 124. 360 LAW OP KECEIVERS. solvent remained in possession, a receiver was appointed over the property on the application of the wdfe.^ And in a suit by a husband against his wdfe to enforce the terms of an ante-nuptial agreement, the execution of which is admitted by the wife but claimed to have been procured by fraud, a receiver was appointed to collect the rents of real property which the wife had covenanted to convey to a trustee for the purpose of carrying out the settlement, the person named in the contract as trustee refusing to act.^ So also where a husband after having made a marriage settlement w^hich, however, was made after marriage, sold the property for value, the court appointed a re- ceiver in a suit by the purchaser for specific performance and in which it was claimed that the marriage settle- ment was invalid as against the purchaser.^ But a receiver will not be appointed where property is in the hands of a trustee for husband and wife, under the terms of a marriage settlement.* And wdiere by a marriage settlement certain moneys were settled upon the wife for her separate use and ben- efit but vested in certain trustees wdio permitted the hus- band to receive rent belonging to his wife, and the trus- tees afterward insisted on receiving it themselves, it was held that the husband was not entitled to a receiver.^ So also where under a marriage settlement the inter- est of the wife is a charge upon the fee of the property, a receiver will not be appointed merely because the fee owner has neglected to pay interest, since in such circum- stances the wife has an adequate remedy at law.^ / 1 Boggs V. Boggs, 55 Ga. 590./ 4 Whitaker v. Cohen, 69 L. T. 2 De Rustafjaell v. De Rustaf- 451. jaell, 43 W. N. C. 56. 5 Wiles v. Cooper, 9 Beav. 294. 3 Metcalfe v. Pulvertoft, 1 Ves. 6 Drought v. Percival, 2 Mol. 502. & Bea. 180. CONTROVERSIES ARISING OUT OF MARRIAGE. 361 § 114. In Matters Affecting Dower and Curtesy. Owing to the inchoate character of the dower right, its protection is a matter which is favored by courts of equity. Where a receiver of the property of a husband's estate, appointed on behalf of his creditors, seeks to sell the property he will be required to do so subject to the dower interest of the wife.^ And in a proceeding by the widow to have her dower interest fixed and set aside, where the property is in the possession of a person who is insolvent and there is danger of loss of the rents and profits, the court will appoint a receiver.- But in such a proceeding by an heir or devisee it should not only be shown that the rents and profits are in danger of being lost, but the manner in which they will be lost so that the court can readily see that there is no adequate rem- edy at law.^ And in the event that a mdow entitled to dower fraudulently releases her dower right to her chil- dren in order to defraud her creditors, the court may in a creditor's suit appoint a receiver pending the ter- mination of the suit.^ Likewise, in a suit to admeasure the dower by decreeing that in lieu of a designated parcel, the widow shall receive a specified part of the fixed annual rental value of each parcel, a receiver may be appointed to enforce the decree.^ The estate by curtesy, w^liere such estates still exist, upon the death of the wife after issue born, passes to the receiver of the husband appointed in proceedings against him by a judgment creditor.^ 1 Lowry v. Smith, 9 Hun (N. Y.) 5 Conlon v. Kelly, 199 N. Y. 43, 514. 92 N. B. 109 (reversing 136 App. 2 Chase's Case, 1 Bland. (Md.) Div. 940. 122 N. Y. Supp. 1125). 206, 17 Am. Dec. 277. 6 Beamish v. Hoyt, 2 Rob. 3 Knighton v. Young, 22 Md. 359. (N. Y.) 307. 4 Tenbrook v. Jessup, 60 N. J. Eq. 234, 46 Atl. 516. 362 LAW OF RECEIVERS. § 115. Receivers in Actions for Divorce or Maintenance. The practice is well settled that the court may appoint a receiver to take charge of the defendant's property in a suit for divorce where a decree for alimony is sought. In some cases the receiver is appointed under the author- ity of statutes making special provisions for the appoint- ment of receivers in divorce actions and in other cases under a showing of danger to the fund from which the alimony is sought to be collected.^ In some states the statute authorizes the court to re- quire the husband in a divorce action to give reasonable security for alimony, and upon his failure to do so ap- point a receiver.2 Where the appointment is made pursu- 1 Court may appoint a receiver to take charge of husband's prop- erty to enforce a decree for ali- mony. Huellmantel v. Huellman- tel, 124 Cal. 583, 57 Pac. 582; An- derson V. Anderson, 124 Cal. 48, 56 Pac. 630, 57 Pac. 81, 71 Am. St. Rep. 17; Anderson v. Anderson, 123 Cal. 445, 56 Pac. 61; Petaluma Sav. Bank v. Superior Court, 111 Cal. 488, 44 Pac. 177; Stallings v. Stallings, 127 Ga. 464, 9 L. R. A. (N. S.) 593, 56 S. E. 469; Harding V. Harding, 120 111. App. 389; Holmes v. Holmes, 29 N. J. Eq. 9; Carey v. Carey, 2 Daly (N. Y.) 424; Drake v. Drake, 27 S. D. 329, 131 N. W. 294. Receiver is to be appointed to collect alimony particularly where sequestration has been ordered. Seibly v. Ingham, Cir. Judge, 105 Mich. 584, 63 N. W. 528; Cizek v. Cizek, 69 Neb. 797, 5 Ann. Cas. 464, 96 N. W. 657, 99 N. W. 28; Swansen v. Swansen, 12 Neb. 210, 10 N. W. 713; Foster v. Town- shend, 68 N. Y. 203. In Kirby v. Kirby. 1 Paige (N. Y.) 261, the court says; "The injunction, receiver, and ne exeat may all properly be made use of to aid the court in doing justice between the parties." So, also, in Questel v. Questel, Wright (Ohio) 492, where a husband conveyed his property to his son to prevent a recovery for alimony on a bill pending for such purpose, it was held that a court of chancery may properly enjoin the parties from further changing the property, and appoint a receiver to secure the income to satisfy the alimony. Receiver may be appointed of rents and profits pending the liti- gation. Vincent v. Parker, 7 Paige (N. Y.) 65. Receivers have also been ap- pointed in divorce cases in the English practice. See Waddell v. Waddell (1892), P. 226; Campbell V. Campbell (1895), 72 L. T. 294. 2 White V. White, 130 Cal. 597, 80 Am. St. Rep. 150, 62 Pac. 1062; see, also, Petaluma Sav. Bank v. Superior Court, 111 Cal. 488, 44 Pac. 177 (see § 30, supra, for quotations from this case); Mur- ray v. Murray, 115 Cal. 266, 56 Am. CONTROVERSIES ARISING OUT OF MARRIAGE. 363 ant to such a statute, the powers of the court must be exercised only in accordance with the terms of the stat- St. Rep. 97, 37 L. R. A. 626, 47 Pac. 37; McAneny v. Superior Court, 150 Cal. 6, 87 Pac. 1020. Under statute, receiver will not be appointed unless husband fails to comply with decree for alimony. Logan V. Logan, 125 App. Div. 724, 110 N. Y. Supp. 174. Evidence that the husband has failed to pay alimony pursuant to orders of the court, and that he has attempted to dispose of his property for the purpose of pre- venting the wife from getting any part of it, authorizes the appoint- ment of a receiver on her appli- cation, and after notice to him, under Civ. Code, § 140, which pro- vides that the court may enforce the payment of alimony by the ap- pointment of a receiver. Huell- mantel v. Huellmantel, 124 Cal. 583, 57 Pac. 582. Under Code Civ. Proc, § 1772, providing that, where a judgment requires a husband to provide for the support of his wife, the court may require reasonable security, etc., and on failure to do so the court may appoint a receiver thereof, but the power to appoint a receiver is expressly contingent upon failure to comply with the requirements of the judgment, and, where it aifirmatively appears that there has been no such failure on the part of the defen- dant, the application for a receiver should be denied. Logan v. Logan, 125 App. Div. 724, 110 N. Y. Supp. 174. Under Code Civ. Proc, § 1772, which provides that, when an action is brought upon a foreign judgment of divorce for adultery, the court may direct the husband to give reasonable security for the payment of alimony under the judgment, and, if he fails to give the security or defaults, the court may appoint a receiver for his personal property, in an action to enforce a foreign judgment for alimony, defendant can be required to give security only under sec- tion 1772, and, on his failure to give security, the court is confined to the remedy of sequestration provided in said section, and can not commit defendant for con- tempt for failure to give the se- curity. Moore v. Moore, 142 App. Div. 459, 126 N. Y. Supp. 936. Under G^n. Laws, 1909, ch. 247, 5, 16, and ch. 289, 1, the superior court in a divorce action has juris- diction to appoint a receiver to conserve the property during the pendency of a proceeding for ali- mony. Warren v. Warren, 36 R. I. 167, 89 Atl. 651. Rev. St. 1895, art. 1465, author- izes the appointment of a receiver in an action between partners or others jointly owning or inter- ested in any property or fund, on the application of the plaintiff or any party whose right to or inter- est in the fund or the proceeds thereof is probable, and where it is shown that the property or fund is in danger of being lost, removed, or materially injured. Article 2985 provides that, pending a suit for divorce, the court or the judge thereof may make such temporary orders respecting the property and parties as may be deemed neces- sary and equitable. Under these provisions it was held that a re- 3G1 LAW OF RECEIVERS. ute, althougli such statutes are generally framed on the theory of giving protection to the wife from the prop- erty under the control of the husband and necessarily from the nature of the case must leave many matters to the discretion of the trial court.^ ceiver may be appointed in an action by a wife against her hus- band to establish her separate interest in property in his posses- sion, and to prevent his disposing of her interest therein, and con- verting the proceeds to his own use, and for a divorce, where the character and condition of the property are such that the interest of plaintiff can be best protected by the appointment of a receiver. Shaw v. Shaw, 51 Tex. Civ. 55, 112 S. W. 124. 3 In an action by a wife against lier husband for a divorce where it appears that he is a resident of another state, to which he is at- tached by large holdings of prop- erty therein, and that, by reason of his non-residence he can not give personal attention to his property in this state, but leaves it to the management of agents, and it is admitted by the pleadings that he has endeavored, and is en- deavoring, to sell or encumber his property so as to deprive his wife of a support, the court is justified in appointing a receiver to en- force its decree of maintenance. Anderson v. Anderson, 124 Cal. 48, 71 Am. St. Rep. 17, 56 Pac. 630, 57 Pac. 81. In the above case the court said: "A more serious question is the necessity of the appointment of a receiver in the case. Section 140 of the Civil Code provides that the court may require the husband to give reasonable security for mak- ing any payments required, and may enforce the same by the ap- pointment of a receiver, or by any other remedy applicable to the case. It is charged in the com- plaint and not denied in the an- swer, that the husband endeavored and is endeavoring to sell and transfer or encumber his property and thereby deprive his wife of support. The defendant is a res- ident of the State of New York. Where so much is necessarily com- mitted to the discretion of the trial court, depending in each case upon its estimate of the character of the parties, as exhibited in mat- ters too numerous or too trivial to go into the record, we can not say that there was an abuse of dis- cretion in this case in the appoint- ment of a receiver. That the de- fendant was a non-resident of this state, attached to his residence in New York by large holdings of property, is a strong circumstance tending to make a receivership the most natural, as well as the most effective, method of enforcing com- pliance with the order for main- tenance. And the severity of the method devised is mitigated by the fact that he did not, as from his non-residence he could not, give personal attention to his prop- erties in this state, and left them to the management of agents. Under the management of a re- ceiver, judiciously appointed, and subject to the control of the court, the properties may be well man- CONTROVERSIES ARISING OUT OP MARRIAGE. 365 The power given by the statute to appoint a receiver *• after judgment to carry the judgment into effect" is to be construed as applying only to cases where the judg- ment affects specific property and to a case of an or- dinary judgment for money which may be enforced by an execution. The judgment for a specific sum for ali- mony is regarded as an ordinary judgment.^ But aside from the statutory authority to be found in some of the states for the appointment of a receiver in divorce suits, a chancery court would have an undoubted right to appoint a receiver pending the determination of the question of alimony where there is danger of the ali- mony fund being wasted, depreciated or removed, since the property of the husband is charged with the liability of an alimony decree being rendered against him.-^ The aged and the rights of both parties protected. These considerations probably tended to influence the judgment of the court below." Under Acts May 23, 1907 (P. L. 227), and April 27, 1909 (P. L. 182), where service is upon hus- band by publication only, court held to have no power to appoint receiver to take all of deserting husband's property and sell it for the benefit of creditors and sup- port of the wife. Erdner v. Erd- ner, 234 Pa. 500, 83 Atl. 420. 4 White V. White, 130 Cal. 597, SO Am. St. Rep. 150, 62 Pac. 1062. 5 A court in chancery granting a decree for alimony has ample power to enforce that decree when enforcement is possible; and this by the appointment of a receiver in a proper case. Harding v. Hard- ing, 120 III. App. 389. Where, in a divorce suit by the wife, it appears that the husband is a resident of another state with 'arge property holdings in such state and leaves the management of his property in the state of the suit to agents and it is shown that he is endeavoring to encum- ber the property so as to deprive the wife of support, it is proper for the court to appoint a re- ceiver. Anderson v. Anderson, 124. Cal. 48, 71 Am. St. Rep. 17, 56 Pac. 630, 57 Pac. 81. Although statutes exist upon the subject in California, still the rule announced by the court in the above case would undoubtedly be the same in the absence of stat- utes on the subject. The fact that the petition may show upon its face that defendant has an interest in the real prop- erty involved in the suit, and that he has been enjoined from dispos- ing of sufficient of it to protect plaintiff against any damage that she might sustain by his misman- agement or fraudulent disposition of the personal property, would not defeat plaintiff's right to have 366 LAW OF RECEIVERS. necessity for the appointment of a receiver may be obvi- ated by the defendant giving a bond to secure the payment of any alimony to be awarded to the plaintiff.^ Where the object to be attained by the appointment of a receiver has been attained by an order restraining the defendant from disposing of his property, the appointment of a receiver wdll be refused.^ Likewise where the wife has a receiver to take charge of the personal property. Shaw v. Shaw, 51 Tex. Civ. 55, 112 S. W. 124. Where an attachment was issued against defendant for disobedience to an order for the payment of ali- mony, pending a divorce suit, and the defendant was about to dis- pose of his property and leave the state, held, that it was proper to interfere by injunction, and ap- point a receiver of his property, if necessary to enable the court to apply the statute remedy Carey V. Carey, 2 Daly (N. Y.) 424. A receiver will not be appointed unless the husband is about to re- move the property. Spiller v. Spiller, 2 N. C. 482. In an action for an absolute divorce, where it is impossible to serve the defendant personally be- cause of his indefinite absence from the state, and there is prop- erty belonging to him in the state, which is in imminent danger of being lost, destroyed, depreciated by waste, or removed, so as to de- feat the right of the wife to ali- mony, a receiver may, on a proper showing, be appointed to preserve the property. Stallings v. Stall- ings, 127 Ga. 464, 9 L. R. A. (N. S.) 593, 56 S. E. 469. Independently of any statutory provision, a suit in equity may be maintained to compel the payment of alimony decreed to a wife. Bar- ber v. Barber, 62 U. S. (21 How.) 582, 16 L. Ed. 226. Receivers may be appointed in these classes of cases under the equitable rules under the author- ity of a statutory provision which allows a receiver to be appointed in all cases "where receivers have been heretofore appointed by the usages of the courts of equity." Murray v. Murray, 115 Cal. 266, 56 Am. St. Rep. 97, 37 L. R. A. 626, 47 Pac. 37. 6 After giving of bond by hus- band, receiver could not be ap- pointed to take charge of com- munity property. Williams v. Wil- liams, 60 Tex. Civ. 179, 125 S. W. 937, 1199. In Holmes v. Holmes, 29 N. J. Eq. 9, a receiver is said to be jus- tifiable if the defendant will not give bond, with satisfactory se- curity for the payments. Cf. Still- man V. Stillman, 7 Baxt. (66 Tenn.) 169. 7 Where, in a suit for divorce, it is shown that defendant is worth $75,000 to $80,000, composed largely of real estate, and defen- dant has been enjoined from dis- posing of it, the appointment of a special receiver to take charge of the personal property of the de- fendant is sex abuse of judicial discretion. Goff v. Goff, 54 W. Va. 364, 46 S. E. 177. CONTROVERSIES ARISING OUT OF MARRIAGE. 367 been awarded a money judgment which is made a lien upon the husband's property, a receiver should not be appointed, since the plaintiff ordinarily has an adequate remedy by means of the lien,^ But a receiver is sometimes appointed under the stat- ute in supplementary proceedings on the alimony judg- ment. In such a case the case is governed by the same rules applicable to similar proceedings on ordinary judg- ments.® The same general rules as are applicable to divorce cases in respect to receiverships therein also apply to suits for maintenance. ^° 8 In a suit for divorce, the ap- pointment of a receiver to collect and dispose of the defendant hus- band's property held improper; the wife being protected by a money judgment made a lien thereon. Gust v. Gust, 78 Wash. 414, 139 Pac. 228. 9 Barker v. Dayton, 28 Wis. 367. Where, on failure of a husband to comply with an order to pay his wife alimony, all his personal property has been sequestered, and a receiver appointed, a sep- arate action to restrain the execu- tors of a will from paying the hus- band a legacy in their hands may also be maintained by the wife, and the proceeds thereof directed to be paid to the receiver. Garden V. Garden, 34 Misc. Rep. 97, 69 N. Y. Supp. 481. Where defendant failed to pay plaintiff alimony due her, she can not complain of an order to se- quester the personal property of defendant and appoint a receiver therefor for her benefit, even though an issue may arise between herself and such receiver respect- ing the title to certain insurance policies on defendant's life which are in her possession. Conklin v. Conklin, 125 App. Div. 278, 109 N. Y. Supp. 187. Order appointing receiver and sequestrating certain moneys for purposes of payment of alimony will not be set aside on defen- dant's motion. Radloski v. Rad- loski, 72 Misc. Rep. 101, 129 N. Y. Supp. 818. A decree for alimony is similar to a judgment and the party in whose favor it is rendered is in the position of a judgment creditor in respect to having a receiver ap- pointed to aid in its enforcement. Oliver v. Lowther, 28 W. R. 381. Also appointed where alimony has been decreed and husband at- tempts to fraudulently dispose of his property. Kirby v. Kirby, 1 Paige (N. Y.) 261; Barker v. Day- ton, 28 Wis. 367. 10 Under 2 Rev. Stats., p. 147, 55, which provides that the court may make an order for the sup- port and maintenance of the wife and her children, though separa- tion is not decreed her, it was not intended to authorize the court to 368 LAW OF RECEIVERS. § 116. Procedure Requisites to the Appointment. The general requisites in the matter of procedure also apply to the appointment of receivers in divorce actions. Thus the receiver will not be appointed if by reason of being dismissed, there is no pending suit for divorce before the court.^ Likewise there should be a prayer ask- ing for the appointment of a receiver.- And where the seize, in tlie first instance, out of the bullc of tlie iiusband's prop- erty, tlirougli means of a receiver, a sum sufficient to produce tiie income deemed proper, but only to require him to secure its payment. Davis V. Davis, 1 Hun (N. Y.) 444. A receiver may be appointed of the husband's property in the state, where a decree for separate maintenance has been rendered in favor of the wife, and the hus- band is a non-resident, and allega- tions in the bill that he is about to dispose of the property are not denied. Anderson v. Anderson, 124 Cal. 48, 71 Am. St. Rep. 17, 56 Pac. 630, 57 Pac. 81. In an action for separation, a receiver in sequestration proceed- ings will not be discharged, nor wyi directions be given to him to withdraw all claim to certain funds on deposit in a bank neces- sary for the payment of alimony awarded plaintiff, where it is mani- fest that the money in question was the property of the defendant, who has sought to thwart the plaintiff's rights to recover the same and disobeyed the order of the court. Radloski v. Radloski, 72 Misc. Rep. 101, 129 N. Y. Supp. 818. An action by a wife for main- tenance without divorce, in which it is also sought to set aside trans- fers made by a husband to defeat plaintiff's rights to maintenance out of his property, is by reason of the inadequacy of purely legal remedies so much a subject of equitable cognizance that it car- ries with it the right to have a receiver appointed under the gen- eral provision of Cal. Code Civ. ^ Proc, sec. 5641, for the appoint- ment of receivers in all cases "where the receivers have been heretofore appointed by the usages of the courts of equity." Murray V. Murray, 115 Cal. 266, 56 Am. St. Rep. 97, 37 L. R. A. 626, 47 Pac. 37. 1 Where plaintiff's petition in divorce had been dismissed when the court appointed a receiver, and the defendant had withdrawn his answer, in so far as it prayed for a divorce, only leaving that part which prayed for a division of the property, but plaintiff's reply to the answer, in which she renewed her prayer for a divorce, was be- fore the court, so that there was a suit pending when the receiver was appointed. Crawford v. Craw- ford (Tex. Civ.), 163 S. W. 115. Receiver to collect alimony may be appointed on wife's affidavit alone. Shaw v. Shaw, 51 Tex. Civ. 55, 112 S. W. 124. 2 Where in an action for divorce in which a corporation was joined as defendant in order to seek re- lief as to certain property alleged CONTROVERSIES ARISING OUT OF MARRIAGE, 369 statute requires the receiver to furnish a bond before entering upon his duties, such a bond must be furnished-^* The court has no jurisdiction, after the entry of a money judgment in a divorce action, to continue the re- ceiver for the purpose of enforcing the judgment. Any new duties conferred upon him by the judgment are in excess of the jurisdiction of the court, where the power to appoint a receiver exists only in the cases prescribed by the code. Hence the functions of a receiver appointed pending an action for divorce who takes possession of no property before the judgment, terminates with the entry of the judgment, since the object of his original appoint- ment and the functions originally vested in him termi- nate with the entry of the judgment.^ Likewise where defendant has taken an appeal from an order appointing a receiver to enforce payment or security for the pay- ment of temporary alimony and furnished a bond to stay further proceedings under the order, the court has no authority to appoint a receiver to secure the ultimate payment of the temporary alimony.^ And a receiver ap- to have been conveyed to it in to a receiver appointed to take fraud of plaintiff's rights, the only charge of the personal property of relief asked against it was that a husband against whom a judg- it be enjoined from disposing of ment for alimony had been recov- the property alleged to have been ered, and who has failed to pay conveyed to it. and the corpora- the sum decreed, as authorized by tion made default and failed to section 1772. In re Spies, 92 App. answer, a direction that the cor- Div. 175, 86 N. Y. Supp. 1043. poration convey the property to a 4 White v. White. 130 Cal. 597. receiver is in excess of the relief SO Am. St. Rep. 150. 62 Pac. 1062. asked and under the section of the 5 Though, under Civ. Code, § 137, statute prohibiting such relief, is a Superior Court may require the improper. Foley v. Foley, 120 CaL husband, in an action for divorce, 33 65 Am. St. Rep. 147, 52 Pac. to pay temporary alimony, suit -,22 expenses, etc., and, under section 3 Code Civ Proc, § 715, provid- 140, may enforce payment or se- ing that if a receiver be appointed curity therefor by the appointment in an action or a special proceed- of a receiver or by other appro- ing before entering on his duties, priate remedy, where defendant shall file with the proper clerk a filed a bond to stay proceedings bond conditioned, etc.. is applicable pending an appeal from orders re- I Rec. — 24 370 I'AW OF RECEIVERS. pointed in sucli a case can not sue without leave of court as in other receivership cases.® § 117. What Property May Be Placed Under Receivership. There is no doubt that any property which may be considered in connection with the making of an award of alimony may be placed under a receiver appointed in a divorce suit if the same is within the jurisdiction of the court. Thus where a husband conveyed certain real estate, including a large number of contracts for the sale thereof, to a foreign corporation in order to prevent its seizure, an order appointing a receiver to take control of such contracts, collect, and conserve the proceeds, etc., was not objectionable on the ground that they were mere choses in action, and not ''assets" and that prior to the award of alimony complainant was not a creditor.^ Where in a suit for divorce a receiver has been ap- pointed over the property of the defendant which is claimed by the wife as belonging to her, and a third per- son claims an interest in the property, the receiver will be directed to pay the rents and profits of the portion claimed by the third person in court to await the final determination of the title.^ Where in a divorce action the defendant, who is a part- ner in a business, absconds and a receiver is appointed quiring him to pay temporary ali- 6 A receiver appointed in se- mony, the Superior Court had no questration proceedings against a jurisdiction to appoint a receiver husband on his failure to pay ali- to provide security for the ulti- mony to the wife as directed can mate payment of temporary ali- ^^^^ g^g without leave of court. mony, since Code Civ. Proc, § 946, Q^rden v. Garden, 34 Misc. Rep. provides that the perfecting of an ^ ^^ ^^ ^ ^^^^ ^^^ appeal shall stay further proceed- „„„ ^ ,„., ings in the court below on orders ^ Warren v. Warren. 36 R. I. 167. appealed from and matters em- ^9 -^^1. 651. braced therein. McAneny v. Su- 2 Vincent v. Parker, 7 Paige perior Court. 150 Cal. 6, 87 Pac. (N. Y.) 65. 1020. CONTROVERSIES ARISING OUT OF MARRIxVGE. 371 over bis property, tlie receiver so appointed has no right to dispossess the other partner.^ A receiver in such a case takes the property subject to all the liens and equities existing against it.-' Where the receiver is merely appointed to collect the rents and profits, he takes no title to the land itself^ and, of course, he obtains no rights in respect to property not belonging to the defendant.^ 3 Hamill v. Hamill, 27 Md. 679. 4 Although Civ. Code, § 140, pro- vides that the court may require the husband in a divorce case to give reasonable security for ali- mony, and may enforce the same by the appointment of a receiver, a receiver appointed in such case takes the property of the husband subject to all prior liens, and the holders of such liens may take such proceedings elsewhere as the law exacts for preserving and en- forcing the liens, according to their priority, without regard to the mere volition of the court or judge making the appointment, Petaluma Sav. Bank v. Superi^ Court, 111 Cal. 488, 44 Pac. 177. In a suit for divorce, plaintiff averred that certain creditors of the husband had caused his prop- erty to be sequestrated, their claims being fraudulent towards her, she obtained an order ap- pointing her custodian of the prop- erty pending the determination of the question. The creditors filed pleas setting up good faith, alleg- ing that the property delivered to the wife had been converted into money, and praying that she be directed to pay the same into court, and that their claims be satisfied therefrom. The court held that the pleas should not be stricken out as foreign to the issues in the suit. Bradley v. Ram- sey (Tex. Civ.), 65 S. W. 1112. In a suit for divorce, where plaintiff obtained an order whereby she was appointed custodian pend- ing investigation of seizure of her husband's property by creditors, jurisdiction to enforce such claims against the property so delivered to plaintiff attached as incidental to the main suit, regardless of amount or value. Bradley v. Ram- sey (Tex. Civ.), 65 S. W. 1112. 5 A receiver appointed in an ac- tion for divorce, pursuant to 1 Rev. Stats., p. 148, 60, authorizing sequestration of rents and profits of husband's real property to en- force payment of alimony, does not take title to the land. Foster v. Townshend, 68 N. Y. 203. 6 A receiver appointed for de- fendant's property in a divorce action could not move for an ex- amination of defendant as to prop- erty now or theretofore held by him belonging to his wife; the receivership not extending to the wife's property, whoever may have it. Bradley v. Bradley, 137 App. Div. 751, 122 N. Y. Supp. 626. CHAPTER VII. MATTERS ARISING FROM PARTNERSHIP RELATIONS. 1. General Rules Applicable. § 118. General Principles. The inability of partners to sue eacli other in a court of law has always resulted in the equity branch of the courts assuming a broad jurisdiction in matters relating to partnership affairs. A court of equity has always been regarded as the proper forum in which to adjust partnership difficulties and take charge, of suits for the dissolution of the partnership relation. The jurisdiction to appoint receivers over partnership property has been unquestioned by not only the early authorities in our country^ but by even the early authorities of England,^ although the difficult position in which the court is often placed in deciding upon the propriety of appointing a receiver was early recognized and the power to appoint receivers over partnership property was exercised with great caution.^^ It is realized by the courts that if the receiver is appointed, its effect is to terminate the part- nership relation without the consent of one of the parties, and if it refuses to make the appointment it allows the defendant to continue the business at the risk and prob- ably to the loss of the plaintiff. It must, however, weigh 1 Tomlinson v. Ward, 2 Conn. Appeal, 58 Pa. St. 168, 98 Am. Dec. 396; Allen v. Hawley, 6 Fla. 142, 255; Jordan v. Miller, 75 Va. 442. 164, 63 Am. Dec. 198; Saylor v. 2 Const, v. Harris, Turn. & R. Mockbie, 9 Iowa 209; Gridley v. 517; Goodman v. Whitcomb, 1 J. Conner, 2 La. Ann. 87; Williamson & W. 589; Smith v. Jeyes, 4 Beav. V. Wilson, 1 Bland's Ch. (Md.) 503; Wilson v. Greenwood, 1 Sw. 418; Wolbert v. Harris, 7 N. J. Eq. 471. 605; Crane v. Foi:d, 1 Hopk. Ch. 3 New v. Wright, 44 Miss. 202; (N. Y.) 114; Henn v. Walsh. 2 Madgwick v. Wimble, 6 Beav. 495. Edw. Ch. (N. Y.) 129; Slemmer's (372) MATTERS ARISING FROM PARTNERSHIPS. 373 these difficulties and in the circumstances presented be- fore it determine what is for the best interests of both parties.^ The right to ajopoint a receiver over a partner- ship property is, as in other cases, a matter within the judicial discretion of the court, having in view all of tlie circumstances of the case.^ The appointment will not be made merely because no one will be injured by it.*^ ^^And where the injury from the appointment of a re- ceiver over the partnership will exceed the advantages, the appointment will be refused.'y 4 Lord Langsdale in Madgwick V. Wimble, 6 Beav. 495, said: "It must be admitted that when an application is made for a receiver in partnership cases the court is always placed in a position of very great difficulty. On the one hand, if it grants the motion the effect of it is to put an end to the part- nership which one of the parties claims a right to have continued; and on the other hand, if it refuses the motion it leaves the defendant at liberty to go on with the part- nership business at the risk "and probably at the great loss and prejudice of the dissenting party. Between these difficulties it is not very easy to select the course which is best to be taken, but the court is under the necessity of adopting some mode of proceeding to protect according to the best view it can take of the matter, the interests of both parties, and it has accordingly interfered in many such cases." 5 Bacon v. Engstrom, 129 Minn. 229, 152 N. W. 264, 537: New v. Wright, 44 Miss. 202; Madgwick v. Wimble, 6 Beav. 495. The refusal of a receiver in a suit for dissolution of a partner- ship lies in the discretion of the court. Silveira v. Reese, 7 Cal. Unrep. 112, 71 Pac. 515; Whitley v. Bradley, 13 Cal. App. 720, 110 Pac. 596. In Slemmer's Appeal, 58 Pa. 168, 98 Am. Dec. 255, it is said: "A liartnership will not be dissolved on slight grounds." "In making such a decree the court will con- sider not merely the terms of the express contract between the part- ners, but also the duties and obli- gations implied in every partner- ship contract. Smith v. Jeyes, 4 Beav. 503. Where a valuable busi- ness has grown up, by the joint labors and contributions of all, the court should be careful to preserve it, if possible, and put all parties upon a fair and equal footing in competing for it. To appoint a receiver, to direct a sale of the whole and a winding-up of the business would destroy its value without benefiting either party." 6 Morey v. Grant, 48 Mich. 326, 12 N. W. 202. T Philips V. Von Raven, 26 Misc. Rep. 552, 57 N. Y. Supp. 701. 374 LAW OP RECEIVERS. In passing upon the question whether a receiver should be appointed over the property of a partnership the court is not governed by the same principles of law as are applicable to a case where it is determining whether to issue an injunctional order against one or more members of the partnership. In appointing a receiver a much stronger case should be shown, since the effect of the appointment is to take the control and management of the property entirely out of the hands of all the members of the partnership, whereas in issuing an injunctional order it merely modifies the control of the property. Consequently the court will often grant an injunction as against a defendant partner in a case where it will refuse to appoint a receiver.^ For these reasons it is often said that courts are reluctant in the exercise of their power to appoint receivers over partnership property.'' The general principles applicable to partnership cases were in an early Maryland case^° stated as follows: -^It is true, as it has been strenuously urged, that it\ must be a strong case that will justify this ultimate resort' of a court of equity. It is a high power never exercised where it is likely to produce irreparable injustice or injury to private rights or where there exists any other safe or expedient remedy. LStilH^ajari^t^^f^^^^ 8 Hall V. Hall, 3 Mac. & G. 79; App. Div. 849, 117 N. Y. Supp. 633; Hartz V. Schrader, 8 Ves. 317. Buchanan v. Comstock, 57 Barb. „. ^ ^, ., ,CQ. (N. Y.) 568; Webb v. Allen, 15 9 Bard V. Bingham, 54 Ala. 463 . ^^^ ^!^ ^^^^ ^^ ^ ^ 3^^ . ^^.^^ Loomis V. McKenzie, 31 Iowa ^ ^^^^^^ ^^ ^^^^ 240, 96 Pac. 425; Goldman v. Manistee Circuit ^^^^. ^^j^^ ^ Dennis, 9 Wash. Judge, 155 Mich. 47, 118 N. W. ^Qg^ gy p^^^. 450. ^^ry Bros. v. 600; Morey V. Grant, 48 Mich. 326, Dalhoff Const. Co., 126 Fed. 584; 12 N. W. 202; Albrecht v. Diamon, Devereux v. Fleming, 47 Fed. 177; 125 Minn. 283, 146 N. W. 1101; Baxter v. West, 28 L. J. Ch. 169; Nathan v. Bacon, 75 N. J. Eq. 401, Waters v. Taylor, 2 Ves. & B. 299, 72 Atl. 359; Hard v. Klaus, 9 N. J. 15 Ves. 10; Carlen v. Drury, 1 Ves. Law J. 370; Moles v. O'Neill, 23 & B. 154, 12 R. R. 203; Burden v. N. J. Eq. 207; Cox v. Peters, 13 Howard, 2 N. Brunsw. Eq. 461. K J. Eq. 39; Birdsall v. Colie, 10 10 Speights v. Peters, 9 Gill N. J. Eq. 63; Cohn v. Wahn, 132 (Md.) 472. MATTERS ARISING FROM PARTNERSHIPS. 375 ^specially^in partnersliip transactions where the parties after dissolution of their connection, can not agree upon the adjustment, and the property or funds in dispute are liTflie hands of one partner alone, each having an equal right to the control of the property, cases must neces- sarily arise where the interest of both can only be prop- erly secured by the intervention and appointment of a receiver. . . . It is assumed by the appellant that the court, as preliminary to the appointment of a receiver, must also further be satisfied that the property is in imminent peril. This^ however, is not always a necessary condition to the action of the court. Against the legal title, or a strong presumptive title in the defendant, the court would interfere with great reluctance; and only where the property was in danger of being materially injured or lost. But in respect to a fund which is claimed, and is prima facie the proceeds of a partnership, it is but a provident exercise of equity power to place the property under the care of the court,iiJ ^ The appointment of a receiver being the exercise of a power incidental to equity jurisdiction and proceedings for the winding up of partnership affairs being an equity proceeding, it is obvious that the court has an inherent right to appoint a receiver in such cases where necessary to give effect to a decree to be rendered in the main action.^^ But the court will not appoint a receiver in a suit involving a controversy among partners where the issue involves merely legal rights as distinguished from equi- table rights. ^2 And in accord with the general rule appli- 11 Martin v. Hurley, 84 Mo. App. property. Mcintosh v. Perkins, 13 670; Cox V. Volkert, 86 Mo. 505, Mont. 143, 32 Pac. 653. 511. A receiver will not be appointed 12 A receiver should not be ap- over a question of damage. There pointed merely to determine con- must be an account to be ad- flicting rights to property where justed. Morrison v. Van Benthuy- there is no danger of loss of the sen, 103 N. Y. 675, 9 N. E. 180. 376 LAW OF RECEIVERS. cable to all receivership cases, a receiver will not be appointed where no ultimate relief other than the ap- pointment of a receiver is soiight.^^ Where all of the partners join in the request for the appointment of the receiver, the court will not generally refuse to make the a^jpointment,^^ although if the court has no jurisdiction to appoint a receiver, jurisdiction to do so can not be conferred by the consent or stipulation of the parties. ^^ § 119. Statutory Provisions for Appointment. Frequently statutes exist which cover the appoint- ment of receivers including the circumstances in which one will be appointed in relation to partnerships. Such statutes, though having many features in common, in some instances have changed the general rules which would othervsdse apply, but in most instances such stat- utes are merely codifications of the general principles formulated by the chancery courts.^ Under Code Civ. Proc, § 564, subd. 6, which, after setting forth certain specific cases, provides that receivers may be appointed in all other cases "where receivers have heretofore been appointed by the usages of courts of equity," a receiver may not be appointed for a partnership in an action in- volving merely legal, as distin- guished from equitable, rights, on a showing that the defendants were largely indebted, that their property was subject to labor liens, and that their affairs would be better conserved by the appoint- ment of receivers, etc. First Nat. Bank v. Superior Court, 12 Cal. App. 335, 107 Pac. 322. 13 Style V. Lantrip (Tex. Civ.), 171 S. W. 786. 14 A partner of a solvent part- nership who has agreed to the ap- pointment of a receiver over it can not thereafter object to such ap- pointment. Southwell v. Church, 51 Tex. Civ. 547, 111 S. W. 969; Saylor v. Mockbie, 9 Iowa 209; Fitzner v. Noullet, 114 La. 167, 38 So. 94; Newman v. Schminke, 50 La. Ann. 516, 23 So. 714; Todd v. Rich, 2 Tenn. Ch. 107; Taylor v. Neute, 39 Ch. D. 538, 57 L. J. Ch. 1044, 60 L. T. 179, 37 W. R. 190. 15 First Nat. Bank v. Superior Court, 12 Cal. App. 335, 107 Pac. 322. 1 The power to appoint receivers in actions between partners, con- ferred by the Rev. Stats., 1895, art. 1465, is to be exercised only in ac- cord with the general practice and principles of equity, in cases where some good reason or neces- sity is shown for the appointment. The power of appointment should not be exercised without notice except in a case of emergency. MATTERS ARISING FROM PARTNERSHIPS. 377 § 120. Defendant Partner Furnishing a Bond in Lieu of a Re- ceiver. As we have seen in the fore part of this work, the court may make the appointment of a receiver dependent upon the failure of the defendant to furnish a bond to secure the plaintiff in any recovery which the court may find that he is entitled on the final outcome of the litiga- tion/ and likewise where the defendant offers voluntarily to furnish such a bond the court will be very reluctant at appointing a receiver.- These same principles are appli- cable to suits involving controversies between partners. Undoubtedly there are cases in which the furnishing of a bond by the defendant would not be ample protection to the plaintiff, but perhaps in the majority of cases the rights of the plaintiff partner could be sufficiently pro- tected by the furnishing of such a bond, together with an injunctional order. Webb V. Allen, 15 Tex. Civ. 605, 40 S. W. 342. "Under Rev. Stats., 1895, art. 1465, authorizing the appointment of a receiver in an action between part- ners on the application of one of the partners, and article 1492, which provides that nothing shall prevent a member of a partner- ship from having a receiver ap- pointed whenever a cause of action arises between the copartners, a partner applying for the appoint- ment of a receiver of the partner- ship property need not prove that the property is in danger of being lost, but is entitled to the appoint- ment of a receiver on a showing that he has been wrongfully ex- cluded from the management of the partnership business. Rische V. Rische, 46 Tex. Civ. 23, 101 S. W. 849. Under a statute which author- izes a partner in a suit to dissolve the partnership and settle its af- fairs to apply to a judge of the proper court, in case they can not agree upon a distribution, for a receiver to hold the partnership property and distribute in accord with the orders of the court, and which also authorizes the judge to appoint a receiver forthwith in case he should deem it just and reasonable to do so, the action of the judge must be based on a pre- liminary hearing and finding that he deems the appointment just and reasonable. Bostwick v. Isbell, 41 Conn. 305. For a general discussion of the effect of statutory provisions on the appointment of a receiver, see section 21. supra. 1 See section 15, supra. 2 See section 25, supra. 378 LAW OF RECEIVERS. If the appointment of the receiver would cause groat inconvenience to all of the parties, the court may make an appointment to be effective if the defendant fails to furnish a bond to indemnify the plaintiff partner.^ In other words, under such circumstances the court will allow the defendant to furnish a bond to secure the plain- tiff in lieu of the appointment of a receiver.^ And the court may in its discretion refuse to appoint a receiver wiien the defendant offers to furnish an indemnity bond.^ And, of course, where the statute allows a defendant partner to prevent the appointment of a receiver in a partnership action by the furnishing of a bond to indem- nify the plaintiff, no receiver will be appointed upon com- pliance with the statute in that respect.^ The question whether the rights of the complaining partner can be sufficiently protected by the furnishing of a bond to account to the plaintiff is one which rests within the discretion of the court, having in view the particular 3 Gary Bros. v. DalhofE Const. ing of a partnership engaged In Co., 126 Fed. 584; Mann v. Gad- the brokerage business, the ap- die,' 158 Fed. 42, 88 C. C. A. 1. pointment of a receiver will de- stroy the use by defendant of his stock exchange seat, the court may permit him to give bond in fendant offered to execute a bond j.^^ ^^ ^ receiver being appointed, in such sum and with such sure- valentine v. Muir, 121 N. Y. Supp. ties as the court might require, 704. conditioned to obey all orders of 5 ijj Buchanan v. Comstock, 57 court; a receiver was refused. In Barb. (N. Y.) 568, a receiver was Popper V. Scheider, 7 Abb. Prac. refused before it was determined N. S. (N. Y.) 56, 38 How. Pr. 34, j^^^ ^uch of the partnership ef- the partnership was denied and jgctg belonged to each partner, but a small portion of the capital where no insolvency was alleged, was controlled by the plaintiff and the defendant denied the en- and the defendants were willing ^ire equity of the complaint but to give security, a receiver was offered to convey one-half of the refused. McDonald v. Trojan But- stock to the plaintiff to indemnify ton F. Co., 56 Hun (N. Y.) 648 him. (mem.), 10 N. Y. Supp. 91. 6 Roberts v. Pipkin, 63 S. C. 252, Where, in a suit for an account- 41 S. E. 300. 4 In Saverios v. Levy, 40 Hun 639, 1 N. Y. St. Rep. 758, the de- MATTERS ARISING FROM PARTNERSHIPS, 379 circumstances of tlie case at bar. An appellate court will not disturb the action of the trial court in appointing a receiver, notwithstanding that the defendant offered to give a bond to satisfy any decree rendered in favor of the plaintiff.*^ § 121. Necessity for a Showing of Danger of Loss. It is one of the fundamental rules in respect to the appointment of a receiver that as a prerequisite to such an appointment there must be a danger of loss of the property or fund constituting the receivership. Hence in the case of a partnership litigation in order to have a receiver appointed there must be a showing of danger to the partnership property.^ 7 Where, in a suit for tlie disso- lution of a partnership, the defen- dant, being in possession, in order to defeat an application for a re- ceiver, offered to give bond to sat- isfy any decree in favor of plaintiff, but the court made the appoint- ment, the action will not be dis- turbed on appeal, the record not showing the proofs on which the court's judgment was based. Flem- ing V. Carson, 37 Ore. 252, 62 Pac. 374. The court said: "It is fur- ther insisted that, as the defendant proffered a bond to meet the ap- proval of the court for the satisfac- tion of any decree that might be rendered in favor of the plaintiff, the court ought not to have made the appointment. In some in- stances such an undertaking will obviate and relieve the necessity for a receiver (Buchanan v. Corn- stock, 57 Barb. (N. Y.) 568; Saverios v. Levy, 40 Hun 639, 1 N. Y. St. Rep. 758; Popper v. Scheider, 7 Abb. Prac. [N. S.] (N. Y.) 56, 38 How. Pr. 34); but in the present instance the defen- dant is in possession of the prop- erty, while the plaintiff has an equal right thereto pending ad- justment, and, the court having passed upon the propriety of the appointment, we can not assume to disturb its action in the ab- sence of the proofs upon which its judgment was based." Where plaintiff obtained an in- junction restraining defendant from interfering with his mercan- tile business on the ground of be- ing a discharged employee and gave an injunction bond in that action, such bond will not preclude the defendant from obtaining the appointment of a receiver in an- other action against the plaintiff seeking a dissolution of an alleged partnership in the business based on the ground that the business was being mismanaged and dissi- pated, since the bond was not an adequate remedy. Robbins v. Reed, 174 Ind. 291, 91 N. E. 921. 1 A receiver will not be ap- pointed where the defendant is responsible and danger of loss is 380 LAW OF RECEIVERS. A receiver will not be appointed in relation to rights arising from joint transactions where such transactions have been consummated, in the absence of proof of in- solvency or danger of loss.^ And the mere fact that the partnership business has not been profitable is not ground for the appointment of a receiver.^ § 122. Effect Where Plaintiff Partner Is in Possession. A plaintiff who is in the possession of the partnership is not in a position to ask for the appointment of a receiver over it, since he can as a partner sell the prop- not alleged and shown. Loomis v. McKenzie, 31 Iowa 425; Hefle- bower v. Buck, 64 Md. 15, 20 Atl. 991; Simon v. Schloss, 48 Mich. 233, 12 N. W. 196; Quinlivan v. English, 44 Mo. 46; Renton v. Chaplain, 9 N. J. Eq. 62; Buchanan V. Comstock, 57 Barb. (N. Y.) 568; Hayes v. Heyer, 4 Sandf. Ch. (N. Y.) 485; Wellman v. Harker, 3 Ore. 253; Kilbreth v. Root's Adm'r, 33 W. Va. 600, 11 S. E. 21; Ex parte Owen, L. R. 13 Q. B. Div. 113. A receiver will not be appointed over partnership property where there is no danger that it will be ultimately lost. Perrin v. Lepper, 56 Mich. 351, 23 N. W. 39; Well- man V. Harker, 3 Ore. 253. On an application for appoint- ment of a receiver between part- ners in transactions concerning land and other deals, the plaintiff must make a showing that the property or funds were in danger of being lost, removed, or materi- ally injured, as required by Rev. Stats. 1895, art. 1465. Sanborn v. Nelson (Tex. Civ.), 134 S. W. 855. The fact that defendant, in an action for an accounting of a part- nership, had the legal title to the partnership property, is no objec- tion to the appointment of a re- ceiver, where the plaintiff had paid money into the firm, and the profits had been converted by de- fendant to his own use. Brooke v. Tucker, 149 Ala. 96, 43 So. 141. If danger to the property be shown, a receiver may be ap- pointed even though the existence of the partnership be denied by the defendant. Longbottom v. Wood- head, 83 L. T. 423, 31 Sol. J. 796. 2 In Mcintosh v. Perkins, 13 Mont. 143, 32 Pac. 653, it is said that where it appears from the complaint that all the joint opera- tions had been consummated ex- cept the collection of the debts and there remains simply a dis- pute as to the proper apportion- ment of the fund arising from the business, no averment being made as to insolvency or danger of loss, a receiver should not be appointed. 3 Shoemaker v. Smith, 74 Ind. 71; Moies v. O'Neill, 23 N. J. Eq. 207. MATTERS ARISING FROM PARTNERSHIPS. 381 erly, the only liability attaching to him being that of the duty of accounting to his copartner for the latter 's share in it. If the copartner does not complain of the property being left in his possession, he who has the possession of it certainly ought not to complain.^ So also where the partnership has expired by the terms of the partnership agreement and in a suit for a final accounting the defendant partner offers to turn over the partnership property to the plaintiff for settlement of the partnership affairs, the court will refuse to appoint a receiver.- § 123. Effect of Insolvency of Defendant Partner. Inasmuch as a loss of the partnership property may result from allowing an insolvent member to Avind up the partnership, the fact of the partner in possession being insolvent is ground for the appointment of a receiver.^ 1 Smith V. Lowe, 1 Edw. Ch. (N. Y.) 33. See Hoffman v. Dun- can, 17 Jur. 825; Roberts v. Eber- hardt or Everhardt, 1 Kay 148; Buchanan v. Comstock, 57 Barb. (N. Y.) 568. 2 Bufkin V. Boyce, 104 Ind. 53, 3 N. E. 615. 1 In Randall v. Morrell, 17 N. J. Eq. 343, the court said: "But with the circumstance of the insolvency of one of the partners in addition to the fact of the dissolution of the firm would under ordinary circum- stances induce this court to as- sume the administration of the partnership affairs, I think, admits of no doubt. ... It is only by the united efficacy of these two safeguards (injunction and re- ceivership) that when insolvency supervenes the estate of the co- partnership can be secured and preserved for the benefit of those to whom they equitably belong." On insolvency of a firm one who has supplied goods may have a receiver when the property sold is about to be turned over to a new concern. Hite Natural Gas Co.'s Appeal, 118 Pa. 436, 12 Atl. 267. In an action between partners for an accounting and recovery of the amount due them, where no claim was made that defendant partner was not financially respon- sible or able to respond to any decree which might be rendered, and no dissolution of the partner- ship was prayed, the appointment of a receiver pending the action to take charge of the partnership property was unauthorized. Green- wald V. Gotham-Attucks Music Co., 118 App. Div. 29, 103 N. Y. Supp. 123. A member of a partnership may maintain an action to place the affairs of the concern in the hands 382 LAW OP RECEIVEES. >(So also where tliere are any state of facts, such as mis- management, waste, exclusion of one partner from the partnership affairs, and the like, together with insolv- ency on the part of the member in possession of the partnership property, the appointment of a receiver is very appropriate.^ The insolvency of one of the copart- ners has really the effect of terminating the partnership. By reason of his financial death the insolvent can not perform either the express or implied duties of the part- nership agreement. Nor can he perform his ultimate / duty toward the creditors of the partnership. If the j partnership becomes insolvent the partners become trus- [ tees for the benefit of the partnership creditors and it ' would be eminently proper in such circumstances to have a receiver handle its affairs.^ of a receiver, when the partner- ship has become insolvent and other members of the firm are charged with fraudulent misappli- cation and improper conversion and w-ste of assets of the part- nership. Watson V. Bettman, 88 Fed. 825. 2 In Boyce v. Burchard, 21 Ga. 74, where one partner in violation of his duty mismanages the part- nership business to the great det- riment of the partnership and is insolvent, it was held the other partner was entitled to a distribu- tion and a receiver. In Pint V. Roncoroni (1892), 1 Ch. Div. 633, one partner withdrew from the partnership a large sum of money and this brought about its insolvency; a receiver was ap- pointed although the partnership agreement provided for referring the matters in dispute to arbitra- tion. In White v. Colfax, 1 Jones & S. (N. Y.) 297, it is held that al- though the articles of distribution vest the right of winding up the partnership in some one or more of the partners, yet when they violate the terms of the dissolution agreement, such as refusing access to the books, and when the feeling is such that the right of super- vision can not be exercised with- out great embarrassment or un- pleasantness, a receiver should be appointed. In Smith v. Jeyes, 4 Beav. 503, it is held that the specific contract of partnership can not and does not cover all the implied duties of the partners to each other. 3 In Williamson v. Wilson, 1 Bland Ch. (Md.) 418, it is said that after a firm has become insol- vent the partners are to be consid- ered as trustees for the benefit of their creditors and therefore a suit between such partners might be considered as a creditor's suit and the partnership estate collected and distributed accordingly. The allegation in this case was that the trading had ceased, the firm MATTERS ARISING PROM PAETNERSHIPS. 383 Bankruptcy of one partner is also a snfScient ground for the appointment of a receiver, since under such cir- utterly insolvent, and a receiver was asked as tlie only means of saving tlie partner plaintiff g.nd the creditors from the fraudulent practices of the copartner. The court say: "So long as a man carries on his business and has a prospect of gain he is not consid- ered as insolvent; but if in addi- tion to such deficiency of property his business so far declines as to leave him no prospects of paying his debts he is then, according to the universal sense of mankind, insolvent." "Insolvency is the total destruction of the pecuniary ca- pacity of the partner to fulfil his contract of co-partnership. But his pecuniary capacity was the basis on which it rested. The contract itself must therefore be consid- ered as effectually annulled as if the party were dead. If both be insolvent, or dead, there is no ef- ficient or living capacity left to execute the contract. If only one be dead, or insolvent, the terms can not be complied with; and, where personal confidence was the principal inducement for making an agreement, as in contracts of this nature, it would be unreason- able; and therefore the other party should not have the executor, ad- ministrator, trustee, or assignee of the deceased or of the insolvent intruded upon him. Consequently, the partnership between these par- ties must be considered as having been virtually and effectually ter- minated by their insolvency. It can not be extended over new business transactions nor be allowed to ex- pand any more. It must be wound up and brought to a close; and except for such purposes must be deemed to have totally ceased to exist." See Ex parte Williams, 11 Ves. Jr. 5; Harding v. Glover, 18 Ves. Jr. 281; Vulliamy v. Noble, 3 Meriv. 614; Crawshay v. Maule, 1 Swanst. 506. "While a man continues solvent the order in which he pays his creditors is a matter of indiffer- ence, since none can suffer; and therefore no creditor has the right to complain of the rights given to another. But as soon as he be- comes insolvent that privilege ceases; and equity requires that he should make an equal distribu- tion among them all. The giving of undue and improper preference in such circumstances is de- nounced by the express provisions of our insolvent laws as a fraud. And in all cases where the court of chancery can be called upon and does interpose for the purpose of administrating the assets of an in- solvent debtor it is governed by the rule of equality; because equality is equity. The assets, if insufficient to pay all, are always distributed proportionately. . . . These parties admit themselves to be insolvent debtors. The plaintiff charges his copartners, the de- fendants, with a design to waste the joint property and apply it to their own use. The defendants deny this allegation and charge the plaintiff with a design to mis- apply the funds and give some of the creditors undue preference. Taking the charges of the plain- tiff and of the defendants, or either of them, to be true or allow that each or either party was about to i84 LAW OF RECEIVERS. \J cumstances the partnership is practically terminated and the proper thing to do is to close its affairs as speedily as possible.^ § 124. Over V/hat Propert7 a Partnership Receiver Will Be Appointed- It is self evident that a receiver of a partnership is only entitled to take possession of property belonging to the partnership. Hence a receiver of the property of a partnership appointed after the death of one of the part- ners shonld not be authorized in the order to take posses- sion of the individual property of the surviving partner.^ waste the property, or has his favorite creditors to whom it is his design to give an undue prefer- ence, and it is clear that one or the other or both of them have formed a fixed resolution to violate one of the great principles of equity which it is the province of this court to prevent. None of the creditors of these insolvent debtors, so far as it appears, have as yet obtained any legal advan- tage. It is proper, therefore, that this court should now lay its hands upon the joint property of this partnership and let all its creditors come in pari passu and according to their respective pri- orities, if any should appear." 4 Fraser v. Kershaw, 2 Kay & J. 496. The bankruptcy of one part- ner puts an end to the partnership, but the solvent partner can not transfer his right to another by assignment or otherwise to wind up the concern, or permit the same to be sold on an execution. In Wilson V. Greenwood, 1 Swanst. 471, it is held that on the bank- ruptcy of one partner the partner- ship in one sense is determined, but is continued until all the part- nership affairs are settled. In Freeland v. Stansfeld, 2 Smale & G. 479, on the bankruptcy of one partner the solvent partner is en- titled to a receiver and the as- signee has no right to interfere with the partnership matters and with the collection of the partner- ship debts. A firm whose articles provide that if any partner becomes bank- rupt he shall cease to be a partner, and his share in the capital shall remain as a loan during the re- mainder of the partnership term, the solvent partner is entitled to be appointed receiver and manager of the business, but he must give security, pass his accounts, fur- nish proper accounts to trustees, allow them all reasonable access to the books, and pay the balances in his hands into court, or into a joint banking account of such trus- tees and himself. Collins v. Bar- ker, (1893) 1 Ch. Div. 578. 1 Adams v. Hannah, 97 Ga. 515, 25 S. E. 330. MATTERS ARISING FROM PARTNERSHIPS. 385 V A conditional interest in a partnership is sufficient cause for appointing a receiver. - And a receiver may be appointed notwithstanding that the only assets of the partnership are proceeds from the sale of the partnership property.^ But where the assets of the partnership have been sold under foreclosure pro- ceedings and there is apparently nothing belonging to the partnership, the court will not appoint a receiver.* Where the showing for the appointment of the receiver as to the real property which comprises the larger part of the partnership assets is insufiicient to warrant the appointment, the court should refuse to make the appointment.^ § 125. Receivership in Case of Non-Resident Partners. If the property is situated within the state, doubtless a receiver would be appointed over it in an otherwise proper case even though the partners resided in another state, but in case the partners resided within the state but the property was situated elsewhere a more difficult question arises. Doubtless the court could maintain a certain amount of control over the property by means of compelling the persons within its control to comply with its orders. This was done in an English case^ which in- volved a trust organization analogous to a partnership which was dealing with mines and plantations in a for- 2 Taylor v. Bliley, 86 Ga. 154, mortgagee sells the property to 12 S. E. 210. one of the partners for not more 3 Taylor v. Wells, 113 Iowa 326, than the amount of the debt, even 85 N. W. 30. though the latter may sell it for an 4 A receiver of partnership prop- amount in excess of the debt, erty can not be appointed where Davis v. Niswonger, 145 Ind. 426, all the partnership property has 44 N. E. 542. been sold under a chattel mort- o Sanborn v. Nelson, (Tex. Civ.) gage, on an agreement that upon 134 S. W. 855. any sale by the mortgagee, who i Sheppard v. Oxenford, 1 Kay was the purchaser, the residue & J. 491. In this connection see above the mortgage debt should the sections dealing with the belong to the partners, and such extra-territorial power of courts. I Rec. — 25 386 LAW OF RECEIVERS. eign country. In that case jurisdiction was had over the person of the trustee who hekl the title to the property and who had threatened to sell the property, and the suit in which the receiver was appointed was one for an accounting. The courts of Massachusetts and New York have refused to appoint receivers as against non-resi- dent partners on the ground of having no jurisdiction over them.- But where the partnership business is con- ducted within the state the court may appoint a receiver over it without notice to a non-resident partner.^ § 126. Receiverships Over Limited or Special Partnerships. Limited or special partnerships are governed in their general relations toward the partners and creditors by the statutes of the particular state. In many of their aspects they are similar to corporations and on account of this similarity the courts have applied to them the equitable principles which have been applied to corpora- tions in disputes between their members or insolvency in respect to creditors. A receiver may be appointed over the property of such a partnership under the same gen- eral conditions and circumstances as against a general partnership, and especially will one be appointed in a creditors' suit when the partnership is insolvent or in imminent danger of becoming so.^ This rule is based 2 Harvey v. Varney, 104 Mass. against the creditors of the firm 436; Evans v. Evans, 9 Paige if preferences were made to one (N. Y.) 178. creditor, or class of creditors; and 3 Alford V. Berkele, 29 Hun also if the assignment provides (N. Y.) 633, 634. for the payment of a debt of the 1 Jackson v. Sheldon, 9 Abb. Pr. special partner ratably with other (N. Y.) 127; Lottimer v. Lord, 4 creditors of the firm. This case E. D. Smith (N. Y.) 183. was based upon the provisions of In Mills etc. v. Argall, 6 Paige the statutes regarding limited part- (N. Y.) 577, it was held that the nership and prohibiting prefer- assignment by a limited partner- ences. In Innes v. Lansing, 7 ship to a trustee for the benefit of Paige (N. Y.) 583, it was held that creditors after the firm had be- in a case of limited partnership come insolvent, or was in contem- the effects of the firm, upon its plation of insolvency, was void as becoming insolvent, become a spe- MATTERS ARISING FROM PARTNERSHIPS. 387 upon the doctrine that upon the insolvency of the part- nersliip the assets become a trust fund to be divided equally between all creditors, and that in such case it becomes the duty of the general partners to place the firm property in the hands of a trustee for such distri- bution, and in default of doing so court will appoint a receiver for such purpose. The underlying principle upon which these cases rest is that of securing an equal distribution among all general creditors, and the inequi- table principle of preferences sometimes recognized. The principle of placing the effects of a limited partnership cial trust fund for the payment of the partnership debts ratably except debts due special partners, and that the filing of a bill by one creditor in behalf of himself and of others is a bar to the filing of another similar bill. In Jack- son V. Sheldon, 9 Abb. Pr. (N. Y.) 127, the same doctrine was held as in the case last cited, and that where the firm becomes insolvent it is the duty of the partners to place in the hands of a trustee the partnership effects for the ben- efit of all creditors without prefer- ence. It was also held that where certain creditors obtained judg- ment upon a failure of the parties to answer and levied executions upon the partnership effects, after which the partners made a general assignment for the benefit of cred- itors without preference, that the court should enjoin the levy and sale on the execution and appoint a receiver to take charge of the effects as they existed at the time of the insolvency. The decision is based upon the ground that the failure of the parties to answer and thereby suffering a default of the firm was in effect giving a preference to the judgment cred- itors. The motion to set aside the sale in such case for irregularity must be made in the action in which the sale was had, but the order on the sheriff to retain the property unsold is properly made in the creditor's suit. Cf. White- wright V, Stimpson, 2 Barb. (N. Y.) 379. Where a limited partnership be- comes insolvent, one of its mem- bers may sue to wind up its busi- ness and have a receiver appointed to preserve its assets and distrib- ute them to its creditors. Bell v. Merrifield, 28 Hun (N. Y.) 219; Continental Nat. Bank v. Strauss, 60 N. Y. Sup. Ct. 151, 17 N. Y. Supp. 188. But see Snyder v. Le- land, 127 Mass. 291. In this connection see, also, American Box Mach. Co. v. Cros- man, 61 Fed. 888, 10 C. C. A. 146; Batchelder v. Altheimer, 10 Mo. App. 181; Whitewright v. Stimp- son, 2 Barb. (N. Y.) 379; Whit- comb V. Fowle, 10 Daly (N. Y.) 23, 7 Abb. N. Cas. 295, 56 How. Pr. 365; Blaylock's Appeal, 73 Pa. St. 146. See, also, LaChaise v. Lord, 1 Abb. Pr. (N. Y.) 213, 10 How. Pr. 461. 388 LAW OF RECEIVERS. in the position of trust funds, and applying to the gen- eral partners the relationship of trustees has its analogy, of course, in the rules applied to private corporations in cases of insolvency and is founded upon justice and fair dealing. But the liabilities of the partners toward each other and toward the creditors of the partnership are the same as otherwise, notwithstanding the appointment of a re- ceiver over the partnership assets. - § 127. Necessity to Show the Existence of a Partnership. The appointment of a receiver in matters of partner- ship is in all cases dependent upon certain facts, the ex- 2 A creditor of a limited part- nership association over which a receiver has been appointed is not thereafter entitled to issue execu- tion in his judgment against sub- scribers to stock of the association whose subscriptions are not paid up. Rouse, Hazard & Co. v. De- troit Cycle Co., Ill Mich. 251, 38 L. R. A. 794, 69 N. W. 511. In Hogg V. Ellis, 8 How. Pr. (N. Y.) 473, an accounting was allowed between general and spe- cial partners as in other cases, and this either after or before dissolu- tion. Cf. Lottimer v. Lord, 4 E. D. Smith (N. Y.) 183. In Van Alstyne v. Cook, 25 N. Y. 489, it is held that the members of a limited partnership before or after insolvency are .iust as liable to suit for their debts as other natural persons. Their creditors are entitled to recover judgment against them with a view of reach- ing the individual property as well as partnership property. The prop- erty of a limited partnership does not constitute a tnist fund in the hands of partners any more than in ordinary partnerships. No rule of equity exists which makes them trust funds in any other sense or which gives a court of equity any control over them, or which for- bids creditors of the copartner- ship, or an individual from obtain- ing a lien on them by due process of law. In Hayes v. Heyer, 3 Sandf. Ch. (N. Y.) 293, the court say in rela- tion to general and limited copart- nerships that the rule is the same in both cases regarding the distri- bution made by the court, but when the order of distribution is made by the partners themselves in ordinary copartnerships they may give preference to one cred- itor or a class of creditors over others, while in limited partner- ships the statute reserves that power and directs the mode of distribution. It was also held that a single member of a failing firm can not appoint a trustee without the consent or knowledge of the other partners and thus transfer to such trustee the entire partner- ship effects. See, also, Deming v. Colt, 3 Sandf. Ch. (N. Y.) 284. MATTERS ARISING PROM PARTNERSHIPS. 589 istence of wliicli is necessary to be alleged and sliown as preliminary to the relief prayed for and as prelimi- nary to the jurisdiction of the court in granting such relief. The existence of a partnership, or at least sucli rela- tionship inter se as practically amounts to a partnership, which is usually determined by a participation in the profits of the concern, must be shown. Such partnership must exist in fact and not merely in name, for an em- ployee though nominally a partner, is not entitled to in- voke the aid of the court in the appointment of a re- ceiver, nor is the existence of an agreement between the parties which may ripen into a partnership sufficient.^ 1 Where it does not clearly ap- pear that the relation between the parties constitutes a partnership, a receiver will not be appointed. Irwin V. Everson, 95 Ala. 64. 10 So. 320; Hobart v. Ballard, 31 Iowa 521; Kerr v. Potter, 6 Gill (Md.) 404: Nutting v. Colt, 7 N. J. Eq. 539; Goulding v. Bain, 4 Sandf. Ch. (N Y.) 716; Popper v. Scheider, 7 Abb. Pr. N. S. (N. Y.) 56, 38 How. Pr. 34. See Katsch v. Schenck, 18 L. J. Ch. N. S. 38G; Peacock v. Peacock, 16 Ves. Jr. 49. In Kerr v. Potter, 6 Gill (Md.) 404, one of the parties was to have one-fourth of the net profits of the business, but under a provision of the contract it was provided that they were not to be partners by reason of the division of the profits; it was held not to be a partnership and there was error in appointing a receiver. And so where a person was employed at a salary of $500 and one-fourth the net profits. Nutting v. Colt, 7 N. J. Eq. 539. Contra: Where the salary was £100 and oncTifth of the net profits on all new business. Katsch V. Schenck, 18 L. J. Ch. N. S. 386. A n agreement o f partnership which has not been executed is not suff.cient. Hobart v. Ballard, 31 Iowa 521. In the absence of proof of danger the court will not ap- point a receiver where the partner- ship is denied. Goulding v. Bain, 4 Sandf. Ch. (N. Y.) 716, citing Peacock v. Peacock, 16 Ves. Jr. 49. In an action for dissolution of a partnership and appointment of a receiver, it is necessary to deter- mine before the appointment of the receiver, the existence of the alleged partnership and the facts necessary to vest in the court jur- isdiction of the controversy. Nor- ton v. Sperry, 113 Minn. 447, 129 N. W. 843. Where the existence of the part- nership is doubtful and the busi- ness was one conducted under a license which could not be as- signed, a receiver will be denied although an injunctional order re- straining a disposition of the prop- erty may be granted. Semple v. Flynn, (N. J.) 10 Atl. 177. 390 LAW OF RECEIVERS. It is, of course, obvious that great damage would be done a defendant if a receiver were appointed over a business which was in fact owned by him individually and not as a member of a copartnership. '] § 128. Effect of the Existence of the Partnership Being De- nied. As shown in the last section, it is essential in order to give the court jurisdiction to appoint a receiver in a partnership litigation that there must be a partnership in existence but, on the other hand, the appointment of a receiver might be defeated by the mere denial of such existence if such a denial would be deemed suffi- cient. Some of the decisions state in broad terms that the appointment of a receiver will be refused where the existence of the partnership is denied,^ but we do In any suit for an accounting, the existence of the partnership must he shown before the court will determine the respective in- terests of the partners. Loftus V. Fischer, 117 Cal. 128, 133, 48 Pac. 1030. Where a petition in a suit for an accounting and the appoint- ment of a receiver of partnership property alleged that plaintiff and defendant entered into a partner- ship to conduct a certain business, and continued to conduct the busi- ness until a specified date, suflB- ciently alleges the existence of a partnership, without giving further details, to warrant the appoint- ment of a receiver on a proper ground. Rische v. Rische, 46 Tex. Civ. 23, 101 S. W. 849. But the court in a suit to estab- lish a joint interest of the parties in alleged partnership property will not in determining appoint- ment of a receiver determine prop- erty rights of plaintiff based on the insufficiency of his pleading a tender, since that is a question for the trial on the merits. Ramsey v. Bird, (Tex. Civ.) 147 S. W. 671. Where the existence of the part- nership is in doubt and there is no proof of fraud or mismanagement, and the appointment of a receiver will, according to the evidence of the defendant, irreparably damage the business, that of a theatrical business, the court properly re- fuses to appoint a receiver. Bim- berg v. Wagenhals, 53 Misc. Rep. 13, 102 N. Y. Supp. 925. 1 In Irwin v. Everson, 95 Ala. 64, 10 So. 320, where the defendant denied the partnership, a receiver was refused. In Irwin v. Everson, 95 Ala. 64, 10 So. 320, which was a suit for settlement between partners, a re- ceiver was denied on the ground that the defendant in possession denied the partnership and was MATTERS ARISING PROM PAKTNERSHIPS. 391 not believe tliat the rule sliould be stated in such broad terms. On the other hand, much trouble could be caused to the owner of a business by appointing a receiver in a case in which the plaintiff wrongfully claims to be a part- ner in the business. The proper rule in this respect is that if the existence of the partnership is denied, the court must be satisfied of its existence and that the part- nership property is in danger, before it will appoint a re- ceiver over it.2 In other words, if the court is satisfied solvent and able to respond for aU damages, upon the authority of Peacock v. Peacock, 16 Ves. Jr. 49; Fairburn v. Pearson, 2 Macn, 6 G. 144 ; Goulding v. Bain, 4 Sandf. Ch. (N. Y.) 716; Hobart v. Ballard, 31 Iowa 521; Williamson v. Mon- roe, 3 Cal. 383 ; Popper v. Scheider, 7 Abb, Pr. N. S. (N. Y.) 56, 38 How. Pr. 34. And where it is distinctly denied that certain property is partner- ship property the court will decline a receivership. Gregory v. Greg- ory, 1 Sweeny (N. Y.) 613. 2 Rowland v. Auto Car Co., 133 Fed. 835; Irwin v. Everson, 95 Ala. 64, 10 So. 320; Williamson v. Mon- roe, 3 ,Cal^83; Leeds v. Town- send, 74 111. App. 444; Hobart v. Ballard, 31 Iowa 521; Bacon v. Engstrom, 129 Minn. 229, 152 N. W. 264, 537; Albrecht v. Diamon, 125 Minn. 283, 146 N. W. 1101; Bim- berg V. Wagenhals, 53 Misc. Rep. 13, 102 N. Y. Supp. 925; Kirkwood V. Smith, 64 App. Div. 615, 72 N. Y. Supp. 291; Day v. Dow, 46 App. Div. 148, 61 N. Y. Supp. 793; McCarty v, Stanwix, 16 Misc. Rep. 132, 38 N. Y. Supp. 820; Goulding V. Bain, 4 Sandf. Ch. (N. Y.) 716; Moyn V. Rose, 245 Pa. 601, 92 Atl. 39; Baxter v. Buchanan, 3 Brewst. (Pa.) 435; McGlensey v. Cox, 1 Phila. (Pa.) 387; Smith v. Brown, 50 Wash. 240, 96 Pac. 1077; Bal- lard V. Callison, 4 W. Va. 326; Wood V. Wood, 50 W. Va. 570, 40 S. E. 416; Rische v. Rische, 46 Tex. Civ. 23, 101 S. W. 849. But see: Hackett v. Multnomah Ry. Co., 12 Ore. 124, 53 Am. Rep. 327, 6 Pac. 659. A receiver will not be appointed nor an injunction granted in pro- ceedings to dissolve an alleged partnership where the partnership is denied, unless it clearly appears that a partnership exists or that the fund is in danger. McCarty v. Stanwix, 16 Misc. Rep. 132, 38 N. Y. Supp. 820. A receiver of the property of an alleged partnership will be ap- pointed, although the existence of the partnership is denied by the defendant, when the court is satis- fied from the evidence in support of the application that a partner- ship really existed. Leeds v. Town- send, 74 111. App. 444. The court will not as a rule ap- point a receiver of a partnership, the existence of which is denied, until the question of such exist- ence is determined. Guild v. Meyer, 56 N. J. Eq. 183, 38 Atl. 959. Receiver will not be appointed 392 TAW OF RECEIVERS. of the existence of the partnership it will in an other- wise proper case appoint a receiver, notwithstanding that such existence is denied by the defendant partner.^ Where one of the alleged partners in possession of the property denies the existence of the partnership rela- tion, such denial constitutes an exclusion of the com- plaining party from the partnership if it in fact does exist, and on that ground the plaintiff is entitled to a receiver, since exclusion from the partnership consti- tutes a breach of one of the necessary privileges of every partner.^ Thus where one of the partners claims certain prop- erty as belonging to himself as his individual property and the copartner claims that it was the result of a part- nership transaction, it is proper to appoint a receiver over it.^ And where in an action to subject- certain property to the payment of plaintiff's claim, it was claimed that the defendant had purchased the property but taken title in the name of his wife to defraud creditors, but it ap- peared that the property was partnership property of the wife and another person and that the partner of the wife was solvent, the appointment of a receiver was re- fused.^ The refusal of the alleged partner to join in a deed of assignment for the benefit of creditors and his denial in a proceeding to dissolve a part- 40; Wilson v. Greenwood, 1 Sw. nership where the existence of the 471. partnership is denied unless the ^ Saylor v. Mockbie, 9 Iowa 209. court is satisfied as a matter of I" ^n action for an accounting fact that there is a partnership be- between alleged former partners. the court properly refused to au- tween the parties and the property is in danger. Williamson v. Mon- thorize a receiver to take charge of property claimed by each as roe, 3 Cal. 383. individual property. Bacon v. Eng- 3 Rische V. Rische, 46 Tex. Civ. strom, 129 Minn. 229, 152 N. W. 23, 101 S. W. 849. 264, 537. 4 Peacock v. Peacock, 16 Ves. « Venable v. Smith, 98 N. C. 523, 49; Blakeney v. Dufour, 15 Beav. 4 S. E. 514. MATTERS ARISING FROM PARTNERSHIPS. 393 of being a member of the partnership has been held to be insufficient ground for the appointment of a receiver J Where the existence of the partnership is denied the court, as has been stated above, must settle that ques- tion to its satisfaction before considering whether it will appoint the receiver,'^ but we do not believe that a court would refuse to appoint a temporary receiver pending such a determination in a case of great emergency. The court may, if it desires, direct the issue of whether a partnership exists to be tried as an issue at law by a jury.^ Sometimes, however, the denial of the existence of a partnership may raise an issue of law as to whether under undisputed facts the circumstances constitute a partnership. Thus the question arose in one case whether two corporations which had formed a partnership had in law the power to enter into a partnership. The right to appoint a receiver was questioned on the ground that the alleged partnership was not one in fact, but the court held that in view of the authority given each of the cor- porations to become a member of a partnership there was no prohibition in the statute against such an act and sustained the receivership. '° And other instances 7 Wilson V. Hawker Lumber Co., in his possession. Title Ins. etc. 74 W. Va. 65, 81 S. E. 568. Co. v. Grider, 152 Cal. 746, 94 Pac. s In a suit in aid of an execution 601. against a partnership, a receiver 9 Peacock v. Peacock, 16 Ves. will not be appointed wnere the 49; Fairburn v. Pearson, 2 Macn. existence of the partnership is de- & G. 144. nied until the question of such lo In News-Register Co. v. Rock- existence is settled. Guild v. ingham Pub. Co., 118 Va. 140, 86 Meyer, 56 N. J. Eq. 183, 38 Atl. S. E. 874, the validity of the 959. appointment of a receiver was Where the complaint, though un- dependent upon the question certain in its allegations that cer- whether the two corporations tain property belonged to the which had entered into the part- partnership over which the re- nership had the right under the ceiver was appointed, was not law to do so. In holding that there demurred to for uncertainty in was nothing essentially illegal in that respect, the court may direct the formation of a partnership by the receiver to take the property two corporations where their char- 394 LAW OF RECEIVERS. may also occur in wMcli it is a question whether the litigants are partners such as various arrangements whereby one person is not to furnish capital toward the business but merely services and receive a portion of the profits. In such class of cases the real question be- fore the court is whether under the particular facts the relation between the parties is that of partners. If they are partners and the circumstances alleged as grounds for the appointment are sufficient otherwise, a receiver will be appointed. ^^ ters authorized such action, the court, spealdng through Mr. Jus- tice Kelly, said: "We come, then, to the real question in the case, which relates to the power of the two corpora- tions to form a partnership. The appellants' contention, as stated in their brief, 'that corporations, un- less expressly authorized, have no power to enter into a partnership, either with each other or with in- dividuals,' is perfectly sound, sub- ject to the slight qualification by some respectable authorities that the power may be impliedly, as well as expressly, given. The law to this effect is old and well set- tled, but not more so than the converse proposition that, when the authority is given, the exercise of such power is entirely compe- tent and valid. This is so because when the power is given in the charter, the reason underlying the rule against its exercise no longer exists. This underlying reason is that the stockholders are entitled, in the absence of notice to the contrary in the charter, to assume that their directors will conduct the corporate business without sharing that duty and responsibil- ity with others. The clear result of the authorities. Including those cited by appellants, is that the rule against corporate partner- ships is limited to cases in which the power in question does not appear in the charter, and that the reason for the rule is as we have here stated it. See Fechteler v. Palm Bros. & Co., 133 Fed. 462, 66 C. C. A. 336; Whittenton Mills v. Upton, 10 Gray (Mass.) 582, 71 Am. Dec. 681; 2 Cook on Corp. (6th ed.), §678; 7 Am. & Eng. Enc. L. (2d ed.) 794, 795; Hackett v. Multnomah Ry. Co., 12 Ore. 124, 53 Am. Rep. 327, 6 Pac. 659; 1 Min. Inst. 560; 1 Elliott on Contracts, § 483; 10 Cyc. 1143." 11 Where the plaintiff is entitled to participate in the profits of the business and there is danger of loss, as a general rule the court will appoint a receiver. Hobart v, Ballard, 31 Iowa 521; Katz v. Brewington, 71 Md. 79, 20 Atl. 139; Katsch V. Schenck, 18 L. J. N. S. Ch. 386. But, of course, in such circum- stances, in order to have a receiver appointed, there must be some facts shown, such as insolvency or fraud, which endanger the rights of the plaintiff partner. Cox V. Peters, 13 N. J. Eq. 39. MATTERS ARISING FROM PARTNERSHIPS. 395 2. Violations of Partnership Duties and Obligations. § 129. General Rule as to Breach of Duties and Obligations. There are two general classes of cases arising out of partnership relations in which a receiver may be ap- pointed; namely, those arising in the ordinary partner- ship dissolution proceeding, and those arising by reason of a breach of the duties and obligations existing between the partners prior to the termination of the partnership relation in the ordinary way. In the circumstances last stated the breach of duty must generally be one of such a nature that it will be cause for the termination of tlie partnership. Inasmuch as the existence of mutual confidence is of the essence of a partnership, where it appears that the defendant partner has done acts which are of a char- acter to destroy such confidence, it is proper to appoint a receiver,! but such lack of confidence must be based upon acts of misconduct and not mere suspicion. In order to warrant the appointment of a receiver the breaches of the partnership agreement or the duties implied from the relationship must be serious ones and go to the es- sence of the successful conduct of the partnership busi- iiess.2 Where all the partners have an equal right, not A plaintiff is not entitled to Wolbert v. Harris, 7 N. J. Eq. 605; have a receiver appointed for a Sloan v. Moore, 37 Pa. St. 217; partnership of which he is not a Gowan v. Jeffries, 2 Ashm. (Pa.) member or creditor, nor to an 296; Redding v. Anderson, 37 account based on its receipts and Wash. 209, 79 Pac. 628; Einstein expenditures. Gwinn v. Lee, 6 Pa. v. Schnebly, 89 Fed. 540; Hale v. Super. Ct. 646. Hale, 4 Beav. 369; Lawson v. Mor- 1 Smith V. Jeyes, 1 Beav. 505; gan, 1 Price 303; Harding v. Chapman v. Beach, 1 J. & W. Glover, 18 Ves. 281; Blakeney v. 594 n; Ex parte Broome, 1 Rose 69. Dufaur, 15 Beav. 40, 51 Eng. Re- 2 Whitley v. Bradley, 13 Cal. print 451; Steele v. Grossmith, 19 App. 720, 110 Pac. 596; West v. Grant Ch. (U. C.) 141; Doupe v. Chasten, 12 Fla. 315; Haight v. Stewart, 13 Grant Ch. (U. C.) 637; Burr, 19 Md. 130; Sutro v. Wagner, Prentiss v Brennan, 1 Grant Ch. 23 N. J. Eq. 388 (affirmed in Wag- (U. C.) 371. ner v. Sutro, 24 N. J. Eq. 589) ; There must be some violation of 396 LAW OF RECEIVERS. only in the conduct of the business but also in its set- tlement after dissolution, a failure to agree among them- selves or the refusal of one partner to allow the other to participate either in the conducting of or the settle- ment of the business, obviously presents a case for the appointment of a receiver. When the conduct of one partner is incompatible with the relations of the copart- nership and is likely to result in loss or injury to any of his copartners, it is the practice of courts of equity upon application to dissolve the partnership and appoint a re- ceiver.^ In a general way, it may be stated that a receiver may be appointed where there has been a violation of the partnership agreement or a breach of partnership duty.* the rights of a copartner. Henn V. Walsh, 2 Edw. Ch. (N. Y.) 129. In a suit by a partner against the partnership, where it appears from the answer of the defendant partners that the plaintiff has been guilty of waste, mismanagement, and a refusal to furnish statements concerning the condition of the partnership affairs, together with collusion with others in respect to the litigation against the partner- ship, a receiver may be appointed. Whilden v. Chapman, 80 S. C. 84, 61 S. E. 249. In Harding v. Glover, 18 Ves. 284, the chancellor said: "I have frequently disavowed, as a princi- ple of this court, that a receiver is to be appointed merely on the ground of a dissolution of partner- ship. There must be some breach of the duty of a partner or of the contract of partnership." Waste on the part of a defend- ant partner, combined with a con- dition of insolvency on the part of the partnership furnishes a condi- tion of affairs in which the court will appoint a receiver. William- son V. Wilson, 1 Bland's Ch. 418; Todd V. Rich, 2 Tenn. Ch. 107. 3 Maynard v. Railey, 2 Nev. 3i3. 4 Allen V. Hawley, 6 Fla. 142, 164, 63 Am. Dec. 198; New v. Wright, 44 Miss. 202; Sutro v. Wagner, 23 N. J. Eq. 388; Henn v. Walsh, 2 Edw. Ch. (N. Y.) 129; Heathcot v. Ravenscroft, 6 N. J. Eq. 113; Jackson v. Sheldon, 9 Abb. Pr. (N. Y.) 127; Crawshay V. Maule, 1 Swanst. 50; Gowan v. .Teffries, 2 Ashm. 296; Estwick v. Conningsby, 1 Vern. 118; Const, v. Harris, Turn. & R. 496; Harding V. Glover, 18 Ves. Jr. 281. Where the plaintiff partner shows that defendant has refused to contribute his part of the capi- tal nor to account for the moneys furnished by plaintiff toward the expenses nor to co-operate in the prosecution of the business, and it is also shown that no division of the partnership assets or good will can be mutually agreed upon and that a sale of the property will be necessary in order to di- MATTERS ARISING FROM PARTNERSHIPS. 397 § 130. Dissensions and Quarrels Between the Partners. One of the common difficulties encountered in partner- ship affairs is dissensions of greater or lesser magni- tud^r- /where the dissensions are of such a nature that the partnership can no longer be continued or carried on with comfort and advantage to all concerned, equity will decree a dissolution, and in making such a decree the court will consider not merely the terms of the part- nership agreement, but also the duties and obligations implied in every partnership contract.^ ^ vide it, a cause for the dissolution of the partnership is shown and the court may appoint a receiver to wind it up. Smith v. Lamon (Tex. Civ.), 143 S. W. 304. Where two partners, who owned timber land and a saw mill, formed a partnership with a third party, who had no capital, but who was to operate the mill and share in the net profits and account with the owners, and such third member purchased timber without the con- sent of the others, operated a store without their consent and at a loss, caused the expenses to be largely in excess of the gross in- come from the mill, improperly used money furnished by his part- ners, failed to produce proper ac- counts or pay rolls as a basis for a settlement with the employees, and refused to deliver up the pos- session of the mill to his partners, on a bill for dissolution of the partnership, a receiver is properly appointed to manage the business and settle the rights of the par- ties. Reid V. Freed, 100 Miss. 48, 56 So. 278. Plaintiffs and defendant entered into a verbal agreement of part- nership, whereby it was agreed that each should contribute $1500 in cash. Each plaintiff deposited $1500 in cash but defendant re- fused to carry out the terms of the agreement, and misapplied the money contributed. In a suit to restrain defendant from misappli- cation of the joint property, for a receiver, and for an accounting, it was held that the court properly appointed a receiver and granted a preliminary injunction. Fitzger- ald V. Flynn, (R. I.) 69 Atl. 921. Chancellor Walworth, in Marten V. Van Schaick, 4 Paige Ch. (N. Y.) 479, said: "Each partner has an equal right in this case to the possession and control of the partnership effects and business, and if they can not agree among themselves, it is a matter of course to appoint a receiver upon a bill filed to close the partnership con- cerns on the application of either party." In respect to the above case and the rules set forth, see, also, § 144, infra. 1 Slemmer's Appeal, 58 Pa. St. 168, 98 Am. Dec. 255. In News Register Co. v. Rock- 398 LAW OF RECEIVERS. Mere temporary quarrels or dissensions are not suf- ficient. It must, however, appear in an action for disso- lution based upon disagreements and dissensions that no reconciliation nor adjustment is probable.- /In such c ii'- ingham Pub. Co., 118 Va. 140, 86 S. E. 874, the court appointed a receiver for a partnership engaged in the newspaper publishing busi- ness on account of dissensions among the parties controlling the business. In Allen v. Hawley, 6 Fla. 142, 164, 63 Am. Dec. 198, the court said: "From the examination which we have made of the au- thorities on this subject, we think the law may be considered as settled, that whenever the inter- vention of a court of equity be- comes necessary, in consequence of dissensions or disagreements between the partners, to effect a settlement and closing of the partnership concerns, upon bill filed by any of the partners show- ing either a breach of duty on the part of the other partners, or a violation of the agreement of part- nership, a receiver will be ap- pointed as a matter of course." 2 A receiver will not be ap- pointed on the application of one partner against his copartner where it appears that there is a mere disagreement between the partners. Loomis v. McKenzie, 31 Iowa 425; New v. Wright, 44 Miss. 202; Henn v. Walsh, 2 Edw. Ch. (N. Y.) 129; Law v. Ford, 2 Paige (N. Y.) 310; Marten v. Van Schaick, 4 Paige (N. Y.) 479; Slemmer's Appeal, 58 Pa. 168, 98 Am. Dec. 255. Where there is a disagreement in respect to the control and dis- position of a fund and as to the rights of the copartners to it, a receiver may be appointed. Whit- man V. Robinson, 21 Md. 30. In Loomis v. McKenzie, 31 Iowa 425, it was held that ill-feeling or differences between the partners which are not shown to have re- sulted from the fault of the defen- dant will not justify the appoint- ment. Cf. McCrackan v. Ware, 3 Sandf. (N. Y.) 688. In Garretson v. Weaver, 3 Edw. Ch. (N. Y.) 385, it is held that the court will not interfere by appointing a receiver of a subsist- ing partnership unless it satisfac- torily appears that the plaintiff will be entitled to have the part- nership dissolved and wound up, but a receiver will not necessarily be appointed because an injunc- tion is granted. See, also, Jack- son V. De Forest, 14 How. Pr. (N. Y.) 81. In Williamson v. Wilson, 1 Bland Ch. (Md.) 418, there were mutual charges made by the part- ners against each other any one of which it was held being suffi- cient to warrant a dissolution of the partnership a receiver was appointed, insolvency being ad- mitted on both sides. In Harding v. Glover, 18 Ves. Jr. 281, it is held that a receiver would not be appointed merely upon the ground of a dissolution of the partnership, but that there must be a breach of duty by one partner or a breach of the con- tract. In Henn v. Walsh, 2 Edw. Ch. MATTERS ARISING PROM PARTNERSHIPS, 399 cumstances where the^i^ensions and lack of harmony and understanding between the partners are irrecon- cilable the court appoints a receiver upon the theory tliat if the partners will not trust each other equity will not trust either of them to settle an affair in which each of them, but for their differences, would be entitled to share in equal degree.^ Likewise whorp sArinn« disa- 1^ ercised at all. The court may appoint a re- ceiver where there is a violation of the dissolution agreement. Word v. Word, 90 Ala. 81, 7 So. 412; West v. Chasten, 12 Fla. 315; Miller v. Jones, 39 111. 54; Drury V. Roberts, 2 Md. Ch. 157; Berry v. Folkes, 60 Miss. 576; Ballard v. Callison, 4 W. Va. 326. 438 LAW OF RECEIVERS. merit agreed to refer matters of disagreement between themselves to arbitrators, the court will not as a rule interfere by appointing a receiver,^ but where they have agreed that some person should be selected to settle the partnership affairs upon a dissolution but they fail to agree on some person, the court may solve the question by appointing a receiver.^ But where the partners in their partnership agreement have provided for the method of closing up the partnership upon its termination by lapse of time and the plaintiff who is seeking the appointment of a receiver has refused to abide by the agreement, while the defendant has been willing to do so, the court will refuse to make the appointment.^ The part- ners can not by their agreement interfere with the rights of the creditors to obtain payment of their debts from the partnership property prior to a distribution to the part- 3 In Young v. Buckett, 51 L. J. Ch. 504, the partnership agree- ment provided that in case of dis- putes between the partners they should be settled by arbitration, yet a receiver was appointed. In Law V. Garrett, L. R. 8 Ch. Div. 26, the court refused a re- ceiver on the application of one partner on the ground that the partners by an agreement had re- ferred all matters in dispute to a foreign court, and although the court had a right to appoint pend- ing an arbitration it would not do so unless a special case was made, on the ground that it would inter- fere with the court of arbitration. Cf. Semple v. Flynn (N. J.), 8 Cent. Rep. 549. As to partnership as between the parties, see Waugh V. Carver, 2 H. Bl. 235, 246. 4 In Mitchel v. Lister, 21 Ont. Rep. 22, it is held that where the partnership articles provided that. on dissolution, the partners should select a person to collect the ac- counts and settle the partnership affairs, the court would, upon a failure of the parties to agree on some person, appoint a receiver. Cf. Davis V. Amer, 5 Drew. 64; Law V. Garrett, L. R. 8 Ch. Div. 26; Plewes v. Baker, L. R. 16 Eq. 564. 5 Where articles of partnership provided a method for winding up the affairs of a firm on termina- tion by lapse of time, and the de- fendant partner followed such method, but plaintiff refused to observe it and it appeared that plaintiff owned no part of the partnership property, but was deeply in debt to it, the court should not appoint a receiver at the instance of the plaintiff in an action for an accounting. Hoffman V. Hauptner, 135 App. Div. 148, 119 N. Y. Supp. 1022. MATTERS ARISING FROM PARTNERSHIPS. 439 ners.^ And where a partner, upon voluntary dissolution of a partnership, accepts a personal covenant of his co- partner to pay its liabilities and account to him for his interest in the assets, he is not entitled, in an action for an accounting and the recovery of the amount which the copartner agreed to pay him, to the appointment of a receiver of the property.'^ 5. Receivership on Application of Creditors. § 150. On Application of Partnership Creditors. In matters of partnership the court will sometimes ap- point a receiver in an action brought by the general cred- itors of the firm in behalf of themselves and the other creditors, the purpose in such case being primarily the appointment of a receiver and ultimately the ratable dis- tribution of the assets of the firm. But in this class of cases there must be mismanagement or insolvency and threatened loss as in other cases of what are commonly called "creditors' actions."^ 6 If the court should appoint a of a receiver over a partnership receiver for a partnership which unless he can show that he will is dissolved by agreement, under sustain great and irreparable in- which one of the partners takes jury because of fraudulent mis- possession of the property for the conduct of the firm or of some of purpose of winding up the firm, the partners. Sanderson v. Stock- the court could order a partial dis- dale, 11 Md. 563; State v. Dickin- tribution of assets, but the rule son, 59 Neb. 753, 82 N. W. 16; that partnership debts must be Sobernheimer v. Wheeler. 45 N. J. paid before distribution to part- Eq. 614, 18 Atl. 234; Jones v. ners would still obtain, and it Meyer Bros. Drug Co., 25 Tex. Civ. would be the court's duty as in App. 234, 61 S. W. 553. administration of estates to see The creditors of a partnership that the partial distribution did may obtain the appointment of a not interfere with the payment of receiver where it is necessary to debts in full. Adams v. Carmony, preserve the property. Oliver v. 44 Ind. App. 291, 87 N. E. 708 (re- Victor, 74 Ga. 543; Staar v. Moy hearing denied, 89 N. E. 327). Tong Koon, 145 m. App. 341; 7 Alcott V. Vultee, 33 App. Div. Choppin v. Wilson, 27 La. Ann. 245, 53 N. Y. Supp. 474. 444; Lawrence Lumber Co. v. A. 1 A general creditor is not en- J. Lyon & Co., 93 Miss. 859, 47 titled to obtain the appointment So. 849; Greenwood v. Brodhead, 440 LAW OF RECEIVERS. But a simple partnership creditor of a copartnership has no such lien on the partnership assets as entitles him 8 Barb. (N. Y.) 593; Henry v. Henry, 10 Paige (N. Y.) 314; Stone Co. v. McLamb & Co., 153 N. C. 373, 69 S. E. 281. The cases of Burgwyn Bros. To- bacco Co. V. Bentley, 90 Ga. 508, 16 S. E. 216, and Oliver v. Victor, 74 Ga. 543, were actions brought by general creditors. In the latter case suit was brought to set aside a voluntary assignment in which a receiver was appointed. In Henry v. Henry, 10 Paige (N. Y.) 314, it was held that a creditor was not entitled to a receiver of the separate property of one of the partners who had sold his in- terest to his copartner, the latter assuming the payment of all in- debtedness; that the receivership should be against the firm prop- erty and the separate property of the remaining partner unless some valid excuse should be given for not doing so. In Greenwood v. Brodhead, 8 Barb. (N. Y.) 593, it was held that creditors at large must have a judgment and a lien either legal or equitable and to be in a posi- tion to assert such lien. In Vena- ble V. Smith, 98 N. C. 523, 4 S. E. 514, it was held that before a receiver would be appointed it must be manifest that there is mismanagement of the property and that it is in danger of being lost or that it is in possession of an insolvent or unfit trustee. Cf. Dick V. Laird, 4 Cranch C. C. 667, Fed. Cas. No. 3891. Where under an agreement be- tween a surviving partner and the widow and son of his deceased partner, the latter carried on the business under a contract to pur- chase it, but after the death of the surviving partner they claimed to own the partnership property which was insufficient to pay the partnership creditors, a creditor may obtain the appointment of a receiver for the purpose of dis- tributing the assets ratably among the creditors. Vermont Marble Co. V. Spafford, 162 Mich. 549, 127 N. W. 669. In Fechheimer v. Baum, 37 Fed. 167, 2 L. R. A. 153, the court say: "It is now settled that the courts of the United States may admin- ister an equitable right granted by the law of the state in suits of which, from other reasons, they have jurisdiction. It was urged that creditors without judgment had no right to apply, in equity, for the appointment of a receiver. That this is the general rule is undeniable, but there are excep- tions to it, and one of these ex- ceptions, of apparently clear dis- tinctness, is where the lawmaking power has enacted, in terms, that the debt need only be matured, with payment demanded and with a refusal, as Is the law in Georgia. It is true also — as Is held in this circuit in Jaffrey v. Brown, 29 Fed. 476, 477— that a party not intending to pay, by inducing one to sell him goods on credit, through the fraudulent conceal- ment of his insolvency, and of his intent not to pay for them, is guilty of a fraud, which entitles the vendor, if no innocent third party has acquired an interest in them, to disaffirm the contract and recover the goods." Crittenden v. MATTERS ARISING FROM PARTNERSHIPS. 441 to the appointment of a receiver to settle up the partner- ship estate upon its insolvency.^ In order to maintain an action for the appointment of a receiver of partnership assets, a creditor must show that he can not enforce payment of his debt by judgment and execution. Hence he must show, not only the insolv- ency of the partnership, but of the copartners as indi- viduals ; and even then, if no lien nor return of nulla bona on execution has been obtained, it is questionable whether a receiver of partnership assets should be granted, except where the assignment act applies.^ Where a creditor has levied an execution on the interest of an individual partner, the court will not appoint a receiver over the partnership property at his instance Coleman, 70 Ga. 293, 295; Don- aldson V. Farwell, 93 U. S. 633, 23 L. Ed. 994. Upon the question of the right of a seller to disaffirm the sale and retake the property sold by him, upon the ground of fraud and misrepresentation, see note to Jaffrey v. Brown, 29 Fed. 476, 485. In La Chaise v. Lord, 1 Abb. Pr. (N. Y.) 213, it was held that the court would not ap- point a receiver where the appli- cation was in behalf of one firm, out of a large number of creditors of an insolvent firm. Suit must be brought by all the creditors of the insolvent firm who will unite therein, and all the defendants sought to be made liable, as part- ners, should admit the indebted- ness or, in other words, where a receiver is asked without judg- ment the indebtedness must be admitted. See, also, Hardt v. Levy, 72 Hun 225, which was an action by the general creditors and all others who might come in for the purpose of procuring a receiver. In this case it was held that such an action (without judgment) could not be maintained against a general partnership but that it might be maintained against a limited partnership. Cf. Innes v. Lansing, 7 Paige (N. Y.) 583; Van Alstyne v. Cook, 25 N. Y. 489. In an action by a creditor for the appointment of a receiver of partnership property, where evi- dence shows waste, mismanage- ment, and collusion on the part of one of the defendant partners, and probably loss to another de- fendant partner, it makes a prima facie case warranting the appoint- ment of a receiver. Whilden v. Chapman, SO S. C. 84, 61 S. E. 249. 2 Waples-Platter Co. v. Mitchell, 12 Tex. Civ. App. 90, 35 S. W. 200. A general creditor of a partner- ship has ordinarily no right to have a receiver appointed. Crip- pen V. Hudson, 13 N. Y. 161. 3 Whilden v. Chapman, 80 S. C. 84, 61 S. E. 249. 442 LAW OF RECEIVERS. without a strong showing of inadequacy of his legal remedy.^ § 151. On Attacking Assignments and Conveyances by the Partnership. In a suit by creditors attacking an assignment by a partnership on the ground that it was giving an unlawful preference to certain creditors, it is proper to appoint a receiver pending the litigation.^ Likewise an unsecured creditor of a partnership, which had executed deeds of trust to secure creditors, can not obtain an ex parte appointment of a receiver of a part- nership by merely showing the execution of the deeds of tinist, an advertisement for the sale of the property of the partnership under the deeds, the death of one of the partners, and the failure of the survivor to give bond for the administration of the partnership estate, without showing the insolvency of the partnership or either of the partners, or of the creditor secured by the deeds of trust, and without showing the invalidity of the deeds of trust.^ And where a partnership executing a valid mortgage with the right of the mortgagee to sell mortgaged assets on default voluntarily turned over the assets to the mort- gagee to foreclose, the court should not at the suit of an- other creditor appoint a receiver of the property and deprive the mortgagee of his right, in the absence of any 4 Staar v. Moy Tong Koon, 145 they are not alleged to be insolv- 111. App. 341. ent, and the property consists of 1 Oliver v, Victor, 74 Ga. 543. a sawmill and fixtures and a large A receiver of property conveyed number of animals used there- by an insolvent partnership to one with, the care of which would be of the firm creditors at an over- a great expense to a receiver, valuation, to hinder and defeat Stillwell v. Savannah Grocery Co., other creditors, should not be ap- 88 Ga. 100, 13 S. E. 963. pointed absolutely without giving 2 Lawrence Lumber Co. v. A. J. the purchasers the alternative of Lyon & Co., 93 Miss. 859, 47 So. giving bond and security, where 849. MATTERS ARISING FROM PARTNEItSHIPS. 443 showing of insolvency, of the mortgagee or mismanage- ment or bad faith on his part ; and the mere fact that the partners resmned possession of the property without the knowledge of the mortgagee by means of a tortious act did not affect the right to appoint a receiver.-'^ § 152. Effect Where Partners Procure Receivership to Defraud or Delay Creditors. A receivership in an action to dissolve a partnership will be set aside as to creditors of the partnership where made wdth intent to hinder, delay, and defraud them.^ Where the partners procure the appointment of a re- ceiver merely to allow themselves to settle their affairs in a leisurely way and thereby delay and hinder their creditors, a judgment creditor will be allowed to pursue the remedies arising by virtue of his judgment.^ § 153. Effect of Appointment of Receiver on Creditors. Upon the appointment of a receiver for a partnership its entire property is placed in the custody of the court appointing the receiver. The possession of the receiver, being that of the court, is protected from interference from both the creditors of the partnership and from the partners.^ The receiver of the partnership property does 3 stone Co. v. McLamb & Co., Ress, 60 Neb. 52, 82 N. W. 116; 153 N. C. 378, 69 S. E. 281. Ross v. Titsworth, 37 N. .T. Eq. 1 Metcalf V. Moses, 35 App. Div. 33^; Gross v. Gross, 128 App. Div. 596, 55 N. Y. Supp. 179. 429, 112 N. Y. Supp. 790; Holmes 2 Myers v. Myers, 15 App. Div. v. McDowell, 76 N. Y. 596, affirm- 448, 44 N. Y. Supp. 513. ing 15 Hun 585; Clapp v. Clapp, 1 Adams v. Woods, 9 Cal. 24; 10 N. Y. St. Rep. 733; Barry v. Naglee v. Minturn, 8 Cal. 540; Kennedy, 11 Abb. Pr. (N. S.) Adams v. Woods, 8 Cal. 152, 68 (N. Y.) 421; Waring v. Robinson, Am. Dec. 313; Adams v. Hackett, 1 Hoff. Ch. (N. Y.) 524; Foster v. 7 Cal. 187; Jackson v. Lahee, 114 Field, 13 Okla. 230, 74 Pac. 190; In III. 287, 2 N. E. 172; Wallace v. re Hamilton, 26 Ore. 579, 38 Pac. Milligan, 110 Ind. 498, 11 N. E. 1088; Cole v. Price, 22 Wash. 18, 599; Andrew's Succession, 16 La. 60 Pac. 153; Patterson v. Patter- Ann. 197; Mcintosh v. Perkins, 13 son, 182 Fed. 952; Chater v. Mac- Mont. 143, 32 Pac. 653; Veith v. lean, 3 Eq. Rep. 375; Prentiss v. 444 LAW OF RECEIVERS. not obtain by liis appointment any rights over the indi- vidual property of the partners.- And he takes the prop- erty subject to all the equities, liens, and encumbrances existing against it while in the hands of the partnership.^ Brennan, 1 Grant Ch. (U. C.) 4S4; Helmore v. Smith, 35 Ch. D. 449, 55 L. T. 72. In Blakeney v. Dufaur, 15 Beav. 40, the master of rolls says: "The province of this court upon a mo- tion for a receiver is quite clear; its duty is merely to protect the property and not to decide the ultimate rights between the par- ties." When a receiver is appointed over the property of a partner- ship, its assets are in the custody of the court and can be reached only with the permission of the court. Lawson v. Dunn, (N. J.) 49 Atl. 1087. In Waring v. Robinson, 1 Hoff. Ch. (N. Y.) 524, it was held that when a partnership was dissolved and a receiver appointed, notice of which was published in a paper circulating in the town where the defendant lived, the payment of a debt to one of the partners would be void if he had notice of the ap- pointment brought home to the debtor; and that the filing of a bill was not a dissolution, but the re- ceiver was appointed in anticipa- tion that a dissolution must take place. After the appointment of a receiver one partner can not give preference to creditors by con- fessing judgment in his favor. Where a judgment is obtained against partners and a receiver has been appointed to hold the assets, the judgment can not be enforced by an execution levied on the assets in the hands of the receiver, but the judgment cred- itor may share in the assets on a proper application to the court. Bogert V. Turner, 135 App. Div. 530, 120 N. Y. Supp. 420. Ordinarily a levy on an execu- tion or attachment subsequent to the appointment will be subordi- nated to the title of the receiver. Kuode V. Baldridge, 73 Ind. 54. 2 Adams v. Hannah, 97 Ga. 515, 25 S. E. 330; Wallace v. Milligan, 110 Ind. 498, 11 N. E. 599; Saylor V. Mockbie, 9 Iowa 209. 3 Security Title & T. Co. v. Schlender, 190 111. 609, 60 N. E. 854; Gillam v. Nussbaum, 95 111. App. 277; Rickman v. Rickman, 180 Mich. 224, 146 N. W. 609, Ann. Cas. 1915C 1237. A creditor of the partnership having a lien on its property can not be deprived of it by means of a receivership. Greenwood v. Brod- head, 8 Barb. (N. Y.) 593. In Davenport v. Kelly, 42 N. Y. 193, it is said that 'a judgment creditor acquires no preference by the commencement of an action iii the nature of a creditor's bill until the appointment of a receiver therein over a junior judgment, as to personal property which is the subject of a levy and sale on execution. Citing Storm v. Wad- dell, 2 Sandf. Ch. (N. Y.) 494, 516; Van Alstyne v. Cook, 25 N. Y. 489. It is very clear that as to personal property which is the subject of levy and sale on execution a cred- itor by an equity suit acquires no preference as against a jud^.uent MATTERS ARISING FROM PARTNERSHIPS. 445 Hence the appointment of the receiver does not affect the existing rights of creditors in respect to the partnership property.^ The appointment of a receiver over a solvent partnership at the instance of one of the partners will not ordinarily prevent the partnership creditors from securing judgments against the partnership.^ But one who purchases the interest of a partner subsequent to the appointment of a receiver over the partnership is not allowed to interfere with the possession of the receiver.^ 6. 'WJio May Be Appointed Receiver, § 154. Eligibility to Be Appointed. In the English practice, it is not an infrequent practice to appoint one of the partners receiver where he is familiar ^^^th the business and not guilty of misconduct which would tend to impeach the idea of the property being safe in his hands. But under such an appointment, creditor of the debtor until the proceed to obtain a judgment and entry of an order appointing a re- attachment and gain priority over ceiver in such equity suit. The other creditors before a final de- vigilant creditor, who by his exe- cree dissolving the partnership in cution seizes and sells the prop- a suit for that purpose and the erty of his debtor before the appointment of a receiver since, appointment of a receiver in an until such final decree dissolving equity action, secures a prefer- the partnership, it can not be ence which the law sanctions and known whether the partnership is protects. insolvent or not. Adams v. Woods, 4 Adams v. Woods, 9 Cal. 24; 8 Cal. 152, 67 Am. Dec. 313; Adams Stuparich Mfg. Co. v. Superior v. Woods, 9 Cal. 24; Myers v. Court, 123 Cal. 290, 55 Pac. 985, Myers, 15 App. Div. 448, 44 N. Y. Norton v. Sperry, 113 Minn. 447, Supp. 513; Schloss v. Schloss, 14 129 N. W. 843; Bird v. Austin, 40 App. Div. 333, 43 N. Y. Supp. 788; N. Y. Super. Ct. 109; Van Alstyne Matter of Thompson, 10 Api). Div. V. Cook, 25 N. Y. 489; Higgins v. 40, 41 N. Y. Supp. 7, 40, 75 N. Y. St. ■ Bailey, 7 Rob. (N. Y.) 613; Mc- 1133; Bergin v. Deering, 70 Hun Grath v. Cowen, 57 Ohio St. 385, 379, 24 N. Y. Supp. 36, 53 N. Y. 49 N. E. 338; Blakeney v. Dufaur, St. 893. But see in this connec- 15 Beav. 40, 51 Eng. Reprint 451. tion: Longstaff v. Hurd, 66 Conn. 5 It has been held that a gen- 350, 34 Atl. 91. oral creditor of a partnership may t> Noonan v. McNab, 30 Wis. 277. 446 LAW OF RECEIVERS. the receiver is not allowed to receive a salary for his services as receiver and he is required to furnish a bond conditioned upon his accounting for the property and moneys received by him.^ This method is sometimes followed in American prac- tice and especially by agreement of the parties to the litigation, as in such circumstances he is under the control and direction of the court, so that no interest can be prejudiced and the bond given is a protection as to the proceeds.^ 1 Wilson V. Greenwood, 1 S. W. 471; Sargent v. Read, 1 Ch. D. 600; Collins v. Barker (1893), 1 Ch. 578. As to the appointment of one of the parties as receiver the court in Blakeney v. Dufaur, 15 Beav. 40, says: "It is probable that if the master should appoint either of the partners he will select the one who is at present in posses- sion of the assets; but he would then be in possession of the assets in a totally different character from that in which he is at pres- ent. He would then be the officer of the court, having given due security to account for the moneys he shall receive; but in such case it is without salary. As to the propriety of appoint- ing one of the partners receiver and manager the master of rolls in Sargant v. Read, L. R. 1 Ch. Div. 600, 608, says: "It seems the plaintiffs are entitled on the un- disputed figures to rather more than three-fourths of the capital; they are entitled either to three- fourths or four-fifths of the profit; and they are the original owners of the business who have been carrying it on without any sub- stantial interference on the part of the defendant for upwards of a year. It appears that the de- fendant was unable through ill health to attend to business, but that does not at all affect the fact that they are the persons who carried it on. . . . On the other hand if I deprive the plaintiff of the opportunity of being receiver I might inflict most serious injury on the business." Cf. Collins v. Barker (1893), 1 Ch. 578. 2 Conner v. Belden, 8 Daly (N. Y.) 257; Whitesides v. Laf- ferty, 3 Humph. (Tenn.) 150; Todd v. Rich, 2 Tenn. Ch. 107. In Brien v. Harriman, 1 Tenn. Ch. 467, it was held to be unusual to appoint one or the partners re- ceiver, but if it was done it must be without salary, citing Wilson V. Greenwood, 1 Swanst. 481. Where a partner is appointed re- ceiver and carries on the business under the direction of the court and large profits accrue therefrom, all the parties are permitted to participate in such profits. Mc- Mahon v. McClernan, 10 W. Va. 419, 467; but see Durbin v. Bar- ber, 14 Ohio 311; Whitesides v. Lafferty, 3 Humph. (Tenn.) 150; Taylor v. Hutchison, 25 Graft. (Va.) 536, 18 Am. Rep. 699. In MATTERS ARISING FROM PARTNERSHIPS. 447 Where a partner is selected as receiver of the partner- ship, he thereupon ceases to act in his capacity as a part- ner and becomes responsible to the court as its officer in charge of the property.^ Where there is an unreasonable delay on the part of the surviving partner in winding up the partnership and there is waste of the property on the part of the survivor, the administrator of the deceased partner may be ap- pointed receiver, but he will be required to furnish a bond in addition to his regular bond as administrator ^ A person will not be appointed receiver of a partner- ship who is interested in judgments against its property and w^ho is connected by marriage with parties secured by a deed of assignment for the benefit of its creditors and who is charged with knowledge of tlwi fraudulent misapplication of assets by members of the partnership.^ And a federal court will not appoint a person receiver of a partnership w^ho resides out of its jurisdiction in a state where none of the partnership assets are located.^ Where one of the partners has been appointed receiver of the partnership aiid has acted in such capacity for more than a year, the plaintiff in the litigation is estopped Beverley v. Brooke and Bev- principle and authority. In such erley v. Scott. 4 Gratt. (Va.) case there can be no rule of dili- 187, 212, it is said: "During such gence for the exclusive appropria- controversy the rents are accru- tion of the rents." See. also, Ing in the custody of the court Reynolds v Austin, 4 Del. Ch. 24; ready to be paid over to the party Hubbard v. Guild, 2 Duer (N. Y.) ultimately prevailing. In truth 662. from the time of the order of ap- 3 Whitesides v. L a f f e r t y, 3 r.ointment both parties are in pos- Humph. (Tenn.) 150; Gridley v. session by the hand of the receiver Conner, 2 La. Ann. 87; Blakeney and when the question of right is v. Dufaur, 15 Beav. 40. ultimately decided the possession 4 Miller v. Jones, 39 111. 54. of the party prevailing becomes 5 W^atson v. Bettman, 88 Fed. exclusive throughout the whole 825. period by relation to the date of 6 Watson v. Bettman. 88 Fed. the order. This is clear both upon 825. 448 LAW OF RECEIVERS. from claiming that lie is disqualified from acting because of being interested/ In general, however, the same principles are applied in selecting a receiver for a partnership as are employed iu other cases of receivership.^ 7. Eclating to the Procedure of the Appointment. § 155. Nature of Pleadings and Notice Necessary. A receiver will not be appointed over property claimed by defendant by a summary order of the court upon an affidavit of one of the parties to an action for dissolution of partnership that the property is partnership prop- erty.^ In proceedings for the appointment of a receiver facts must be stated in the complaint showing the neces- sity or propriety for the appointment.^ And a receiver will not be appointed on the application of one having but a small interest, where the appointment would affect large interests of contractors and other third persons.^ It has been held that a partnership creditor may main- tain a bill in the federal court to settle a partnership and subject the partnership assets, although there may be at 7 In an action to dissolve, an ac- In Gregory v. Gregory, 1 Sweeny counting was had, after which the (N. Y.) 613, the court refused to court appointed defendant partner appoint a receiver over specific as receiver. After he had acted property without satisfactory proof ... . , that such specific property is in for more than a year without ob- . ,. . . , fact partnership property, jection, and the estate was mainly ^^ ^.^^.^^ ^ ^^.^^^^ ^ ^^^^ settled, plaintiff objected that the ^^ y.) 613, it was held improper receiver was interested partly. ^^^, ^^^ ^^^^,^ ^^ appoint a receiver and disqualified. Held, that after ^^^^^ motion and undertake to de- such long acquiescence he could termine what is partnership prop- not raise the question. Reneau v. ^^.^^ ^^ between the partners and Lawless, 79 Kan. 553, 100 Pac. ^^^^^ persons. '^"9. 2 Tomlinson v. Ward, 2 Conn. 8 In this connection see §§62 et 396; Const v. Harris, 1 Turn. & seq., supra. R. 496. 1 Stuparich Mfg. Co. v. Superior 3 Devlin v. Hope, 16 Abb. Ff. Court, 123 Cal. 290, 55 Pac. 985. (N. Y.) 314. MATTERS ARISING FROM PARTNERSHIPS. 449 the same time a bill between the partners to settle the partnership pending in a court of concurrent jurisdiction of the state wherein the property is in the hands of a receiver, so long as it does not interfere with the posses- sion of the receiver.^ A court of equity will not in a suit between partners appoint a receiver of the partnership where there is no prayer for a dissolution.^ In such proceedings, it is neces- sary to establish the existence of the partnership and the facts essential to the jurisdiction of the court.^ The same rules respecting notice apply to members of partnerships in proceedings for the appointment of a receiver, and consequently the courts are reluctant to appoint a receiver without notice to the defendant," but where some of the partners are non-residents, it is held not necessary to serve notice upon such non-resident members where the resident members appear in the pro- ceeding.* 4 Logan V. Greenlaw, 12 Fed. 10. 5 Pirtle V. Penn, 3 Dana (Ky.) 247, 28 Am. Dec. 70. 6 Norton v. Sperry, 113 Minn. 447, 129 N. W. 843. 7 McCarthy v Peake, 18 How. Pr. (N. Y.) 138, 9 Abb. Pr. 164; Mann v. Gaddie, 158 Fed. 42, 88 C. C. A. 1. Where receivership proceedings for a solvent firm were in fact the proceedings of the firm, and the court acted on representation of that fact, citation to the part- ners was not necessary. South- well V. Church, 51 Tex. Civ. 547, 111 S. W. 969. 8 But the court will refuse to appoint a receiver over the inter- est of a non-resident partner in a non-resident partnership. Har- vey V. Varney, 104 Mass. 436. In Alford v, Berkele, 29 Hun I Rec. — 29 633, an action was brought for dissolution where the resident partners appeared and it appeared that no notice was served upon the non-resident defendant part- ner, but the court appointed a re- ceiver upon the authority of Peo- ple V. Norton, 1 Paige (N. Y.) 16, 17; Verplanck v. Mercantile Ins. Co., 2 Paige (N. Y.) 438; Blood- good V. Clark, 4 Paige (N. Y.) 574. In Ogden v. Warren, 36 Neb. 715, 55 N. W. 221, a receiver was appointed of the partnership goods of a foreign partnership having effects in the state of Nebraska. In this connection see, also. In re Hermanos, L. R. 24 Q. B. Div. 640, where it appeared that a Paris firm having a branch office in England had been declared a bankrupt in the former country 450 LAW OP RECEIVERS. § 156. Effect of Answer Admitting Allegations of Complaint. Where in a suit by creditors of a partnership against its survivors for its business and tlie appointment of a receiver, the answer admits all of the material allegations of the bill, the court will appoint the receiver^ if there is no suspicion of collusion between the parties to the liti- gation. The same rules apply in such circumstances as are applicable to the effects of pleadings in other cases. § 157. Effect of Allegations of Complaint Being Fully Denied. The court will not as a rule appoint a receiver where the allegations of the bill asking for the appointment are fully denied by a verified answer. This is in accordance vnth. the practice of equity courts under the general equity practice.^ The court will naturally refuse to appoint a receiver wdiere the allegations of the bill are so general that a charge of perjury could not be based upon them and the answer is very clear and full in its denials of the general grounds upon which the appointment of the receiver is sought. 2 where a syndicate had been ap- shown to be the domicile of the pointed to administer the estate. debtors, was no ground for stay- Subsequently a bankruptcy peti- ing the proceedings in England, tion was presented in England i Dick v. Laird, 4 Cranch. C. C. and an order made for a receiver. 667, Fed. Cas. No. 3891. The syndicate appeared in court i Williamson v. Monroe, 3 Cal. and moved to set aside all further 383; Rhodes v. Lee, 32 Ga. 470; proceedings. There was no evi- Hottenstein v. Conrad, 9 Kan. 435; dence as to the domicile of the Coddington v. Tappan, 26 N. J. Eq. firm further than that two of the 141; Parkhurst v. Muir, 7 N. J. parties resided in England where Eq. 307; Henn v. Walsh, 2 Edw. the firm had large assets. The Ch. (N. Y.) 129; Popper v. Schei- court held that it had jurisdic- der, 7 Abb. Pr. N. S. (N. Y.) 56; tion to appoint a. receiver, and Wales v. Dennis, 9 Wash. 308, 37 that the fact that a bankruptcy Pac. 450. proceeding had been commenced 2 Williamson v. Monroe, 3 Cal. prior in a foreign country not 383. MATTERS ARISING FROM PARTNERSHIPS. 451 § 158. Right of Creditor to Intervene in Partnership Litigation. In a suit to dissolve a partnership and for the appoint- ment of a receiver, a creditor of the partnership hokling collateral security for his debt, consisting of a promis- sory note containing a power of sale, may intervene by a petition, asking that the security may be sold and the proceeds applied to the payment of his debt and that he may be admitted to prove his claim for the residue, and an order for the sale of the security is within the author- ity of the court.^ § 159. Determination of Disputed Questions of Fact by Jury. Where the existence of the partnership over which it is sought by the plaintiff to obtain a receiver is denied, the court will not appoint a permanent receiver until it is determined that a partnership actually did exist be- tween the parties, although a receiver may be appointed to preserve the property if in danger of being lost.^ Upon the raising of such an issue of fact the court may direct it to be tried at law and may refuse to try it upon a mere motion for a receiver.^ § 160. What Will Be Determined in the Order of Appointment. The court will not pass upon the ultimate rights of the partners as between themselves upon making an order appointing a receiver pendente lite, since the only object of the appointment is to preserve the property of the partnership pending the ultimate decision in the case.' 1 White V. White, 169 Mass. 52, i Rische v. Rische, 46 Tex. Civ. 47 N. E. 499. 23, 101 S. W. 849; Blakeney v. 1 See §§ 127 and 128, supra. Dufaur, 15 Beav. 40. 2 Fairburn v. Pearson, 2 Mac. In Brush v. Jay, 113 N. Y. 482, ^ Q 144 21 N. E. 184, overruling 50 Hun Thus where there is an issue as 446, 3 N. Y. Supp. 332, it is held to whether plaintiff was entitled that it is manifestly improper to to participate in the profits of the determine a material issue upon business, the court may direct affidavits in anticipation of the that issue to be tried by a jury. trial and determination of the is- Feacock v. Peacock, 16 Ves. 49. sues joined. The court say: "We 452 LAW OF RECEIVERS. Thus in a suit for dissolution of a partnership and an accounting the court should not order one partner to turn over firm property to the receiver until it is deter- mined that he has property belonging +o the partnership in his possession, since the object of the suit is to deter- mine the equities of the individual parties in respect to the property involved in making up the final judgment.- The order of appointment will not be extended so as to cover property which is alleged to belong to tlie partnership where it is denied that it is partnership prop- erty and the issue has not been heard by the court.^ As a general rule, the appointing court ^^dll not deter- mine in its order of appointment what particular prop- erty belongs to the partnership but \vi\\ direct the receiver to determine such questions in proceedings in which the claimants of the property are the litigants.^ The question of whether a partnership exists in fact being one going to the jurisdiction of the court is natu- rally covered by the order of appointment.^ Where the appointment of the receiver is not made until the final determination of the litigation, the court know of no practice which author- in an action for dissolution of a izes the court in this manner to partnership and for the appoint- defeat the object of the litigation ment of a receiver to wind up the and place the subject of the action firm affairs is merely preliminary beyond the reach of the court ulti- to a hearing and adjustment of mately to award it to those show- all differences upon which the ing title thereto. We do not think partners may be thereafter heard. the special term had authority to Norton v. Sperry, 113 Minn. 447, take up on motion one of the ma- 129 N. W. 843. terial issues of the case and under 2 Gross v. Gross, 128 App. Div. objection by one of the parties 429, 112 N. Y. Supp. 790. make an order which was practi- 3 Gregory v. Gregory, 1 Sweeny cally a final judgment in respect (N. Y.) 613. to the property involved in such 4 Higgins v. Bailey, 7 Rob. issue." (N. Y.) 613. The appointment of a receiver 5 See § 127, supra. MATTERS ARISING FROM PARTNERSHIPS. 453 naturally will determine all of the issues raised by the litigation.^ §161. How the Partnersliip Property Is Described in the Order, The property of the partnership which is placed in the hands of a receiver should be described Avdth reasonable certainty. If the property can only be ascertained from an inspection of the books and accounts of the partner- ship, it will be sufficient to describe it in a general way as ''notes, accounts, personal property, and lands" of the partnership.^ It is immaterial if the legal title to prop- erty of the partnership is in the name of a third person, such as a corporation. The court may appoint a receiver of the property notwithstanding that the legal title to it is held in the name of such third person.^ § 162. Furnishing of Bond by the Receiver. The same general rules in respect to the necessity of the receiver furnishing a bond apply to receivers for partnerships. The necessity for furnishing such a bond is generally fixed by the statutes of the several states.^ A bond on behalf of the receiver ought to be exacted even though the statute does not require one, and it should be broad enough in its terms to protect all of the assets 6 Morey v. Grant, 48 Mich. 326, cerning the appointment and dis- 12 N W 202 charge of receiver." And the find- -TTT., o. xnT^c-h ins of such good cause should be 1 Martin v. Wilson, 84 Wash. .^^^^^^^^^^ .^ ,^^ „,^^r of ap- 625, 147 Pac. 404. pointment. Staar v. Moy Tong 2 Fischer v. Superior Court, 98 j^^on, 145 111. App. 341. Cal. 67, 32 Pac. 875. See, also, rpj^g English partnership act of P.ufkin V. Boyce, 104 Ind. 53, 3 ^ggo which allows a judgment N. E. 615. creditor of a partner to obtain a 1 Before a receiver is appointed, receiver of his interest in the it is essential that the complain- partnership business applies to a ant should either give bond or foreign partnership having a upon good cause shown should be branch house of business in Eng- exempted from so doing, as pro- land. Brown v. Hutchinson (1895), vided by act May 15, 1903, "con- 1 Q. B. 737. 454 LAW OF RECEIVERS. of the partnership.- The duty of furnishing such a bond may, however, be waived by the failure of the parties to be benefited thereby not requiring one to be furnished.^ § 163. Denial of Application for Receiver as Bar to Subsequent Application. The denial of an application for a receiver in a suit for an accounting instituted by one of the partners but w^hich suit was dismissed upon the plaintiff's own motion, is not a bar to a subsequent application for a receiver by the same partner since such an application is merely ancillary to the principal relief sought in the suit itself.^ The refusal to grant, on application of one of two cor- porations which had formed a partnership to publish a newspaper, an injunction restraining its business man- ager, who was a large stockholder in the other corpora- tion, from further activity in the partnership affairs, made by a judge in vacation on the ground that the part- nership contract between the corporations was ultra vires, was not res judicata of the issues in another suit between the parties asking for a receiver and a distribu- tion of assets of the partnership.^ § 164. Allowance of Costs and Fees. The allowance of costs and of fees of the receiver in proceedings for the dissolution of a partnership are mat- ters within the sound discretion of the court. ^ As has been before stated, the practice is where one of the part- 2 Where a partner recovering ing of the bond. Larsen v. Win- possession of property from a re- der, 20 Wash. 419, 55 Pac. 563. ceiver held by him as partnership 3 Shulte V. Hoffman, 18 Tex. 678. 1 Anderson v. Powell, 44 Iowa 20. property gives a bond conditioned ^ News-Register Co. v. Rocking- upon his accounting for all the ^^^ p^^ (.^^ ^^^ y^ ;^4q^ 86 S. E. assets and property of the part- gy^ nership as ascertained by the i The allowance of costs in pro- court, book accounts or cash on ceef'ings for dissolution of a part- hand are assets within the mean- nership is in the discretion of the MATTERS ARISING FROM PARTNERSHIPS. 455 ners is appointed receiver to require that he act in that capacity without compensation.^ § 165. Venue of the Suit to Appoint a Receiver. In a suit to dissolve a partnership, the venue is dc ter- mined by the residence of parties, and not by the locality of the firm assets, even when such assets include real estate ; and hence the initial proceedings for the dissolu- tion of a partnership and the appointment of a receiver should be had in the place of the partner's domicile.^ And it has been held that the jurisdiction of a court of equity in an action to wind up a partnership is not local merely, but extends so far as to authorize the appoint- ment of a receiver to sell real property constituting a part of the partnership assets even though it may be situ- ated in another state.^ court. Costello v. Scott, 30 Nev. 43, 93 Pac. 1, 94 Pac. 222. The allowance of fees of the re- ceiver as costs in the proceedings for dissolution of partnership is a matter in the legal discretion of the trial court. Costello v. Scott, 30 Nev. 43, 94 Pac. 222 (judgment in 93 Pac. 1 modified on rehear- ing). Where, both members of a part- nership having died, a representa- tive of its principal creditors was appointed receiver of the partner- ship property, which consisted of a whisky distillery, in a suit brought for that purpose by agree- ment between the creditors and the devisees and heirs of each partner, and the attorney for such creditors thereafter acted as attor- ney for the receiver, each of the partner's estates being repre- sented by attorneys, on the ques- tion as to whether the attorney's fees for services to the receiver should be paid out of the partner- ship funds or by such principal creditors, evidence held to show that such services were for the benefit of the partnership prop- erty, and that his fee was properly payable out of the partnership funds. Wilson v. Murphy's Admr., 33 Ky. Law Rep. 716; 110 S. W. 893. 2 In this connection see § 154, supra. 1 Williams v. Williams, 83 Misc. Rep. 560, 145 N. Y. Supp. 564. 2 Dunlap V. Byers, 110 Mich. 109, 67 N. W. 1067. 45G LAW OF RECEIVERS. 8. Powers and Duties of the Receiver, § 163. General Effect of the Appointment. The general effect of the appointment of a receiver is to place the property of the partnership in the custody of the court. ^ Where a partnership is insolvent, the ap- pointment of a receiver is in effect an equitable assign- ment for the benefit of creditors.^ Where the suit in which the receiver is appointed is not one affecting creditors particularly, and is merely a litigation between the part- ners which is subject to being settled or dismissed at any time by the partners, then the effect of the receiver- ship is not like that of an assignment for the benefit of creditors and in such circumstances a creditor may pur- sue independent remedies.^ 1 See § 153, supi^a. The receivership funds not sub- ject to garnishment or attachment. Longstaff v. Hurd, 66 Conn. 350, 34 Atl. 91. But see Adams v. Hack- ett, 7 Cal. 187, and Adams v. Woods, 8 Cal. 152, 68 Am. Dec. 313. 2 Winslow V. Wallace, 116 Ind. 317, 1 L. R. A. 179, 17 N. E. 923; Re Hamilton, 26 Ore. 579, 38 Pac. 1088. In a suit for the dissolution of an insolvent partnership the ap- pointment of a receiver places the assets of the partnership under the control of the court for pro rata distribution among the gen- eral creditors where the insol- vency is clearly set forth in the pleadings. Myers v. Myers, 18 Misc. Rep. 663, 43 N. Y. Supp. 737 (affirmed in 15 App. Div. 448, 44 N. Y. Supp. 513). A receiver of an insolvent part- nership appointed for the purpose of winding up its affairs is the representative of the partnership creditors. Brockhurst v. Cox, 72 N. J. Eq. 950, 73 Atl. 1117 (affirm- ing 71 N. J. Eq. 703, 64 Atl. 182). 3 See I 153 for discussion of effect of the appointment on cred- itors. In Chase's Case, 1 Bland Ch. (Md.) 206, 213, 17 Am. Dec. 277, it was held that the appointment does not involve the determination of any right, or affect the title of either party in any manner what- ever. "From this case it seems to be settled," the court say, "that until a dissolution has been judi- cially declared and a receiver or- dered to make a pro rata distribu- tion of the partnership assets among the creditors they are not prevented from resorting to ad- verse proceedings and that when a creditor does resort to such pro- ceedings he may thereby gain a preference over other creditors who are less diligent." The rea- son of the above rule is based upon the fact that the proceeding is between partners and the plain- tiff may at any time dismiss his MATTERS ARISING FROM PARTNERSHIPS. 457 In a proceeding to dissolve a partnership the receiver, it has been said, takes the equitable title without an as- signment.'' In a strict sense, however, the receiver ac- quires no title but only the right of possession as an officer of the court for the purpose of preser^dng the property and handling it in accordance with the orders of the court.^ He takes the partnership property, as bill. But see Waring v. Robinson, 1 Hoff. Ch. (N. Y.) 524. Where the receivership is not one arising out of a creditors' action but in a suit between the partners, the receiver is not a rep- resentative of the creditors and can assert no greater rights in respect to the partnership prop- erty than could the partners. Se- curity Title etc. Co. v. Schlender, 190 111. 609, 60 N. E. 854; Weber V. Weber, 90 Wis. 467, 63 N. W. 757. The appointment of a receiver does not absolve the partners from their partnership debts, nor stay or prevent action against the members of the partnership for the recovery of the debts. Bogert V. Turner, 135 App. Div. 530, 120 N. Y. Supp. 420. 4 Tillinghast v. Champlin, 4 R. I. 173, 67 Am. Dec. 510. In Wallace v. Yeager, 4 Phila. (Pa.) 251, it was held that the receiver succeeds not only to the legal title of the partners as joint tenants, but also to the equitable rights and remedies of the firm. Pearce v. Gamble, 72 Ala. 341; Smith V. Danvers, 5 Sandf. (N. Y.) 669. Cf. Cox v. Volkert, 86 Mo. 505. 5 In Keeney v. Home Ins. Co., 71 N. Y. 396, 27 Am. Rep. 60, an action was brought to dissolve the partnership and it was held that the receiver took no title to the property; the court say: "A re- ceiver pendente lite is a person appointed to take charge of the fund or property to which the re- ceivership extends while the case remains undecided. The title of the property is not changed by the appointment. The receiver ac- quires no title and only the right of possession as an officer of the court. The title remains in those in whom it was vested when the appointment was made. The ob- ject of the appointment is to secure the property pending the litigation so that it may be appro- priated in accordance with the rights of the parties as may be determined by the judgment in the action." Citing Skip v. Harwood. 3 Atk. 564; Gresley v. Adderly, 1 Swanst. 573; Thomas v. Brig- stocke, 4 Russ. 65; Bertrand v. Davies, 31 Beav. 436; Green v. Bostwick, 1 Sandf. Ch. (N. Y.) 185; Singerly v. Fox, 75 Pa. 112; Kirkpatrick v. Corning, 38 N. J. Eq. 234. After a receiver is appointed the property is in the control of the court and can not be levied on by attachment or other judicial proc- ess. Jackson v. Lahee, 114 111. 287, 2 N. E. 172; McGowan v. Myers, 66 Iowa 99, 23 N. W. 282. If, however, the partnership has been wound up and there is a bal- 458 LAW OF RECEIVERS. we have sliown before, subject to existing liens and equi- ties,« but has a priority of right in respect to liens or judgments obtained subsequent to his appointments ance in the hands of a receiver which belongs to one partner it is subject to the rights of creditors. Willard v. Decatur, 59 N. H. 137. A purchaser of one partner's in- terests after the appointment is subject to tlie rights of the re- ceiver. Noonan v. McNab, 30 Wis. 277. A receiver of a partnership ap- pointed in an action by one part- ner against the other can not be garnished in an action by a cred- itor of the firm without leave of the court appointing him. Blum v. Van Vechten, 92 Wis. 378, 66 N. W. 507. 6 See § 153, supra. A receiver of a firm takes only the rights of the firm, and is affected by all claims and liens and equities which would prevail against the firm. Rickman v. Rick- man, 180 Mich. 224, Ann. Cas. 1915C, 1237, 146 N. W. 609. The receivership court should, however, pending an action for the dissolution of a solvent partner- ship, upon application permit the levy of an execution upon the as- sets in the hands of the receiver under a judgment against the part- ners. Re Thompson, 10 App. Div. 40, 41 N. Y. Supp. 740. A receiver of a partnership for the purpose of distributing its as- sets pro rata among its creditors will not be required to permit a levy on the partnership property of a writ of attachment by a firm creditor issued before the proceed- ing for the dissolution of the part- nership were commenced. Myers V. Myers, 15 App. Div. 448, 44 N. Y. Supp. 513. A receiver of a partnership ap- pointed on the same day that a bank balance in the name of the firm was appointed by the bank, under an agreement with the de- positor in payment of sums due it, is not entitled to the fund as against the bank unless it appears that he was appointed before the account was closed. London etc. Bank v. Hanover Nat. Bank, 36 App. Div. 487, 55 N. Y. Supp. 941. A receiver, who is placed in charge of a drug business in an action between the partners, is properly required to pay over to the postmaster a fund deposited by one of the partners derived from a branch postal station busi- ness and deposited in the firm name in a separate account. Sachs v. Sachs, 181 111. App. 296. 7 A judgment rendered against a partnership after the appoint- ment of a receiver upon an indebt- edness incurred prior to the re- ceivership is not a preferred claim. Williams v. Groat, 73 Fed. 59. Where partnership assets are in the possession of a receiver they are not subject to levy under an execution on a judgment rendered subsequent to the appointment. Jackson v. Lahee, 114 111. 287, 2 N. E. 172. But the rule is other- wise when the judgment was ren- dered prior to the appointment. Chautauqua County Bank v. Ris- ley, 19 N. Y. 369, 75 Am. Dec. 347. MATTERS ARISING FROM PARTNERSHIPS. 459 He has, however, no greater power concerning the winding up of the partnership business than the partners possessed.** Where a receiver is appointed over the property of a partnership after the death of one of the partners, he naturally supplants the survi\dng partner in respect to administering its affairs." § 167. General Powers and Duties of the Receiver. The general powers and duties of a receiver of a part- nership are not materially different from those of re- ceivers generally. He naturally must look to the order of appointment to ascertain the general scope of his pow- ers.^ He must use ordinary and reasonable diligence in the execution of his trust.- And he must, of course, act with 8 Niemann v. Niemann, L. R. 43 Ch. Div. 198; Wiekersham's Case, L. R. 8 Ch. 831, 28 L. T. 653. it Klrkpatrick v. McElroy, 41 N. J. Eq. 539, 7 Atl. 647; Helme v. Little- john, 12 La. Ann. 298. Where a receiver is appointed at the instance of an administra- tor of a deceased partner, he is clothed with the rights of the de- ceased partner in respect to ad- ministering the partnership for the benefit of the creditors of the part- nership. Tillinghast v. Champlin, 4 R. I. 173, 67 Am. Dec. 510. 1 The disposition of a fund in the hands of a receiver, in a suit to dissolve a partnership and dis- tribute its assets, can not be affected by any action of the par- ties to the suit so as to deprive the court of power to control it. Adams v. Haskell, 6 Cal. 113, 65 Am. Dec. 491. The receiver may do everything necessary to wind up the firm busi- ness in the ordinary manner, and is not compelled to follow the di- rections of any of the partners. Holloway v. Turner, 61 Md. 217; Dixon V. Dixon, (1904) 1 Ch. 161, 73 L. J. Ch. 103. In Fincke v. Funke, 25 Hun (N. Y.) 616, where an action was commenced by an administrator against the two remaining part- ners, after a receiver was ap- pointed. The court held that the receiver had no specific authority conferred upon him to bring actions and that the title of the property did not vest in him; that the receiver in a partnership case is vested only with such power as is conferred upon him by the order; that he is merely a com- mon law receiver whose duty Is only to protect the property, the title therein remaining in the part- nership. 2 Johnston v. Keener, 23 IIU App. 220, 460 LAW OF RECEIVERS. the utmost good faith in respect to his handling of the receivership property. He can not loan the receivership funds to himself or to the firm of which he is a member.^ A receiver ordinarily is the representative of the in- terests of all parties concerned, and the special represen- tative of none* But where a receiver has been appointed for an in- solvent partnership for the purpose of winding up its affairs, he is in effect the representative of the partner- ship creditors and it is his duty to set aside mortgages or conveyances made in fraud of their rights.^ § 168. Duties of the Receiver Respecting the Collection of Part- nership Assets. It is, of course, one of the duties of a receiver to collect the debts and assets of the partnership.^ And he may by 3 Ryan v. Morrill, 83 Ky. 352. 4 Tillinghast v. Champlin, 4 R. I. 173 (189), 67 Am. Dec. 510. Where the receiver is appointed at the instance of one of the part- ners, he does not, like a receiver in insolvency, represent the cred- itors in such a manner as to avoid a partnership mortgage which was not filed of record. Berlin Mach. Works v. Security Trust Co., 60 Minn. 161, 61 N. W. 1131. He is a trustee for all the part- ners (Honore v. Colmesnil, 1 J. J. Marsh (Ky.) 506), but has no power to bind them to a new ob- ligation. Lake v. Munford, 4 Smedes & M. (Miss.) 312. A receiver of a partnership rep- resents not only the members of the firm, but also all the creditors in an action brought by him. Lees V. Dobson, 26 App. Div. 624, 49 N. Y. Supp. 902, But he does not represent cred- itors to such an extent as to at- tack a chattel mortgage given by the firm. Walsh v. St. Paul School etc. Co., 60 Minn. 397, 62 N. W. 383. 5 A receiver of an insolvent partnership, appointed for the purpose of winding up the affairs of the partnership and distrib- uting its assets to its creditors, is the representative of the part- nership creditors, and as such he may by suit or defense avoid a cl>attel mortgage given by the partnership which is void as against them. Brockhurst v. Cox, 72 N. J. Eq. 950, 73 Atl. 1117, affirming 71 N. J. Eq. 703, 64 Atl. 182. 1 Jackson v. De Forest, 14 How. Pr. (N. Y.) 81. The partners may be compelled to turn over to the receiver mon- -% MATTERS ARISING PROM PARTNERSHIPS. 461 virtue of his appointment sue the debtors of the part- nership if necessary to do so in order to collect debts.- And he may sue to recover unpaid subscriptions to the capital of the partnership.^ A receiver appointed in a litigation between the part- ners and not occupying the position of a receiver ap- pointed in a creditors' suit, can not sue to set aside a fraudulent conveyance made by the partnership prior to the appointment of the receiver.-* eys collected by them just prior to the appointment of the re- ceiver. Murphy v. Du Berg, 11 Abb. N. C. (N. Y.) 112. A receiver of a partnership may upon his own motion and without leave of court sue to recover prop- erty belonging to the partnership. Tillinghast v. Champlin, 4 R. I. 173, 67 Am. Dec. 510. 2 Helme v. Littlejohn, 12 La. Ann. 298; Nealis v. Lissner, 52 Hun 503, 5 N. Y. Supp. 6S2, 24 N. Y. St. 196; Fincke v. Funke, 25 Hun (N. Y.) 616; Prentiss v. Brennan, 2 Grant Ch. (U. C ) 274. But see McBride v. Ricketts, 98 Iowa 539, 67 N. W. 410. Ordinarily, however, he is not permitted to sue to recover debts without leave of court. Fincke v. Funke, 25 Hun (N. Y.) 616. He generally may sue in his own name to collect all debts. Kenning v. Raymond, 35 Minn. 303, 29 N. W. 132. 3 Torbe v. Strauss, 155 Wis. 518, 144 N. W. 184 (rehearing denied, 144 N. W. 1136). 4 Weber v. Weber, 90 Wis. 467, 63 N. W. 757. A receiver of partnership assets appointed in a suit for an account- ing between partners has no au- thority to compel one of the part- ners to regain and turn over to him property which has passed out of his hands long before. Fer- guson v. Bruckman, 23 App. Div. 182, 48 N. Y. Supp. 887. Ordinarily he has no right to bring an action to set aside trans- actions of the partners, such as the conveyance of firm property, as in fraud of creditors. Walsh V. St. Paul School Furniture Co.. 60 Minn. 397, 62 N. W. 383; Ber- lin Mach. Works v. Security Trust Co., 60 Minn. 161, 61 N. W. 1131. A common law receiver, ap- pointed under the court's equi- table powers to hold the assets of a partnership and dispose of them as the court shall direct, may refuse to sue to set aside a conveyance by a partner until indemnity for costs and expenses is given, where the cause of action is the sole asset of the firm. Flinn V. Hanbury, 157 App. Div. 207, 141 N. Y. Supp. 844. Where the receiver is appointed in a litigation between the part- ners, he merely occupies the posi- tion of the partnership in respect to its property and can not exer- cise greater rights in relation thereto than the partners them- selves could assert. Security Title 462 LAW OF RECEIVERS. A receiver appointed in supplementary proceedings is only entitled to retain out of property or funds enough to pay the judgment upon which he was appointed re- ceiver and the expenses of the receivership.^ Equity will not at the suit of receiver of a partnership compel a reconveyance of property conveyed by the firm to another to enable him to borrow money thereon for the firm's benefit without relie\ang the mortgagor of all personal liability.^ etc. Co. V. Schlender, 190 111. 609, 60 N. E. 854. The receiver succeeds to the equitable rights and remedies of the partners and their creditors when he is appointed over an in- solvent partnership. Pearce v. Gamble, 72 Ala. 341. The appointment of a receiver of a partnership because of its insolvency operates as an assign- ment for the benefit of creditors. Winslow V. Wallace, 116 Ind. 317, 1 L. R. A. 179, 17 N. E. 923. But it has been held that he may maintain an action in another state to set aside an assignment made by one partner to a creditor in fraud of another creditor where there are no local creditors hav- ing rights affected thereby. So- bernheimer v. Wheeler, 45 N. J. Eq. 614, 18 Atl. 234; Sloan v. Moore, 37 Pa. 217. A receiver of a partnership ordi- narily has no greater powers than the partners possessed. Niemann V. Niemann, 43 Ch. D. 198. o Appointment of a receiver in supplementary proceedings held to dissolve a partnership of which debtor was a member and to en- title the receiver to withdraw the debtor's share of the property to apply on the judgment, under Code Civ. Proc, § 2468, vesting the debtor's property in the re- ceiver. Lovins V. Laub, 85 Misc. Rep. 336, 147 N. Y. Supp. 304. A receiver appointed in supple- mentary proceedings against a partnership who brings an action to set aside a transfer by the partnership when insolvent with intent to prefer certain creditors, in violation of 1 N. Y. Rev. Stats., p. 766, § 20, is not entitled to all the proceeds of the property so transferred, without regard to its amount, but only to a sufficient amount to pay the judgments upon which he was appointed re- ceiver and the expenses of the receivership. Stiefel v. Berlin, 28 App. Div. 103, 51 N. Y. Supp. 147. 6 Security Trust Co. v. Dins- more, 186 Mich. 273, 152 N. W. 964. In the above case Mr. Justice Ostrander said: "Courts of equity do not, for receivers or for other parties complainant, divest citi- zens of property which it is ad- mitted they rightfully hold as security, at least not without actually relieving them of the ob- ligation to secure which the prop- erty was pledged to them. It is obvious that the partners could not secure a reconveyance of the MATTERS ARISING FROM PARTNERSHIPS. 463 The individual property of members of the partnership is not within the control of a receiver of the partner- ship." But where real property is held by the partners as tenants in common but used for partnership purposes and was improved with partnership funds and regarded by them as partnership property, it was held to pass to the receiver of the partnership.* The receiver of a partnership is entitled to recover from the surviving member of the partnership the pos- session of all funds, evidences of indebtedness, personal property, and choses in action belonging to the partner- ship. His right of possession is superior to that of tlie surviving partner.^ But a receiver ought not to be authorized in advance to prosecute and defend without further order of the court any actions brought by or against the partners pertaining to the partnership business.^*^ § 169. Rights of Receiver of Individual Partner. A receiver of an individual partner, who has absconded, appointed in a divorce suit, has no right to interfere wdtli property upon the theory of the tain such a bill — whether it can bill, unless they paid the debt tender to defendant the relief he which they gave the property to is entitled to if complainant's con- secure, or wholly relieved defen- tention is sustained." dant from liability therefor. It is 7 Hiles v. Dunn, 61 N. J. Eq. equally obvious that the holder 391, 48 Atl. 315; Wallace v. Milli- and owner of defendant's note and gan, 110 Ind. 498, 11 N. E. 599. of the mortgage he gave to secure Where the property in the pos- it, and the holder of the collateral session of a receiver of partner- pledged by defendant to secure ship property is in fact the in- the other note, which is brought dividual property of one of the in question, are not bound by the partners, that individual partner decree. In considering whether may assign it. Weinrich v. Koel- the bill can be amended, this ling, 21 Mo. App. 133. court can not know whether the 8 Smith v. Danvers, 5 Sandf. complainant desires to maintain (N. Y.) 669. the bill as a bill to redeem, or 9 Miller v. Jones, 39 111. 54. whether the court appointing the lo Witherbee v. Witherbee, 17 receiver will permit it to main- App. Div. 181, 45 N. Y. Supp. 297. 464 LAW OF RECEIVERS. the interests of the absconding partner in the partner- ship in the absence of waste or other equitable grounds for a receiver over the partnership.^ § 170. Effect of One of the Partners Being Appointed Receiver. Where one of the partners has been appointed receiver over the partnership he will not be permitted to retain funds collected by himself in his receivership capacity upon the plea that they were due him personally. The disposition of the funds collected by him is a matter within the control of the court since the funds when col- lected are in the custody of the court.^ And where one of the partners is appointed receiver of the partnership, his possession of the partnership property thereupon becomes that of the court, and if he uses such property for his private benefit or profit he must account to the court and not to his copartner.- § 171. Suing and Being Sued. The same general rules in respect to the necessity of obtaining leave of court to sue a receiver apply to re- ceivers of partnerships. They can not ordinarily be sued without the permission of the court.^ Unless restricted by order of court, the receiver in an action to liquidate partnership affairs may intervene in a suit against the firm and set up as many defenses as he may have reason to believe can be sustained, notwith- 1 Hamill v. Hamill, 27 Md. 679. A common law receiver ap- 1 Gridley v. Conner, 2 La. Ann. pointed in pursuance of the 87. court's equitable powers to hold 2Whitesides v. Lafferty, 3 the assets of a firm pendente lite Humph. (Tenn.) 150. and dispose of them as the court 1 Robinson v. Hodgkins, 168 shall direct can not be sued fov a Mass. 465, 47 N. E. 195; Blum v. partnership debt. Bogert v. Tur- Van Vechten, 92 Wis. 378, 60 ner, 135 App. Div. 530, 120 N. Y. N. W. 507. Supp. 420. MATTERS ARISING FROM PARTNERSHIPS. 465 standing such defenses might inure to the benefit of the members of the firm, though not jjleaded by them.- The receiver may generally sue without leave of court where he is doing so for the purpose of recovering pos- session of partnership property with the intent of apply- ing it to the purposes of the receivership.^ § 172. Binding- Force of Previous Orders or Judgments Upon Receiver. In a suit by a receiver of a partnership to foreclose a vendor's lien on property sold by him the defendants can not assert as a defense that one of the partners was not a party to the litigation in which the receiver was appointed where it is not shown that he was in fact alive or within the jurisdiction of the court. ^ A receiver in a suit between partners for dissolution can not question judgments confessed by the firm to give preferences.^ 2 Honegger v. W^ettstein, 15 Jones & S. (N. Y.) 125. 3 A partnership receiver, ap- pointed in a suit by a representa- tive of a deceased partner against the surviving partner to compel a settlement of the affairs of the partnership, and the application of its property to its debts, is an officer of the court, invested with the whole equitable title to the firm assets without an assign- ment; represents, in any suit af- fecting the partnership property, the interests therein of all parties to the suit in which he was ap- pointed, if not of persons who are not parties; is clothed with all the rights and equities of the de- ceased partner for the purposes of his trust; and may sue, without leave, in this country, to obtain possession of the partnership property for the purpose of ap- plying it to the partnership debts, 1 Uec. — uU and need not, on a bill filed for that purpose, join the representa- tive of the deceased partner as a party. Tillinghast v. Champlin, 4 R. I. 173, 67 Am. Dec, 510. 1 Stelzer v. LaRose, 79 Ind. 435. An order made under Code Civ. Proc, § 564, authorizing a receiv- ership in certain actions between partners, can not be attacked in an action by the receiver except for want of jurisdiction to make it, since in such action the appoint- ment is only collaterally involved. Title Ins. & Trust Co. v. Grider, 152 Cal. 746, 94 Pac. 601. 2 The appointment of a receiver of a partnership at the instance of an attaching creditor does not prevent the issuance of another order of attachment without a new affidavit or bond, to another county, against land belonging to one of the partners. Runner v. Scott, 150 Ind. 441, 50 N. E. 479; 466 LAW OF RECEIVERS. A judgment against the receiver of a partnership in a suit commenced under leave of court on a claim in the nature of costs incurred by the receiver in the man- agement and conduct of the business during his receiver- ship and the estate under receivership was chargeable with its payment. The receiver represented all persons interested in the estate and the judgment was conclusive upon them and was conclusive against the surviving part- ner and creditors whether made parties to the action or not.^ § 173. Receiver Is Bound by Equities Against Partnership. The receiver is under the general rule bound to rec- ognize the equities and liens existing against the part- nership. Thus where a retiring member of a partnership sold his interest in the business to his copartners upon consideration that they would pay certain partnership notes but he, nevertheless, was compelled to pay them, he may recover the amount so paid by him from the re- ceiver of the new firm made up of the remaining part- ners since his rights of reimbursement were the same against the new partnership as they were, had the old partnership not been discontinued.^ But the fact that creditors of a partnership had from time to time deposited money w^th it as security for ad- vances vriW not require the receiver of the partnership Weber v. Weber, 90 Wis. 467, 63 nership business through its re- j^ -^ 75Y ceiver after the termination of ' ' ' . , ^ v;„ the partnership for the purpose The receiver of a partnership / . / „^i„„ >,„„; of disposing of it as a going busi- engaged in the brewing business ^^^^ ^^^^^ .^ .^ ^^ ^^^ ^^^^ .^^^^. may be directed by the court to ^^^^ ^^ ^^^ interested parties to take charge of the stock in trade ^^ ^^ Taylor v. Neate, 39 Ch. D. and continue the business with a 533 view to closing it up. Skipp v. 3 Painter v. Painter, 138 Cal. Harwood, Dick 114. 231, 94 Am. St. Rep. 47, 71 Pac. 90. The court may continue a part- 1 Allyn v. Doorman, 30 Wis. 684. MATTERS ARISING FROM PARTNERSHIPS. 467 after its insolvency to pay moneys so received in full where the deposits were not special ones and the moneys were not kept separate since in the circumstances the creditors had no special lien upon the funds.- § 174. Conducting of the Partnership Business by the Receiver. A receiver will not be appointed over a partnership for the mere purpose of carrying on the business. The carrying on of business operations by the receiver must be incidental to the receivership.^ A court will not per- 2 Butler V. Sprague, 66 N. Y. 392; Attorney-General v. Conti- nental Life Ins. Co., 71 N. Y. 325, 27 Am. Rep. 55. 1 Scliloss V. Schloss, 14 App. Div. 333, 43 N. Y. Supp. 788. In Hall V. Hall, 3 Macn. & G. 79, the purpose of the suit was to continue the business through a receiver. It was held that the object being to continue the part- nership it was not according to the practice of the court to ap- point a i-eceiver. See, also, Wil- son V. Greenwood, 1 Swanst. 471; Goodman v. Whitcomb, 1 Jac. & W. 589; Walworth v. Holt, 4 Myl. & C. 619; Const v. Harris, Turn. & R. 496. "The conclusion," the court says, "I com Ivie V. Blum & Bitting, 159 N. C. 121, 74 S. E. 807. Where a partnership was em- ployed as a del credere factor to sell a cargo of lumber, and a re- ceiver of the partnership, subse- quently appointed, guaranteed a certain amount, the principal is entitled to such amount, though the lumber sold for less. In re Federal Union Surety Co., 73 Misc. Rep. 28, 132 N. Y. Supp. 19G, 470 LAW OF RECEIVERS. § 175. Whether Receiver of a Law Firm May Continue the Law Practice of the Firm. There is a strong intimation in a case decided by the Supreme Court of the State of Washington^ to the effect that a receiver could not be authorized to attend to the practice of a law partnership in the courts. The de- cision, however, was based upon the form of the order appointing the receiver, w^iich merely authorized the receiver "to take charge of any and all business of every kind and nature belonging to said firm," and which the court held was not broad enough to authorize the receiver to attend to the law practice of the partners in the courts, the court in this respect saying ; "It is finally contended that the court appointed a receiver to take charge of the cases now pending in the Superior Court of Lincoln County, in which the parties to this action have been employed as attorneys. It is true that, in the affidavit filed by the respondent, he says that it is necessary that a receiver be appointed to take charge of the business of the firm now pending in the courts, but the order appointing a receiver does not go that far. The receiver is directed to take charge of the property of the parties pending an accounting which must necessarily follow. It is true that the order directs that the receiver shall take charge of all business of the firm, but this follows directly after a direction to * collect any and all outstanding accounts, notes, and obligations of every kind and nature due said firm, and to report the same to this court, especially giving him power and authority to assemble said property and to bring suit for the collection of any obligations due said firm,' thus 'and in short to take charge of any and all business of every kind and nature belonging to said 1 Martin v. Wilson, 84 W^ash. a lack of harmony between the 625, 147 Pac. 404. ])artners and the exclusion of one In the above case the receiver partner from the affairs of the was appointed upon the ground of partnership. MATTERS ARISING FROM PARTNERSHIPS. 471 firm,' etc. When read together, we think it is sufficiently clear that the court had no intention, as he probably had no power, to appoint a receiver to attend to the practice of the parties in the courts of this state. ' ' §176. Joint Operation of Two Railroads by Receiver of One of Them Constitutes No Partnership. No partnership exists between two railroads either as between the parties or as to third persons merely be- cause the receiver of one of the companies operates both roads jointly and part of the gross receipts is paid to the other company.^ § 177. Liability of Receiver for Torts. A receiver of a partnership is not liable for a tort com- mitted by it before his appointment.^ We do not, liow- ever, understand that the person who has suffered by reason of a tort committed prior to the receivership is deprived from suing for the tort and subjecting the property of the receivership toward payment of his judgment with other general creditors. ^ § 178. Sale of the Partnership Assets by the Receiver. A sale of partnership property in the hands of a receivership will not be ordered in advance of a final hearing where one of the issues to be determined in the receivership is the title to the property.^ And a trial court should not order a sale of the part- nership assets pending an appeal upon the question whether the court had jurisdiction to appoint a receiver.^ 1 Houston etc. Ry. Co. v. Mc- The receiver of a partnership Fadden, 91 Tex. 194, 40 S. W. 216, which had wrongfully cut timber 42 S. W. 593. upon land of the plaintiff was held ^ 1^ . , ^.„ , , «^« properly sued for such acts. Ev- 1 Emory v. Faith, 113 Md. 253, "^ ' _ ,,. „,. ,.^, ^„ erett v. Gores, 89 ^\ is. 421, G2 Ann. Cas. 1912A, 586, 77 Atl. 386. j^. ^ ^^ 1 See § 58, supra, for general lia- i Brush v. Jay, 113 N. Y. 482, 21 bility of the receivership for torts N. E. 184. and negligence. 2 McNab v. Noonan, 28 Wis. 434. 472 LAW OF RECEIVERS. The general rules in respect to sales of tlie receiver- ship property will be treated in the chapter devoted to the general subject. If the partnership has been licensed to sell patented articles, the receiver in closing up its affairs will be permitted to sell such patented articles as the partnership had on hand.^ Where the business of the partnership has a valuable good \\411 attached to it it has been held that the re- ceiver should dispose of it. His failure to do so will make him liable to account for it.^ So, also, where the good will of a business is one of the principal assets of a partnership the court may direct the receiver of the partnership to sell the lease of the place where the business was conducted, together with the good wdll, and the court will protect the purchaser by restraining the partners from interfering with it. And if it appears that the good will can be sold more ad- vantageously to one of the partners, the court mil allow the individual partners to buy it.^ The purchaser of the partnership assets and contract rights is protected as against interference by the partners.*^ 3 Where a partnership over which 5 Williams v. Wilson, 4 Sandf. a receiver is appointed has a li- Ch. (N. Y.) 379. In this case the cense to sell patented stoves, its business consisted of an insane receiver in closing up its affairs hospital. may sell such stoves as are on ' ^here an execution against a partnership M^as returned unsatis- fied, and a receiver was appointed who took charge of and sold all 4 Mechanics- Nat. Bank v. Lan- jtg assets and contract rights, the dauer, 68 Wis. 44, 31 N. W. 160. ti^ie to such assets and contract The good will may be sold, at rights by the sale passed to the receiver's sale or otherwise, sepa- purchasers, and one of the part- rate and apart from the assets of ners could not thereafter maintain the firm, and there is no rule ot an action upon one of such con- law disqualifying partners from tracts. Weinstein v. Welden, 160 bidding upon the good will at pub- App. Div. 554, 145 N. Y. Supp. lie auction. Cook v. Collingridge, 772 (reversing 80 Misc. Rep. 348, Jac. 607. 142 N. Y. Supp. 406). hand. Montross v. Mabie, 30 Fed 234. MATTERS ARISING FROM PARTNERSHIPS. 473 § 179. Right to Sell Partnership Assets Outside of State. Where the partners are within the jurisdiction of the court and the court has acquired jurisdiction over their persons, a receiver appointed over the partnership, wlio is authorized to sell all property, choses in action, and other effects of tlie partnership within the jurisdiction of the court, may sell choses in action and accounts due the partnership from persons residing outside of the state. ^ §180. Duty of Receiver to Pay the Debts and Account Therefor. The duty of the receiver ordinarily is to take charge of the partnership assets, collect the outstanding debts, and use the funds collected to pay the expenses of the re- ceivership and liquidate the partnership creditors.^ Where the receiver was appointed with the consent of the partners, it was held allowable for him to pay debts of the partnership out of funds collected without first re- porting to the court.2 Where a receiver is appointed in a suit for dissolu- tion to collect the debts owing to the partnership he may be directed by the court to pay over to the plaintiff such portion of the sums collected as belong pro rata to hiuL^* A receiver of a partnership may be required to allow the interested parties to examine his books of account 1 Loney v. Penniman, 43 Md. so as to permit the receiver to ■j^oQ pay the debts, and to direct the 1 Wallace v. Milligan, 110 Ind. referee appointed to pass on the 498 11 N. E. 599; Fogg v. Tyler, receiver's accounts to take proof 111' Me. 546, 90 At'l. 481. of all payments of firm liabilities Where an interlocutory decree theretofore made by him. Kliger dissolving a partnership and ap- v. Rosenfeld, 130 App. Div. 421, pointing a receiver gave the re- 114 N. Y. Supp. 1006. ceiver no authority to pay firm 2 Kellar v. Williams, 3 Rob. debts, the court had power to (La.) 321. amend the decree nunc pro tunc, 3 Maher v. Bull, 44 111. 97. 474 LAW OF RECEIVERS. showing his conduct of the business of the receivership,^ since it is his duty to render an account of his receiver- ship.^ After a receiver has been appointed the partners are not entitled to any portion of the money into which part- nership assets have been converted until all partnership debts have been paid.^ § 181. Disposition of Earnings and Meeting Losses in Opera- tions by Receiver. Funds earned by a receiver after dissolution of a firm should not be credited to the capital account, but should be paid into the general fund to be applied with other assets to capital and profits, according to the proportion that the original capital bore to the profits earned.^ If a judgment is recovered against a receiver of a part- nership for funds advanced to him to publish a directory, and the publication results in a loss, it is proper to order 4 Maund v. Allies, 4 Myl. & Cr. in the action to apply for such 503. relief, he not being a party and W^here a receiver of partnership not standing in the shoes of the property was appointed, and the copartners, and, though he could parties were ordered to deliver to apply to the court for instructions him all the partnership books and as to whether he should obey the papers, which were to be open to subpoena, he could not seek a the inspection of the parties and modification of the order which their attorneys and accountants did not concern him. In re Foster, only, and a paper purporting to 139 App. Div. 769, 124 N. Y. Supp. be a subpoena duces tecum was 667 (affirming order, 68 Misc. Rep. served upon the receiver requiring 120, 123 N. Y. Supp. 465). him to appear before the commis- 5 Gridley v. Conner, 2 La. Ann. sioner of accounts and produce 87; Clapp v. Clapp, 10 N. Y. St. all of the books, etc., an order to Rep. 733. show cause, directed to the par- Ve Rochat v. Gee, 137 Cal. 497, 70 ties, why the order directing the Pas. 478; Bishop v. Pendley, 138 parties to deliver the books, etc., Ga. 738, 76 S. E. 63; Slater v. Sla- to the receiver should not be ter, 78 App. Div. 449, 80 N. Y. amended to permit him to obey Supp. 363. the subpoena, was improperly i Kennedy v. Hill, 89 S. C. 4G2, made, since he had no standing 71 S. E. 974. MATTERS ARISING FROM PARTNERSHIPS. 475 the judgment satisfied out .of any of the assets of the firm except the directory business.- § 182. Vacation of the Appointment. The general rules applicable to the vacation of orders appointing receivers will be treated in a subsequent chapter. Where, however, receivers have been appointed in a suit between partners to wind up a partnership formed to carry out a contract for the construction of a public work, on a bill alleging insolvency and that the com- pletion of the contract by receivers will be for the ben- efit of creditors, to which the majority of the creditors have consented, an affidavit of the attorney for a single judgment creditor, stating his belief merely that the firm is solvent and that the receivership was obtained for the purpose of hindering and delaying the creditors, and for the benefit of the partners, is insufficient to justify the vacation of the receivership or the granting of leave to such creditor to is?ue an execution and levy the same on partnership property in the hands of the receivers.^ 2 Painter v. Painter, 138 Cal. i Patterson v. Patterson, 184 231, 94 Am. St. Rep. 47, 71 Pac. 90. Fed. 547. CHAPTER VIII. RECEIVER IN RELATION TO JOINT ADVENTURES. § 183. When Receiver Will Be Appointed, A receiver vnll not be appointed in a suit by one of the parties to a joint adventure without a showing of fraud or mismanagement or damage to the joint assets.^ Thus a receiver has been appointed to take possession of a race horse of great value, and to sell it and divide the proceeds among those entitled thereto, where one of the several owners of the horse secured a third party to attach the horse and it was appraised at a low value and was about to be sold.^ But where, in a suit for dissolution of a joint adven- ture and for an accounting, there was a sharp contest between the parties as to the nature of the agreement, and the question of whether the relationship existed was contested and the business was of such a nature that the court could not carry it on under a receivership, and tlio defendants were solvent and able to respond in damages, the application for a receiver Mali be denied.^ 1 Warwick v. Stockton, 55 N. J. court of equity and that a receiver Eq. 61, 36 Atl. 488. was necessary to final and com- A receiver of uncollected ac- P^^te relief. See same case on joint relationship of the parties in counts due in a joint enterprise was appointed. Candler v. Cand- 109 N. Y. 267, 16 N. E. 332. Receiver may be appointed in a Ipr Tap 9''"^ lei, .jctv.. ^-u. partition suit whenever facts ap- In King v. Barnes, 51 Hun 550, pear which justify such an appoint- 4 N. Y. Supp. 247, the action was ment. Goodale v. Fifteenth Dist. brought to establish and enforce Court, 56 Cal. 26; Reas v. Clem- the rights of the parties who had ence, 173 Cal. 106, 159 Pac. 432. advanced money and incurred lia- 2 Shehan v. Mahar, 17 Hun bilitles in reliance upon the agree- (N. Y.) 129. See, also, Andrews v. ment for a joint enterprise, and it Betts, 8 Hun (N. Y.) 322. was held that the case was pecu- 3 Bernitt v. Smith-Powers Log- liarly within the jurisdiction of a ging Co., 184 Fed. 139. (476) RECEIVER IN RELATION TO JOINT ADVENTURES. 477 One of tlie parties to an action for the appointment of a receiver, who concedes that it is proper to appoint a receiver to take charge of and sell property belonging- jointly to the parties, and divide the proceeds between them, may properly be required to pay over to the receiver money in his hands, arising from a sale by him of other property which had belonged to himself and the other party, the title to which they had derived by virtue of the same transaction as that by which they acquired the ownership of the property turned over to the receiver, where there has been no accounting and settlement as to the property sold.^ 4 Whitley v. Berry, 105 Ga. 251, 31 S. E. 171. *r-x CHAPTER IX. RECEIVERS IX PARTITION PROCEEDINGS. § 184. In General. Receivers are frequently appointed in suits for parti- tion,^ but ordinarily in a partition suit there is less occa- 1 Goodale v. Fifteenth Dist. Court, 56 Cal. 26; Baughman v. Reed, 75 Cal. 319, 7 Am. St. Rep, 170, 17 Pac. 222; Mesnager v. De Leonis, 140 Cal. 402, 73 Pac. 1052; Rutherford v. Jones, 14 Ga. 521, 60 Am. Dec. 655; Ames v. Ames, 148 111. 321, 36 N. E. 110; Rapp v. Reehling, 122 Ind. 255, 23 N. E. 68; Davidson v. I. & M. Davidson Real Estate etc. Co., 226 Mo. 1, 136 Am. St. Rep. 615, 125 S. W. 1143; Weise v. Welsh, 30 N. J. Eq. 431; Goldberg v. Richards, 5 Misc. Rep. 419, 26 N. Y. Supp. 335; Mesnig v. Mesnig, 81 Misc. Rep. 290, 143 N. Y. Supp. 219; Verplanck v. Ver- planck, 22 Hun (N. Y.) 104; Christ Church V. F^shburne, 83 S. C. 304, 65 S. E. 238; Ohio Fuel Oil Co. v. Burdett, 72 W. Va. 803, Ann. Cas. 1915D, 1033, 79 S. E. 667; Heinze V. Butte & B. Cons. Min. Co., 126 Fed. 1, 61 C. C. A. 63. In Heinze v. Kleinschmidt, 25 Mont. 89, 63 Pac. 927, the court applied the rule applicable to cases of tenants in common in a partition suit over a mining prop- erty, namely, that a receiver will be appointed in such cases (a) where one tenant is in possession and excludes his co-tenant from participation in the possession or income; (b) where the tenant in (4 possession is insolvent and refuses to account to his co-tenant; (c) where one tenant refuses to join his co-tenant in the execution of necessary leases for the property owned in common, or interferes in the collection of rents with the tenants in possession; (d) where the court can see from the show- ing made that the appointment of a receiver is required in order to properly protect the interests of the parties. A receiver may be appointed in a suit for partition to take charge of the real estate and collect its rents and profits pending the liti- gation. Jones V. Abbott, 228 111. 34, 119 Am. St. Rep. 412, 81 N. E. 791. Pending a suit for partition, the court may appoint a receiver to lease the property and collect the rents and profits. Weeks v. Weeks, 106 N. Y. 626, 13 N. E. 96. Under the early English prac- tice, the court would not appoint a receiver in a partition proceeding except under exceptional circum- stances. Norway v. Rowe, 19 Ves. 144, 159; Milbank v. Revett, 2 Meriv. 405. The cases of this char- acter in which receivers were ap- pointed do not generally go into any detail as to the reasons for ■8) BECEIVERS IN PARTITION PROCEEDINGS. 479 sion for the appointment of a receiver than in a foreclos- ure proceeding since the person in charge of the property having an interest in it can be charged in the final judg- ment with the amounts of the rents received by him. The party applying for the appointment of a receiver in a partition suit must show a clear case and that his rights will be jeopardized unless the receiver is appointed.- In other words it is essential in cases of this sort, as in other classes of cases, that it appear to be reasonably neces- sary to a preservation of the rights of the parties that the receiver be appointed.^ the appointment. Calvert v. Adams, 2 Dick. 478; Evelyn v. Evelyn, 2 Dick. 800; Street v. An- derton, 4 Bro. C. C. 414. 2 Patterson v. McCunn,.46 How. Pr. (N. Y.) 182; Darcin v. Wells, 61 How. Pr. (N. Y.) 259; Bath- mann v. Bathmann, 79 Hun 477, 29 N. Y. Supp. 959. 3 Ames V. Ames, 148 111. 321, 36 N. E. 110; Duncan v. Campau, 15 Mich. 415; Low v. Holmes, 17 N. J. Eq. 148; Weise v. Welsh, 30 N. J. Eq. 431; Vincent v. Parker, 7 Paige (N. Y.) 65; Bowers v. Du- rant, 40 Hun 640; 2 N. Y. St. Rep. 127; Verplanck v. Verplanck, 22 Hun (N. Y.) 104; Pignolet v. Bushe, 28 How. Pr. (N. Y.) 9; Heinze v. Butte & B. Consol. Mine Co., 126 Fed. 1, 61 C. C. A. 63; Higgins Oil etc. Co. v. Snow, 113 Fed. 433, 51 C. C. A. 267; Sandford V. Ballard, 33 Beav. 401. A receiver of the rents and prof- its of tenement houses will not be granted at the suit of the life ten- ant against a remainderman who, by agreement of the parties, has been managing the property, in the absence of proof of misman- agement resulting to the plaintiff's Injury. Rollwagen v. Rollwagen, 59 Hun 625, 13 N. Y. Supp. 635, 37 N. Y. St. Rep. 293. A court of equity may in parti- tion proceedings in respect to a large number of lots appoint a re- ceiver to rent the property in whole or in part and pay the rents to the co-tenants in accordance with their respective interests in the property. Rutherford v. Jones, 14 Ga. 521, 60 Am. Dec. 655. While receivers are sometimes appointed to collect rents pending partition proceedings, such an ap- pointment is not authorized where there is nothing to show any real necessity therefor or imminent danger of loss. Baker v. Baker, 108 Md. 269, 129 Am, St. Rep. 439, 70 Atl. 418. Where the appointment of a re- ceiver appears to be reasonably necessary to preserve the prop- erty and the parties to the parti- tion suit agree to it the court will appoint a receiver. Bowers v Du- rant, 40 Hun 640, 2 N. Y. St. Rep. 127. An application by one tenant in common for a receiver was refused where the prayer of the bill for an accounting and a sale and division of the chattels was not sustained 480 LAW OF RECEIVERS. by the evidence. Blood v. Blood, 110 Mass. 545. A receiver will not be appointed in a partition suit where no tenant in common is attempting to oust the plaintiff or is in any way inter- fering with his common possession and use of the property or other- wise endangering the rights of the plaintiff. Reas v. Clemence, 173 Cal. 106, 159 Pac. 432. Where a surrogate had ap- pointed a temporary administrator of decedent's personalty, the Su- preme Court, in an action for par- tition of his real estate, would not appoint a receiver pendente lite, since under Code Civ. Proc. Sec. 2675, authorizing the surrogate to confer on a temporary administra- tor authority to do any act in regard to decedent's real property necessary to its preservation or benefit, the surrogate might still authorize such temporary adminis- trator to perform the acts regard- ing decedent's real estate for which a receiver was desired. Weiher v. Simon, 41 Misc. Rep. 202, 83 N. Y. Supp. 927. In partition cases as in other circumstances where an appoint- ment of a receiver is sought there must be shown a clear or equitable right, reasonably clear and free from doubt, attended with danger of loss. Heinze v. Kleinschmidt, 25 Mont. 89, 63 Pac. 927. Where there was an outstand- ing lease, with an option to renew, which lease was involved in the partition action, and there were unpaid taxes on the property, which lease a deceased person had contracted to sell, and the admin- istrator's sureties were dead, and the administrator's bond was not for a large amount, it was held that a receiver to collect the rents of the property should be ap- pointed. Glaser v. Burns, — Misc. — , 154 N. Y. Supp. 22. On a petition for partition of real estate belonging to the heirs of an estate not yet settled, there is no occasion for the appointment of a receiver, and it is question- able whether in such a case the court has power to appoint a re- ceiver, even with the assent of all the parties. McCarty v. Patterson, 186 Mass. 1, 71 N. E. 112. In Hargrave v. Hargrave, 9 Beav. 549, the plaintiff, an infant, insisted that he and defendant were co-heirs, entitled to the es- tate, and that outstanding terms existed which prevented the plain- tiff from proceeding at law. The defendant was in possession of the whole. The prayer of the bill was for partition and accounting, and for a receiver. The defendant de- nied the plaintiff's legitimacy. The motion for a receiver was argued, and the master of rolls said he would examine the cases and give judgment at a future day. He afterward granted the order, but gave no reasons therefor. In an- other case, the parties were ten- ants in common of copyhold prop- erty, the legal estate being in a trustee for them. The defendant was in possession but there was no proof of exclusion. The plain- tiff was allowed a receiver of his moiety. Sandford v. Ballard, 30 Beav. 109. Subsequently, it ap- peared that the conduct of the defendant amounted to an exclu- sion. A receiver was, therefore, appointed over the whole property. Sandford v. Ballard, 33 Beav. 401. RECEIVERS IN PARTITION PROCEEDINGS. 481 § 185. Effect of Hostile Feelings or Disagreements Between Co-Tenants. Where such strong hostility exists between tenants in common as to indicate a probability of future injury to the interests of one of the parties to a partition suit, a receiver may properly be appointed to preserve the property during- the litigation.^ In such circumstances the court will naturally require such a showing of hostil- ity which will readily be reflected in a probable destruc- tion of the subject of the litigation.- § 186. Effect of Ouster or Refusal to Account for Profits. A receiver is frequently appointed in partition pro- ceedings where it is shown that one co-tenant is in posses- sion and excludes his co-tenant from participation in the possession or income.^ But the ouster must be of such a 1 In an equitable action for the partition of real estate, where the plaintiff showed good reason to believe that some portion of the property could not be rented, in consequence of the refusal of the defendant to unite with the other tenant in common (plaintiff), and that the rents of other portions which had been rented could not be collected in consequence of her interference, — Held, that it was proper, in order to preserve the property from serious loss, to ap- point a receiver. Pignolet v. Bushe, 28 How. Pr. (N. Y.) 9. A receiver was appointed in a divorce suit, of property held under agreement for joint occu- pancy. Baggs V. Baggs, 55 Ga. 590. Courts of equity are averse to appointing receivers of land held by tenants In common, who can not agree on its management, though a receiver will be ap- pointed, where the sole object was I Rec— 31 to secure a receiver and the col- lection and equitable division oi the rents and profits. Bilder v. Robinson, 73 N. J. Eq. 169, 67 Atl. 828. 2 Such ill-will and hostility be- tween the joint owners of property as prevents unity of action in its management will not warrant the court in placing it in the hands of a receiver, when neither of the owners is excluded from the prop- erty. Lamaster v. Elliott, 53 Neb. 424, 73 N. W. 925. 1 Low v. Holmes, 17 N. J. Eq. 148; Goodale v. 15th Dist. Ct., 56 Cal. 26; Duncan v. Campau, 15 Mich. 415; Milbank v. Revett, 2 Meriv. 405. But see: Varnum v. Leek, 65 Iowa 751, 23 N. W. 151; Sandford v. Ballard, 33 Beav. 401; Vaughan v. Vincent, 88 N. C. 116. Where one co-tenant refuses to join with his co-tenants in leasing a portion of the premises and otherwise interferes with the col- 482 LAW OF RECEIVERS. character as to be more than one.^ lections of the rents and profits, it is proper to appoint a receiver. Pignolet V. Bushe, 28 How. Pr. (N. Y.) 9. "It is of the very essence of a tenancy in common that the ten- ants have each and equally the right to occupy the property and take the profits." Blood v. Blood, 110 Mass. 545. Where one of alleged tenants in common claims the right to the entire property in fee simple, and seeks to collect all the rents thereof on a bill for partition, it is proper to appoint a receiver to collect the rents and pay taxes and insurance during the litiga- tion. Christ Church v. Fishburne, 83 S. C. 304, 65 S. E. 238. In the case of Holmes v. Bell, 2 Beav. 298, a receiver was ap- pointed when one of the co-tenants was in possession of the whole rents. This application was not made by nor on behalf of either co-tenant, but by a third party, in a proceeding to foreclose a mort- gage against both co-tenants. 2 The mere fact that one co- tenant is occupying the property in a manner which does not make him liable for an accounting is not ground for the appointment of a receiver pending a suit for par- tition, since he has a right to so occupy it unless his occupation amounts to a virtual ouster of the complainant. Varnum v. Leek, 65 Iowa 751, 23 N. W. 151. A receiver will not be appointed in a partition suit where no tenant in common is attempting to oust the plaintiff or is in any way in- terfering with his common pos- that of a merely colorable session and use of the property or otherwise endangering his rights. Reas V. Clemence, 173 Cal. 106, 159 Pac. 432. In Georgia, the proposition is maintained "that a court of equity has jurisdiction to appoint a re- ceiver, at the instance of one ten- ant in common against his co- tenants, who are in possession of undivided valuable property, re- ceiving the whole of the rents and profits, and excluding their conn- panion from the receipt of any portions thereof, such tenants are insolvent." Williams v. Jenkins, 11 Ga. 595. The mere fact that one co-tenant notifies the tenants of the prem- ises to pay the rents to him and not to his co-tenants was held in- sufficient to show such an exclu- sion of the co-tenants as would warrant the appointment of a re- ceiver. Tyson v. Fairclough, 2 Sim. & St. 142. In the above case Sir John Leach said: "I may observe that, even in the case of any actual exclusion of one tenant in common by another, I doubt whether this court would appoint a receiver. If it were an exclusion which amounted to an ouster at law, the party complain- ing must assert at law his legal title. If it were not such an ex- clusion, this court would compel the tenant in common in rent to account to his companion, but w»uid not, I think, act against his legal title to possession. The rea- son is, because the party complain- ing may at law relieve himself by the writ of partition." A receiver will not be appointed RECEIVERS IN PARTITION PROCEEDINGS. 483 So also it has been held in a suit for partition if the defendants dispute the title of the plaintiff and cause delay in the accounting of the rents and profits, the ap- pointment of a receiver is proper.^ But where the prop- erty has been conveyed to the person in possession, the court will refuse to appoint a receiver until the question of title has been determined where such person in pos- session is solvent.^ §187. Effect of Property to Be Partitioned Being Used in Partnership Capacity. Where the property owned by the parties as tenants in common is used by them for purposes of trade and their relation toward each other in respect to it is like that of partners, a receiver may be appointed in a partition suit even though the facts would not warrant such an appoint- ment in the case of ordinary tenants in common. Such would be the case where the parties were operating a mine or colliery in which they held various interests. In such circumstances the court would appoint a receiver upon a showing of facts which would warrant the over a mining claim which is in justify a court in taking the prop- possession of a tenant in common erty from his hands through the with the consent of his co-tenant, agency of a receiver." ^v.^T.. 3 Where the other tenants not in a suit for partition upon a show- .,, , . ^.„. *•*, v, » only deny the plaintiffs title but ins of a merely colorable ouster or ^ , ^^ u i lus ui a ui<= c J endeavor to entangle the whole the party in possession. Heinze v. ^.^^^ ^^^ ^^^^^^ ^^ account for the Kleinschmidt, 25 Mont. 89, 63 Pac. ^^^^^ ^^^ profits, the appointment 927. of a receiver is proper. Duncan v. In the above case the court said: Campau, 15 Mich. 415. "The administrator having gone 4 In a partition suit where it into possession (if, indeed, he was appears that the property has been in possession) by consent of the conveyed to the person in posses- plaintiffs, with the understanding sion, a receiver should not be ap- that he was at liberty to engage pointed until the trial of the issue in mining, nothing short of a show- as to the right of possession, ing of a clear ouster and refusal to where the persons in possession account, coupled with a want of are solvent. Richter v. Linde- financial ability to answer in a suit mann, 166 App. Div. 33, 152 N. Y. for this purpose, would probably Supp. 784. 404 LAW OF RECEIVERS. appointment in the event that the parties were deemed to be copartners.^ § 188. Effect of Insolvency of Tenant in Possession. In a suit for partition where the tenant in possession is insolvent, such insolvency coupled with actions on liis part which tend to endanger the preservation of the prop- erty, make a case appropriate for the appointment of a receiver.^ In fact the insolvency of the person in posses- sion or collecting the rents and profits of the property which is the subject of the partition suit would be one of the strongest arguments for the appointment of a receiver coupled wdth allegations of the character just mentioned.- 1 Hill V. Taylor, 22 Cal. 191, 194; Fereday v. Wiglitwick, 1 Russ. & M. 46; Jeffreys v. Smith, 1 Jacob & W. 298, 302; Williams v. Jen- kins, 11 Ga. 595; Darcin v. Wells, 61 How. Pr. (N. Y.) 259; Parker v. Parker, 82 N. C. 165; Stith v. Jones, 101 N. C. 360, 8 S. E. 151; Thomas v. Nantahala Marble & T. Co., 58 Fed. 485, 7 C. C. A. 330. 1 In a partition suit the allega- tion that the defendant in posses- sion is of little or no responsibility is not of itself ground for appoint- ing a receiver. Darcin v. Wells, 61 How. Pr. (N. Y.) 259. Where the property of co-tenants is left in the iiossession of one tenant in common for the purposes of managing it, a receiver will not be appointed over it in a suit for partition where there is no allega- tion of insolvency against such party in possession. Pierce v. Pierce, 55 Mich. 629, 22 N. W. 8. 2 Pending a suit for a sale of land for division among co-tenants, equity will not, by appointing a receiver, interfere with the lawful possession of one of the tenants, who is not shown to dispute the title or to disturb the possession of his co-tenants; especially if there is no sufficient averment of insol- vency. Cassetty v. Capps, 3 Tenn. Ch. 524. Where one in possession of joint property is insolvent and is col- lecting the rents and using the same, a receiver is proper. Roche V. Roche, 42 Hun 652, 3 N. Y. St. Rep. 500. Where one tenant in common excludes his co-tenant from pos- session, refuses to pay rents, lets the property go without repair, fails to pay the taxes and assess- ments when due, and is wholly insolvent, a receiver may be ap- pointed pending a suit for parti- tion and an accounting for rents. Hodgin V. Hodgin, 175 Ind. 157, 93 N. E. 849. RECEIVERS IN PARTITION PROCEEDINGS. 485 § 189. Effect Where Party in Possession Is Solvent and Offers Indemnification. Where the ground for the appointment of a receiver in a partition proceeding can be remedied by the ability on the part of the defendant to respond in damages, the court will not generally appoint a receiver.^ There are doubt- less circumstances where a financial ability to respond in damages or a willingness on the part of the defendant to indemnify the party seeking the appointment of a receiver will be disregarded and a receiver appointed.- The appointment of a receiver is discretionary with the court in partition proceedings. Hence the court may appoint a receiver to take charge of rents collected by an executor notwithstanding that he is financially respon- sible and offers to indemnify the plaintiff against loss.^ §190. Receivership Where Care of Subject-Matter Involves Heavy Expense. The court will not appoint a receiver over property which is the subject of a partition suit merely because the 1 Where the defendant in pos- plaintiff. Bathmann v. Bathmann, session does not dispute the title 79 Hun 477. 26 N. Y. Supp. 959. or interfere with his co-tenants ^ Plaintiffs in partition, having a + 1,^ ir^o^i right to have a receiver appointed, and does not appear to be msol- J^ ^^^ ^^ ^^^^.^^^ ^^ ^^^^ ^.^^^ vent, the appointment of a receiver ^^ ^^^ objection of a defendant be- should be refused. Cassetty v. ^^^^^ ^^^ p^^.^^^ claiming the Capps, 3 Tenn. Ch. 524. rents is amply responsible, though A receiver will not be appointed the defendant offers to indemnify in a partition proceeding where against loss by such collector, or the party in possession is solvent. to take charge of the estate and Pierce v. Pierce, 55 Mich. 629, 22 collect the rents free of charge, N. W. 81. and give a bond of indemnity. A receiver was refused in a par- Rapp v. Reehling, 122 Ind. 255, 23 tition proceeding where it was N. E. 68. shown that the party in possession In this connection see. also, sec- had refused to account for the tions 15 and 25. supra, relative to rents, but it appearing that such the furnishing of a bond to pro- party had expressed a willingness tect the rights of the plaintiff, to render an account at any time 3 Rapp v. Reehling, i22 Ind. 255, and pay over the share of the 23 N. E. 68. 486 LAW OF RECEIVERS. care of the property involves a considerable expense, such as in the case of a mining property with machinery and the usual equipment upon property of that char- acter.^ § 191. Effect Where One Party Claims as Tenant by the Curtesy. In a suit for partition where one of the parties claims as tenant by the curtesy, a receiver will not be appointed on the application of the plaintiff since if the claimant of the estate in curtesy should prevail, the heirs are not entitled to possession during the life of the tenant and the appointment of the receiver would constitute a determi- nation of the rights of the plaintiff on an interlocutory order. ^ § 192. Receiver in Aid of Final Judgment of Partition. Where lands, in part subject to executory contracts of sale of separate parcels, are partitioned, each parcel of the common estate covered by a contract of sale may be treated as a distinct estate and partitioned in severalty, subject to the condition of the contract, and, if the inter- ested parties can not agree to whom payments shall be made, the court, in aid of final judgment of partition, may appoint a receiver for that purpose under the provisions of a statute which permits a receiver to be appointed in an action between parties jointly interested in any prop- erty or fund.^ § 193. Partition Proceedings Relative to Personal Property. In considering the question whether a receiver should be appointed in a suit for partition by one tenant in common against his co-tenants it is necessary to bear in mind the general principles w^hich govern the possession 1 Heinze v. Kleinschmidt, 25 Mont. 89, 63 Pac. 927. 1 Bender v. Van Allen, 28 Misc. Rep. 304, 59 N. Y. Supp. 885. 1 Rich V. Smith, 26 Cal. App. 775, 148 Pac. 545. RECEIVERS IN PARTITION PROCEEDINGS. 487 of property as between co-tenants. Thus a co-tenant of personal property out of possession has no remedy at law a£>-ainst the tenant in possession unless his dealing with the property has been of such a character as to amount to a conversion of the same by him. But each of the co-tenants is equally entitled to the possession of the property and if the possession of one excludes the other this does not amount to a conversion. There is no hos- tility at law unless the co-tenant has been guilty of an actual or practical conversion or an actual or practical destruction of the common property. It appears to be well settled that equity has exclusive jurisdiction of suits for the partition of personal property even though the defendant denies the title of plaintiff.^ Courts are averse to appointing receivers over personal property held in co-tenancy on the application of one of the co-tenants although receivers are appointed in proper cases.- Thus 1 Robinson v. Dickey, 143 Ind. 205, 52 Am. St. Rep. 417, 42 N. E. 679. L' Blood V. Blood, 110 Mass. 545; Low V. Holmes, 17 N. J. Eq. 148; Andrews v. Betts, 8 Hun (N. Y.) 322; Shehan v. Mahar, 17 Hun (N. Y.) 129; Laing v. Williams, 135 Wis. 253, 128 Am. St. Rep. 1025, 115 N. W. 821. Where, in an action in partition, under Rev. St. 1909, § 2619, by a mortgagee of a half interest in partnership property, who through breach of a condition of the mort- gage had become a joint owner with the other partner, it appears that such partner is in possession, wasting the property by selling and converting it to his own use, or otherwise jeopardizing the in- terest of plaintiff, a receiver may be appointed to take charge of the property, though the petition does not allege that it is inadequate to satisfy plaintiff's demands, the court saying: "We do not agree with counsel for defendant that the court erred in appointing a re- ceiver. The action is analogous, in many respects, to a statutory foreclosure of a mortgage, and the court, as in such cases, has au- thoi'ity to take charge of the prop- erty in controversy when it ap- pears necessary to the protection of the interests of the parties pending a final adjudication. If the joint owner in possession is wasting the property, selling and converting it to his own use, or otherwise jeopardizing the inter- ests of the other joint owner, a proper case was presented for the court taking charge of the prop- erty by the hand of its receiver appointed for that purpose. It was not necessary for the petition to allege that the property was in- adequate to satisfy the demand of 488 LAW OP^ RECEIVERS. if pending a. proceeding for the partition of personalty, the defendant threatens the destruction or removal of the property, he may be enjoined or a receiver may be appointed.^ And where a receiver is appointed over per- sonal property, wdiich is found to be indivisible, in a partition suit, the property should be sold and the pro- ceeds divided among the parties entitled to it.* Where the remedy of a co-tenant against his co-tenants for their manner of managing the common property is an action at law for conversion, a receiver will not be appointed where it is not shown that the property was agreed to be used in the carrying on of a business and it is not shown that there is any necessity to sell or divide the property by reason of the death or insolvency of any of the parties.^ And where the parties are using the per- sonal property in the carrying on of a business, the court upon application of one of the co-tenants for a partition of the property which is in the possession of the defend- ant may refuse to appoint a receiver upon the defendant giving adequate security to reimburse the plaintiff for the deterioration or destruction of the property by use and the rents and profits pending the litigation.^ plaintiffs against Davidson on tlie where it is conceded that an ac- notes, since the relationship of counting is required. Davidge v. plaintiff to Karr was not that of Coe, 22 Jones & S. 360, 9 N. Y. mortgagee, but of a joint owner Supp. 310. having the absolute legal title to 5 Blood v. Blood, 110 Mass. 545. an undivided half interest in the 6 Low v. Holmes, 17 N. J. Eq. property." Halferty v. Karr, 188 148. Mo. App. 241, 175 S. W. 146. When one joint tenant of a news- 3 Thompson v. Silverthorne, 142 paper plant, a married woman, ex- N. C. 12, 115 Am. St. Rep. 727, 54 eludes the other tenant from its S. E. 782. use and commits waste, she can 4 Robinson v. Dickey, 143 Ind. not complain that the court de- 205, 52 Am. St. Rep. 417, 42 N. E. clines to appoint a receiver if she 679. will give bond to preserve the Parties jointly interested in the property and pay what might profits of a business are entitled to thereafter be decreed to be due to a receiver of the books and papers complainant. Davis v. Leonard, necessary to wind up the concern, 66 Fla. 351, 63 So. 584. RECEIVERS IN PARTITION PROCEEDINGS. 489 § 194. Matters Relating to the Procedure of the Appointment. Where the court had jurisdiction of the subject matter in an action for partition and also of the parties and a receiver was appointed on notice, the fact that notice was given under the original complaint and disposed of after an amended and supplemental complaint was filed, did not render the appointment invalid.^ Where, in a partition suit a receiver of the rents and profits has been appointed, and a judgment is thereafter rendered dismissing the complaint, the court does not lose jurisdiction of the funds brought into court under the receivership, and may direct the receiver to account therefor. 2 The court should not appoint a receiver in partition until the parties to be affected have an opportunity to be heard, when the petition does not fully disclose facts necessary to inform the court of the real situation, such as the right of the petitioner to relief and the necessity for making the appointment without notice, especially if the petition shows some right of possession of the prop- erty or to the rents and profits in another.^ 1 Mesnager v. De Leonis, 140 can be determined. Horn v. Horn, Cal. 402, 73 Pac. 1052. 115 App. Div. 292, 100 N. Y. Supp. On the settlement of an action 790. for partition in which a receiver ^^ ^he dismissal of the com- plaint in an action of partition of the rents and profits has been appointed, who is also a receiver upon the grounds that the will of the plaintiff's ancestor created an of said rents in a prior action still equitable conversion, the court pending, the court, on a motion does not lose jurisdiction over for discontinuance, can vacate funds in the hands of a receiver only the order appointing the re- of the rents and profits theretofore ceiver in the partition action, and appointed in such action. Baker should leave the parties to apply v. Baker, 36 App. Div. 485, 55 N. Y. for an accounting by the receiver Supp. 824 (re-argument denied, 39 in the action in which he was first App. Div. 629, 57 N. Y. Supp. 281). appointed, on which application 3 Baker v. Baker, 108 Md. 269, the amount of his compensation 129 Am. St. Rep. 439, 70 Atl. 418. 490 LAW OF RECEIVERS. Where in an action for partition, in wliicli a third per- son intervenes to enforce his right to support from the property, the court may appoint a receiver to take charge of the property and rent it out, and order to be paid from the rents the taxes, other preferred claims, and the allow- ance due the intervener for support. And the court may, if the parties desire, sell the land, but before the proceeds are divided provision must be made for the support of such intervener.'* The fact that the court appointed a receiver in parti- tion to collect the rents and profits from the tenants in possession does not, even if erroneous, affect the peti- tioner's right to a partition.^ § 195. Rights and Duties of the Receiver. A receiver appointed to take charge of real property and to collect and hold the rents and profits during the pendency of an action of partition is a chancery or com- mon-law receiver, as distinguished from a statutory receiver, and does not take title or have power to sue for permanent injury to the freeholder by adjoining owners. Hence a complaint in an action by such a receiver for damages to the real property, under bare allegations that he was authorized by an order of court to bring the action, but without stating the substance of such order, does not state facts sufficient to constitute a cause of action.^ But a receiver appointed iii partition proceedings may maintain a suit against a tenant who has accepted a lease from liim.- 4 Webster v. Cadwallader, 133 2 A receiver appointed in an ac- Ky. 500, 134 Am. St. Rep. 470, 118 tion of partition to wliich all per- S. W. 327. sons interested were parties, may 5 McCarty v. Patterson, 186 maintain an action for rent after Mass. 1, 71 N. E. 112. the co-tenant in possession has 1 Rinehart v. Hasco Building Co., recognized the receiver's title by 153 App. Div. 153, 138 N. Y. Supp. joining in the execution of a lease 2o8. by him in which he agrees to pay RECEIVERS IN PARTITION PROCEEDINGS. 491 The court may autliorize the receiver to lease the ]n-o\)- erty pendente lite, and while it is better practice to gi\'e notice of a motion for such action on his i)art, an ex parte order giving the receiver power to lease is not void, although the court may modify or vacate such an order Avhere it extends beyond the close of litigation, although tbe rights of the lessee may be affected by it, and the court may in such circumstances direct the lessee to l)e indemnified out of the property.^ Where a federal court of equity, in a suit for the par- tition of lands, has appointed a receiver for such lands, he may, by leave of the court, file a bill in equity to pro- tect his possession, and to require the defendants, as authorized by a state statute, to set up for adjudication an adverse claim made by them, alleged to constitute a cloud on the complainant's title, which mil seriously interfere with any partition that may be ordered by the court; and such bill, being ancillary to the original suit, is within the jurisdiction of the court, regardless of the citizenship of the parties, since where the court has jur- isdiction of the original actions and having appointed a receiver, the property being in the custody of the court, the court will protect its officer in Ms possession and treat opposition to such officer as opposition to the court itself. Such a proceeding is not an action of ejectment. The object of the suit is to facilitate the sale of the property upon partition.^ And where a life tenant is allowed in a suit for partition to elect whether to take a specific sum or a certain income for life, such an election may be made by his receiver, appointed in supplementary pro- liim a stated rental. Smith v. • Tn this connection see, also, Re Lavelle, 13 Misc. Rep. 528, 34 N. Y. Tyler, 149 U. S. 181, 13 Sup. Ct. Supp. 695. 785, 37 L. Ed. 689; Rouse 3 Weeks V. Weeks, 106 N. Y. Letcher, 156 U. S. 49, 15 Sup. Ct. 696 13 N E 96. 266, 39 L. Ed. 341; Ledoux v. La /connor v. .\lligator Lumber Bee. 83 Fed. 761, cited by the Co 98 Fed 155. court in the above case. 492 LAW OF RECEIVERS. ceedings, and tlie court may reopen the proceedings to allow the receiver to intervene for that purpose.^ And in accordance with the general duties of a receiver, the receiver appointed in partition proceedings has a right to maintain an action for an accounting in respect to the estate involved in the partition.*^ And where a widow assigns her dower right, although unmeasured, to a receiver in supplementary proceedings he may maintain an action to admeasure it but could not maintain par- tition.^ 5 Wood V. Powell, 3 App. Div. 318, 38 N. Y. Supp. 196. 6 Kaiser v. Adams, 37 Misc. Rep. 204, 75 N. Y. Supp, 195. 7 Payne v. Becker, 87 N. Y. 153. CHAPTER X. INTERESTS IN REAL ESTATE. 1. Over What Interests in Real Property Receivers Are Appointed. § 196. In General. A receiver may be appointed over any interest in real property which is deemed to be of sufficient value to be regarded as the subject of litigation such as a tenancy for life/ a reversionary interest,- an equity of redemp- tion^ and the like,-* as will be shown hereafter. wait, 1 De G. & J. 504; Bennett v. Colley, 2 M. & K. 225. Where a tenant for life over whose estate a receiver has been appointed, dies, the remainderman was held entitled to go into pos- session without making any ap- plication to the court. Britton v. M'Donnel, 5 Tr. Eq. 275; Re Stack. 13 Tr. Ch. 213. So, also, a receiver will be ap- pointed over the rents and profits of a life estate where the life ten- ant refused to produce the title deeds necessary to make out title on a sale of the remainder in ac- cordance with the provisions of the instruments creating the title. Brigstocke v. Mansel, 3 Madd. 47. 2 Fuggle V. Bland, 11 Q. B. Div. 711; Tyrrell v. Painton (1895), 1 Q. B. Div. 202. 3 Bailey v. Lane, 15 Abb. Pr. (N. Y.) 373 note; Ex parte Evans, L. R. 13 Ch. Div. 253; Smith v. Cowell, 6 Q. B. Div. 75. 4 A receiver may be appointed over a judgment debtor's interest in an outstanding charge upon 1 Higgins Oil etc. Co. v. Snow, 113 Fed. 433, 51 C. C. A. 267. Where a tenant for life fails or neglects to pay the interest upon encumbrances against the prop- erty, a receiver for that purpose has been appointed at the instance of the remainderman. Bertie v. Lord Abingdon, 3 Mew. 560, 566; Shore v. Shore, 4 Drew 501. See, also, St. Paul Trust Co. v, Mintzer, 65 Minn. 124, 60 Am. St. Rep. 444, 32 L. R. A. 756, 67 N. W. 657. As a tenant for life is required to pay taxes and make such re- pairs as will preserve the property from decay, if he neglects to do either a receiver may be obliged to collect sufficient of the rents to discharge the obligations of the tenant. Murch v. Smith Manufac- turing Co., 47 N. J. Eq. 193, 20 Atl. 213. Likewise a receiver may be ap- pointed to provide for the renewal of leases held by a tenant for life of renewable leases in a proper case. Micklethwait v. Mickleth- (493) 494 LAW OF RECEIVERS. § 187. As Between Tenants in Common. Some of the decisions affecting the rights of tenants in common have been considered in connection with the subject of partition. The general rule in respect to the rights of co-tenants is that courts are averse to appoint- ing receivers in controversies betw^een them and wdll not appoint a receiver over the property where it is not shown that the defendants are in the exclusive possession of the rents and profits and excluding their co-tenants from participation therein or are insolvent or so mis- managing the property as to imperil it or cause its loss.^ land and subsisting policies of in- surance. Beamish v. Stevenson, 18 L. R. Ir. 319. See, also, Orr v. Grierson, 28 L. R. Ir. 20. In Tompkins v. Fonda, 4 Paige C. C. (N. Y.) 448, the court re- quired the defendant to assign to the receiver for the purpose of this suit her right of dower in certain premises and he was au- thorized to proceed in her name for the recovery of the same and receive the rents and profits until the further order of the court. Where a married woman seised of real estate has issue of the marriage, born alive and dies with- out disposing of such property, and her husband survives her, he becomes entitled to an estate as tenant by the curtesy which estate will pass to a receiver of his property appointed in supplemen- tary proceedings who may by virtue of such receivership recover the rent due at the time of his appointment as well as that ac- cruing afterw^ards. Beamish v. Hoyt, 2 Rob. 307, 25 N. Y. Sup. Ct. Rep. 307. In litigation by grantees of rent charges, a receiver may be ap- pointed to protect the property from dilapidation. White v. Smale, 22 Beav. 72. A receiver was appointed over the benefice of a clergyman of the Church of England where he had made the debt, which was the sub- ject matter of the litigation, a charge upon it. White v. Bishop of Peterborough, 3 Swans. 109. In England it is held that where one has a right or estate of such a character that his creditors may have execution against it by writ of elegit, it is such an estate over which a receiver may be ap- pointed. Davis V. Duke of Marl- borotigh, 1 Swans. 74. 1 Blood V. Blood, 110 Mass. 545; Heinze v. Kleinschmidt, 25 Mont. 89, 63 Pac. 927; Vaughan v. Vin- cent, 88 N. C. 116. Where one co-tenant who is in possession of the property is dis- posing of the property and appro- priating the proceeds of such disposition and is shown to be in- solvent, a receiver is properly ap- pointed. Sims V. Adams, 78 Ala. 395. Courts will not appoint a re- ceiver against a tenant in common INTERESTS IN REAL ESTATE. 495 Here dissensions and the existence of ill will between the co-tenants will not be regarded as sufficient ground for the appointment,- unless such facts prevent a proper use of the property or operate as a substantial exclusion of the complaining co-tenant from the rents and profits aris- ing from the property.^ A person claiming to be a co-tenant of property may be refused a receiver on the ground of his laches in asserting his rights. Thus where in the case of a mining property he made no complaint of being excluded from participation until after the prop- erty had become valuable.'* Courts in cases of contro- versies between co-tenants, as in other cases, have some- times directed that the co-tenant in possession should give security to the complaining co-tenant for his portion of the rents and profits or in default of such security it except in cases of destructive waste or gross exclusion. Ex parte Billingliurst, 1 Amb. 46; Ex parte Radcliffe, 1 Jac. & W. 640. Except in extreme cases, ttie ap- pointment will be denied. Scurrah V. Scurrah, 14 Jur. 874; Norway v. Rowe, 19 Ves. Jun. 144; Milbank V. Revett, 2 Merid. 405; Spratt v. Ahearne, 1 Jones Eq. 50. If the co-tenants are insolvent, in possession and excluding the plaintiff from his share of the rents and profits, a tenant in com- mon may have a receiver. Wil- liams V. Jenkins, 11 Ga. 595; Cas- setty V. Capps, 3 Tenn. Ch. 524. Where the tenant excluding his co-tenants from participation in the rents and profits is insolvent, a strong case is made for the ap- pointment of a receiver. Williams V. Jenkins, 11 Ga. 595. The owner of a life estate in an undivided one-eighteenth of cer- tain oil lands was held entitled to a receiver pending proceedings to determine plaintiff's title to the property. Hlggins Oil etc. Co. v. Snow, 113 Fed. 433, 51 C. C. A. 267. May procure the appointment of a receiver, where the defendant or tenant in position is insolvent. Hill V. Taylor, 22 Cal. 191. As to what will constitute such an exclusion, see Tyson v. Fair- clough, 2 Sim. & St. 142; Sandford v. Ballard, 33 Beav. 401. 2 Wallace v. Pierce-Wallace Pub. Co., 101 Iowa 313, 63 Am. St. Rep. 389, 38 L. R. A. 122, 70 N. W. 216. 3 Lamaster v. Elliott, 53 Neb. 424, 73 N. W. 925. 4 Norway v. Rowe, 19 Ves. Jun. 144. A receiver may be appointed over a rent charge. Wise v. Beres- ford, 3 Dr. & War. 276; Cullen v. Dean etc. of Killaloe, 2 Ir. Ch. 133. 496 LAW OF RECEIVERS. would appoint a receiver to secure the same.^ And in cases where the appointment of a receiver is proper, the court may appoint a receiver of the rents and profits of the moiety claimed by the plaintiff where the defendant is in possession of the whole.*' But when the conduct of the co-tenant in possession is of such a character as to amount to an exclusion of the complaining co-tenants from the property itself, the receivership will be extended over the whole property.' The same general rules are applicable to cases of tenancies in common of equitable estates.^ § 198. Tenants in Common Using the Property as a Business. As was shown before, property held as tenants in com- mon when used for purposes of trade may be treated as partnership property and the rights of the parties con- sidered in the light of the principles applicable to con- troversies betw^een partners if a receiver is sought.^ Cases of this sort most frequently arise in connection with property used for mining purposes, but in such cases an additional circumstance is also considered in connection with the preservation of the property, and that is that the working of the property operates as a destruction of the property itself and sometimes the fail- ure to work it will injure it by the filling of the workings with water in case of a mine, or of the drainage of the oil by neighboring oil w^ells in case of oil w^ells. On account of the peculiarities of cases of this kind, we will treat the matter in a separate subdivision. r> Street v. Anderton, 4 Bro. C. C. i In this connection see, also, 414. § 187, relative to the partitioning 6 Hargrave v. Hargrave, 9 Beav. of property used in a business ^^^- capacity. 7 Sandford v. Ballard, 33 Beav. ^ , r, v. ^ -n^i, v ^4. See, also. Roberts v. Eberhardt, 401. s Sandford v. Ballard, 30 Beav. Kay. 148, 159. 109. INTERESTS IN REAL ESTATE. 497 2. Actions for the Recovery of Real Property. § 199. Settlement of Disputes as to Title. It is not the policy of the courts of equity to take charge of real estate and manage it through a receiver as against a party in possession asserting title in himself unless it is shown to be in imminent danger of great waste or irrep- arable injury. But even in such cases the courts will require a strong showing as to the likelihood of the plain- tiff ultimately establishing his right to recover. The realty the subject matter of the litigation is not capable of destruction or removal and hence the necessity for a receiver can seldom be so urgent as in other cases. Excep- tion to this rule has been recognized in cases of mining property where the actual value of the property may be recovered.^ But where the party in possession has no clear legal right to the possession and the property is exposed to danger and loss, it is the duty of the court to appoint 1 Kelly V. Steele, 9 Ida. 141, 72 Pac. 887; Willis v. Corlies, 2 Edw. Ch. (N. Y.) 281. See. also, Thompsen v. Diffen- derfer, 1 Md. Ch. 489; Furlong v. Edwards, 3 Md. 99; Kipp v. Hanna, 2 Bland (Md.) 26; Speights v. Pe- ters, 9 Gill 472, 479; Vause v. Woods, 46 Miss. 120; Bryan v. Moring, 94 N. C. 694; Rollins v. Henry, 77 N. C. 467; Schlecht's Appeal, 60 Pa. St. 172; Lenox v. Notrebe, Fed. Cas. No. 8246b, Hemp. 225; Overton v. Memphis etc. R. Co., 10 Fed. 866, 3 Mc- Crary 436. The court is slow to appoint a receiver of real estate where the legal title is in controversy, and one of the parties is in the peace- able possession under claim of right. This rule, however, does not apply where the property is al- I UfC. — 32 ready in the possession of a re- ceiver, and a third party claiming adversely to the others asks to have the receivership continued. State V. Allen, 1 Tenn. Ch. 512. Where one party has a clear right to the possession of the prop- erty, and the dispute is as to the title only, the court will Incline against disturbing the possession. Ellett V. Newman, 92 N. C. 519; Myers v. Estell, 48 Miss. 372, 401; Parkhurst v. Kinsman, Fed. Cas. No. 10760, 2 Blatchf. 78; Lenox v. Notrebe, Fed. Cas. No. 8246b, Hemp. 255. Where there are many creditors claiming the land of a debtor, some by deed and some by judgment, the land should be placed in the hands of a receiver, to be rented for the benefit of those who shall be entitled. Cole's Adm'r v. Mc- Rae, 6 Rand (Va.) 644. 498 LAW OF RECEIVERS. a receiver pending the litigation.^ On the other hand, where the title to property is in dispute and both parties to the litigation claim to be its owner in fee, the court will not appoint a receiver over it.^ And unless the plaintiff is able to show a reasonable probability of estab- lishing title in himself, and that the property is in danger, the court will refuse to appoint a receiver even though it be shown that the defendant is insolvent.^ The general rule in respect to the appointment of receivers over real estate may be stated as follows : A court of equity will not appoint a receiver of real estate, or of its proceeds, in the possession of defendants holding under a regular title during the pendency of the suit, although it has the power to do so in exceptional cases. But in order to bring a case within the exceptions to this general rule there must be clear proof (1) that there is imminent danger that unless a receiver is appointed the property, or its proceeds, will be materially deteriorated in value or wasted; (2) that the plaintiff will suffer irrep- arable loss from such deterioration or waste, and he can rarely suffer such loss when the defendants are solvent and abundantly able to respond to any damage they cause, or where they will give a good bond of indemnity against it; (3) that upon the pleadings and preliminary proofs there is a strong probability that the plaintiff will ulti- mately recover. This rule is based upon the idea that a court of equity will always endeavor to prevent the exercise of its juris- diction by way of appointing a receiver as a substitute for the functions of a successful action of ejectment, a juris- diction particularly applicable to a court of law.^ 2 Hlawacek v. Bohman, 51 Wis. 5 Folk v. United States, 233 Fed. 92, 8 N. W. 102. 1"". 147 C. C. A. 183. (Opinion by 3 Sengfelder v. Hill, 16 Wash. Judge Sanborn sitting as judge of 355, 58 Am. St. Rep. 36, 47 Pac. the Circuit Court of Appeals.) rj5Y Where there is imminent danger 4 Ryder v. Bateman, 93 Fed. 16. of loss without an adequate rem- INTERESTS IN REAL ESTATE. 499 rdy at law, a receiver will be ap- pointed to possession of property but not ordinarily where title is merely in dispute. Bacon v. Eng- strom, 129 Minn. 229, 152 N. W. 264. 537. Wliere the basis of the action is the assumed ownership by plaintiff of the land and its profits and in- volves merely legal as distin- guished from equitable rights, a receiver will not be appointed. San Jose Safe Deposit Bank v. Bank of Madera, 121 Cal. 543, 54 Pac. 85. The insolvency of one in pos- session of real estate is ground for a receiver if the plaintiff shows title and a reasonable probability of recovering. Ryder v. Bateman, 93 Fed. 16. The court may appoint a re- ceiver where property in the pos- session of one in which another claims an interest is allowed to depreciate. Jones v. Quayle, 3 Ida. 640, 32 Pac. 1134. A receiver will be appointed in an action involving the title and right to possession of real prop- erty, where the complainants have a good equitable title to the land and in equity the right to its im- mediate possession, although the naked legal title is outstanding, and it appears that the defendants in possession are insolvent and are destroying the timber on the land. Smith v. Lusk, 119 Ala. 394, 24 So. 256. But where the contest is over the title to a chattel real, which is in the possession of the defend- ant, the facts that the defendants are insolvent and that the ground rent is largely in arrears are not sufficient, of themselves, to war- rant the appointment. Kipp v. Hanna, 2 Bland (Md.) 26. The chattel real in this case was a house standing on leasehold prop- erty. In an action where two parties claim possession and are interfer- ing with each other, appointment is proper. Hlawacek v. Bokman, 51 Wis. 92, 8 N. W. 102; Corbin v. Thompson, 141 Ind. 128, 40 N. E. 533. A receiver may be appointed against the legal title in a clear case. Lloyd v. Passingham, 18 Ves. Jun. 59. A receiver will be appointed where title is involved and the party in possession is committing waste. Collins v. Richart, 14 Bush (77 Ky.) 621. The ground for the appointment of a receiver of real estate is that^ the property is in danger of being injured or destroyed. Spokane v. Amsterdamsch Trustees Kantoor, 18 Wash. 81, 50 Pac. 1088. In an action for the possession of land on the ground that the transfer from plaintiff's ancestor was void for mistake and fraud, a receiver will be appointed upon a showing of fraud, insolvency and waste. Tufts V. Little, 56 Ga. 139; Rogers V. Marshall. 6 Abb. Pr. N. S. (N. Y.) 457. The appointment of a receiver in the case of a disputed title to real property is in the judicial discre- tion of the court, and will be made before judgment in a proper case, although there is a tenant in pos- session to receive the rents. The court since the passage of the English judicature act 1873, § 25, subs. 8, has jurisdiction to appoint a receiver in the case of a dis- puted title to real property. Fox- 500 LAW OF RECEIVERS. § 200. Actions in Ejectment. Following the principles set fort'li in tlie preceding sec- tion it is apparent that a receiver will not ordinarily be appointed in an action of ejectment.^ The general rule is that where the litigation involves merely a dry legal title, a court of equity will refuse to interfere and will refer the plaintiff to his remedy at law.^ Hence in actions of ejectment, the issue being merely as to the legal title of the respective parties, a receiver of the rents and profits will not be appointed unless some special equitable ground is shown entitling the plaintiff to the rents and profits or sho\\'ing that sequestration is essential to his protection.^ well V. Van Grutten (1897), 1 Ch. 64, 75 L. T. N. S. 311. In this connection see, also, § 11, supra. 1 Under the Code of Civil Pro- cedure provisions, the court has no jurisdiction to appoint a receiver in an action of ejectment. Bate- man V. Superior Court, 54 Cal. 285; Scott V. Sierra Lumber Co., 67 Cal. 71, 7 Pac. 131. Where two parties claim under legal titles the validity of which is pending at law, a receiver will not be appointed for the rents and profits. Squire v. Hewlett, 141 Mass. 597, 6 N. E. 779. 2 San Jose Safe Deposit Bank v. Bank of Madera, 121 Cal. 543, 54 Pac. 85; Mapes v. Scott, 4 111. App. 268; Bacon v. Engstrom, 129 Minn. 229, 152 N. W. 264, 537; Sengfel- der V. Hill, 16 Wash. 355, 58 Am. St. Rep. 36, 47 Pac. 757. 3 Payne v. Atterbury, Harr. (Mich.) 414; State v. District Court, 13 Mont. 416, 34 Pac. 609; Rollins V. Henry, 77 N. C. 467; Em- erson's Appeal, 95 Pa. St. 258. The general rule is that as be- tween contestants over legal title a court of equity will not inter- fere and appoint a receiver over the income of crops. Thompson v. Sherrard, 22 How. Pr. (N. Y.) 155, 35 Barb. 593; Corey v. Long, 12 Abb. Pr. N. S. (N. Y.) 427; People V. New York, 10 Abb. Pr. (N. Y.) 111. The refusal in such case to grant plaintiff a receiver of the rents and profits is based upon the fact that the action of ejectment is not for the unlawful withholding of possession, but is brought against the defendants as trespassers, and the claim against defendants is for damage as trespassers. The appointment of a receiver to re- cover damages in an action of trespass is unknown to the law. A receiver will not be appointed over land pending an action of ejectment for its recovery where INTERESTS IN REAL ESTATE. 501 A court of equity is sedulous to prevent the successful invocation of its preliminary injunction or appointment of a receiver to perform the function of a successful action of ejectment, while the plaintiff at the same time avoids the trial of titles indispensable to the success of such an action.^ It is always essential in order to obtain the appoint- ment of a receiver in an ejectment suit that the existence of some peculiar equities be shown making the exercise of the equitable jurisdiction of the court in respect to receiverships essential for the protection of the subject matter of the litigation.^ the defendant was a bona fide pur- chaser. Whitworth v. Wofford, 73 Ga. 259. In Stephens v. Kaga, 142 Ind. 523, 41 N. E. 930, the court re- fused to appoint a receiver to har- vest and sell crops pending a statutory new trial in an action of ejectment. 4 Folk V. United States, 233 Fed. 177, 147 C. C. A. 183. 5 Freer v. Davis, 52 W. Va. 35, 94 Am. St. Rep. 910, 43 S. E. 172. In Bateman v. San Francisco Super. Ct., 54 Cal. 285, it is held that a receiver in ejectment cases can not be appointed under the California code. In Rollins v. Henry, 77 N. C. 467, it is held that where the contest is simply one over disputed title to property, both parties claiming the legal title, a receiver will not be ap- pointed even where the defendant is insolvent. A receiver will be appointed only when the plaintiff sets forth an apparently good title, not sufficiently controverted by the answer, and shows imminent dan- ger of loss. Kron v. Dennis, 9o N. C. 327; Whitworth v. Wofford. 73 Ga. 259; Davis v. Taylor, 86 Ga. 506, 12 S. E. 881. There must be strong grounds for relief shown, in which the ele- ment of danger of loss is apparent. Ireland v. Nichols, 37 How. Pr. (N. Y.) 222. The statute under which this decision was rendered provided that the plaintiff should have damages for the rents and profits of the premises recovered. A receiver may be had to pre- serve property where there is dan- ger of an eviction. Fetherstone V. Mitchell, 9 Ir. Eq. Rep. 480. Where the plaintiff shows a good title and it appears that the de- fendant is insolvent and collecting rents which he will not be able to refund and that the estate is being wasted as a result of neg- lect, a receiver will be appointed. Rogers v. Marshall, 38 How. Pr. (N. Y.) 43; Ireland v. Nichols, 1 Sweeny 208, 37 How; Pr. (N. Y ) 222; Payne v. Atterbury, Harr. (Mich.) 414. 502 LAW OF RECEIVERS. Where in ejectment the plaintiff has recovered judg- ment, he is better entitled to a receiver pending further legal proceedings where necessary to preserve the rents and profits.^ Pending an action in ejectment for the recovery of land, a bill for the appointment of a receiver to take charge of the rents and profits arising out of the property will be regarded as in the nature of an ancillary one to an action at law and merely for the protection of the rents and profits of the property. It does not contemplate a change of the status of the realty itself.^ § 201. Rule in England Under Judicature Act. Under the Judicature Act of 1873 allo\\dng a receiver to be appointed in "all cases in which it shall appear to the court to be just or convenient" that the act applies to ejectment cases, and that therefore the court should con- sider in each case whether it is just or convenient that a receiver be appointed. And the court observed : "In considering each particular case we have first to look at the person in possession and consider how long he has been in possession and whether he claims under any and what title; we must look also at all the other circum- stances which may be material, and the risk to which the tenants may be exposed is one not to be lost sight of. "^ § 202. Receiver to Collect the Rents and Profits. Under the modern practice in a number of states mesne profits may be recovered in the action of ejectment and in some instances the right to do so is expressly given by statute.^ Hence where the rents and profits are an issue c Whitney v. Buckman, 26 Cal. In this connection see, also, Fox- 447; Collier v. Sapp, 49 Ga. 93; well v. Van Grutten (1897), 1 Ch. Frisbee v. Timanus, 12 Fla. 300. Div. 64. 7 Ulman v. Clark, 75 Fed. 868. i Henry v. Davis, 149 Ala. 3.59, 1 .lohn V. John (1898), 2 Ch. Div. 43 So. 122, 13 Ann. Cas. 1090; C73. Johnston v. Fish, 105 Cal. 420, 45 INTERESTS IN REAL ESTATE. 503 in the case, the court may appoint a receiver to take charge of them where they are not being properly applied and are in danger of being lost through the insolvency of the party in possession or through other causes. The existence of facts indicating fraudulent acts or practices on the part of the person collecting the rents and profits coupled with the fact of his insolvency is generally regarded as a sufficient ground for the appointment of a receiver.2 -q^i ^ receiver ought not be appointed where the alleged insolvency is denied and it appears that the party in possession is able to respond for the use of the property and account for the rents and profits which he may collect,^ or where such party offers to pay the rents and profits into court to await the termination of the Am. St. Rep. 53, 38 Pac. 979; Tru- bee V. Miller, 48 Conn. 347, 40 Am. Rep. 177; White v. Rowland, 67 Ga. 546, 44 Am. Rep, 731; Barson V. Mulligan, 191 N. Y. 306, 16 L. R. A. (N. S.) 151, 84 N. E. 75; Credle v. Ayers, 126 N. C. 11, 48 L. R. A. 751, 35 S. E. 128; Murphy V. Bolger, 60 Vt. 723, 1 L. R. A, 309, 15 All. 365. 2 Kreling v. Kreling, 118 Cal. 421, 50 Pac. 549; Roberts v. Mul- linder, 94 Ga. 493, 20 S. E. 350; Chase's Case, 1 Bland (Md.) 206, 17 Am. Dec. 277; Bryan v. Moring, 94 N. C. 694; Durant v. Crowell, 97 N. C. 367, 2 S. E. 541; McNair V. Pope, 96 N. C. 502, 2 S. E. 54. Where it is necessary in order to preserve the rents and profits of property which has escheated to the state, a receiver may be appointed in escheat proceedings instituted by the state. People v. Norton, 1 Paige Ch. (N. Y.) 16, 17. In one case the court appointed a receiver of the license of a pub- lic house together with the rents and profits for the purpose of pre- serving the property as a licensed property. In this case the licenses were in jeopardy and a strong showing was made of the prob- ability of the plaintiff ultimately recovering the possession. Char- rington & Co. v. Camp (1902), 1 Ch. 386. It seems, however, that where personal property or the rents and profits of real estate are in dis- pute, it is sufficient if a proper case for relief by a receivership be shown, whether fraud or spolia- tion be charged or not, and in such case a receiver will be ap- pointed by the court for the secur- ity and more speedy collection of the property, for the benefit of such persons as shall finally ap- pear entitled. State v. Northern Central R. R. Co., 18 Md. 193. 3 Hamburgh Mfg. Co. v. Edsall, 7 N. J. Eq. 298, 8 N. J. Eq. 141; De Walt v. Kinard, 19 S. C. 286. 504 LAW OF RECEIVERS. litigation,^ although as shown before the fact that a party offers to furnish security is not an absolute ground prohibiting the court from appointing a receiver.^ The appointment or refusal to appointment lies within the discretion of the court but doubtless the appointment of a receiver in a case where the rights of the petitioning party could be amply safeguarded by offered security or protection of the disputed fund would be regarded as an abuse of discretion. In all cases of this kind, however, the court follows the general rule which has been evolved in connection with interference with the possession of real estate on behalf of a claimant not in possession who merely presents a legal title which may be asserted in a court of law. In such a case unless the party presents some equitable grounds for the appointment, the court will not interfere by appointing a receiver. This is upon the theory that the court will regard the person in possession of real property as entitled to keep it until some one else shows a better title. Besides a distinction is observed in respect to the fact that real property is stationary while personal property may be removed.** In other words in all such cases, the plaintiff must show a strong character of title with a probability of ultimately recovering combined with equitable considerations indicating imminent danger to 4 A court in the exercise of its rents and profits. Arey v. Will- discretion may refuse to appoint a lams, 154 N. C. 610, 70 S. E. 931. receiver over real estate where 6 Carrow v. Ferrior, L. R. 3 Ch. the party who is in possession of App. 719; Talbot v. Hope Scott, 4 the property offers to pay the K. & J. 96; Pfeltz v. Pfeltz, 14 rents and profits into court to Md. 376. await the termination of the liti- The court will refuse a receiver gation. Prebble v. Boghurst, 1 for the rents and profits pending Swans. 309. an appeal from a judgment to the 5 Revisal 1905, § 453, requiring effect that the defendant is in pos- defendants in ejectment to give session as a purchaser and not as bond before defending, does not a tenant of the plaintiff. Corbin abridge the power of the court to v. Thompson, 141 Ind. 128, 40 N. E. appoint a receiver to secure the 533, INTERESTS IN REAL ESTATE. 505 the property or to its rents and profits unless the court intervene by the appointment of a receiver.'^ § 203. Receiver to Gather Crops. A receiver will be appointed over crops where the parties are contesting the title of the land, each claiming to be in possession, and where each is interfering with the other in harvesting crops grown by him, and threatening forcible resistance. In such circumstances the appointment of a receiver would save all parties their full rights and yet prevent waste. ^ So also on granting an injunction to restrain a sale of land on which there is a crop of grain, it is proper to 7 Whyte V. Spransy, 19 App. (D. C.) 450; Mayo v. McPhaul, 71 Ga. 758; Cofer v. Echerson, 6 Iowa 502; Ryder v. Bateman, 93 Fed. 16; Bainbrigge v. Baddeley, 3 Mac. & G. 414. A receiver will be appointed where the plaintiff shows an equit- able title to part of the property in controversy and a legal and equitable title to the balance while defendant shows neither and there are numerous tenants of the property. Cole v. O'Neill, 3 Md. Ch. 174. A receiver has been appointed to collect rents and profits where one court had decided in favor of plaintiff while another court had enjoined him from taking posses- sion and the defendant who had been collecting the rents and prof- its was insolvent. Atlas Sav. etc. Assn. V. Kirklin, 110 Ga. 572, 35 S. E. 772. Receiver may be appointed to protect the dower interest of a widow where the property is shown to be in the possession of a person who is insolvent and hence the rents and profits are endangered. Chase's Case, 1 Bland (Md.) 206, 17 Am, Dec. 277. But in such a case, it must be clearly shown how the rents and profits are jeopardized. Knighton V. Young, 22 Md. 359. And where it is shown that a widow is fraudulently disposing of her dower rights so as to deprive her creditors of its benefit, a re- ceiver may be appointed to pro- tect it and apply its proceeds to the payment of her debts. Ten- brook V. Jessup, 60 N. J. Eq. 234, 46 Atl. 516. A receiver is not proper for the purpose of collecting and preserv- ing future rents to abide the ter- mination of an action which in- volves mere legal and not equit- able rights. San Jose Safe Deposit Bank v. Bank of Madera, 121 Cal. 543, 54 Pac. 85. 1 Hlawacek v. Bohman, 51 Wis. 92, 8 N. W. 102. 506 LAW OF RECEIVERS. consider it a part of the land and appoint a receiver to harvest and preserve it where the defendants are insol- vent and the complaint shows a scheme to defraud plain- tiff. If the tenant in possession is entitled to anything for Ills services in cultivating the land, his equities can be adjusted in the receivership. - But a mere lease giving the landlord part of the crops raised on the leased land as compensation for its use does not give the landowner such equities as entitle him to a receiver to take possession of the ungathered crop.-^ AVliere the parties are by the terms of the lease tenants in common of the crop and the tenant, who is insolvent, denies the right of the landlord to any portion of the crop and threatens to remove it and dispose of it, the court very properly appoints a receiver.^ Where a receiver- ship is created in an action of ejectment against a person who had ejected the tenant of the plaintiff from the premises, the tenant may intervene in the receivership, not for the purpose of contesting the receivership but to share in the fund brought into court by the receiver in harvesting the crop upon the land in controversy.^ In the event that a crop is exempt from attachment except in case of a claim contracted in its production and in which event the process shall show that fact, an order appointing a receiver to take charge of the crop should show the fact that it was so produced, but the failure to do so ^\dll not be regarded as fatal to the appoint- ment.*^ Where, in an ejectment action, the statutory bond furnished by the defendant is ample to secure the legal A receiver may be appointed to 319, 7 Am. St. Rep. 170, 17 Pac. take and state an account of tim- 222. ber cut from premises in dispute, 3 Ex parte Breedlove, 118 Ala. even v^'here the parties are solv- 172, 24 So. 363. ent. John L. Roper Lumber Co. v. 6 Civ. Code 1902, vol. 1, § 2633, Wallace, 93 N. C. 22, 23. provides that the yearly products ■2 Corcoran v. Doll, 35 Cal. 476. of a homestead shall be subject to 3 Williams v. Green, 37 Ga. 37. attachment, to enforce claims con- 4 Baughman v. Reed, 75 Cal. tracted in the production of the INTERESTS IN REAL ESTATE. 507 rights of the plaintiff in the event of his recovery, the court will refuse to appoint a receiver over the crop." same, but the court issuing proc- ess therefor shall certify that it is issued for that purpose. Held that, though an order appointing a re- ceiver of defendant's crops at the suit of a labor claimant should have certified that it was issued to secure payment of an obligation contracted in the production of the crops, a failure to dq so was not fatal to its validity. Holladay V. Hodge, 84 S. C. 109, 65 S. E. 1019. 7 A receiver to harvest and sell crops will not be appointed, pend- ing the statutory new trial, in an ejectment action, as the under- taking to pay all costs and dam- ages which shall be recovered in the action, required by Ind. Rev. Stat. 1894, § 1076, as a condition of a new trial, affords an adequate remedy at law if damages for con- version of the crops would be re- coverable in the action, and, if not lecoverable, the remedy would be improper. Stephens v. Kaga, 142 Ind. 52.3, 41 N. E. 930. In the above case, the court in laying down the rules which gov- ern in cases of this character, said: "The appointment of a re- ceiver to gather and sell the crops if appellants succeed in the eject- ment action will deprive them of their property rights in such crops and will substitute therefor a claim against the receivership for such balance of the proceeds of the sale as may remain after the payment of the expenses of harvesting and marketing, and the costs of receivership, including re- ceiver's fees, attorney's fees, court costs, etc. Such rights should not be so embarrassed and its value diminished unless it may be made to ai)pear clearly that if the ap- jjellee shall ultimately succeed in the principal action he will, should a receiver be denied, suffer the loss of a like property right in such crops with no proper, effi- cient and adequate remedy for the recovery of the value to him of such crops. On the one hand, it is claimed that, though appellants may be insolvent and may intend to convert the crops, the bond which they gave in the principal case takes the place of their solv- ency and makes good any claim which the appellee may be en- titled to enforce against them for the conversion of such crops. On the other side, it is urged that the bond can not be held to cover lia- bilities arising subsequent to its execution and not involved in the issue at the time of its execution and that the appellee is not re- quired to suffer the conversion but is entitled to the specific property rather than to a recovery of dam- ages. In the absence of the bond, if appellants were insolvent, we think there could be no reasonable doubt but that a receiver should have been appointed, if the plead- ings were so framed as to present the question of damages. R. S. 1894, §1236; Bitting v. Ten Eyck, 85 Ind. 357; Galloway v. Campbell, 142 Ind. 324, 41 N. E. 597. It is asserted on behalf of the appel- lants and is conceded for the ap- liellee, that equity will not permit the appointment of a receiver in any case where the party applying has a clear and effective legal 508 LAW OP RECEIVERS. § 204. Receiver of Homestead. It is said to require a very strong case in order to authorize a court of equity to place a homestead in the hands of a receiver.^ Doubtless where the homestead is exempt from execution process, it wdll be free from a receivership in a creditor's suit, but if the controversy is in respect to the property itself, it will undoubtedly be governed by the general rules applicable to receiverships. §205. Receiver May Be Appointed at Instance of Defendant. Where a plaintiff who, during the pendency of his suit to recover real property, takes possession of part of the property and resists the re-possession of it by the defen- dants under his claim of title to it, a receiver may be appointed on the application of the defendants to pre- serve the rents pending the termination of the litigation upon a proper showing of waste or irreparable loss.^ § 206. Of Rents and Profits Outside of Jurisdiction of Court. Courts, where they have jurisdiction of the parties, have appointed receivers to collect the rents and profits of real estate situate not only out of the jurisdiction of the court but in foreign countries.^ Of course the court remedy for such damages as he deed made by the executors pur- alleges he will sustain by the fail- suant to a power in the writ to ure to appoint such receiver. Of sell and convey without an order this proposition there can be no ol court, the executors can not, doubt. It then remains to deter- while their disputed title and right mine whether such remedy existed of possession are undetermined, in favor of the appellee." maintain a cross complaint in 1 Barfield v. Barfield, 72 Ga. equity against the plaintiff and the 668; Callanan v. Shaw, 19 Iowa purchaser, for an accounting of 183; Nash v. Meggett, 89 Wis. 486, the rents and profits and the ap- 61 N. W. 283. pointment of a receiver. Bennal- 1 Horton v. White, 84 N. C. 297. lack v. Richards, 125 Cal. 427, 58 In an action to quiet title Pac. 65. against executors, brought by a i Houlditch v. Lord Donegal, 8 successor in interest of a pur- Bligh 344; Bunbury v. Bunbury, chaser who received possession 1 Beav. 336; Barkley v. Lord under a sale of real estate and Keay, 2 Hare 308; Smith v. Smith, INTERESTS IN REAL ESTATE. 509 has no power to enforce its orders or decrees outside of its own jurisdiction, but where it has jurisdiction of the persons it may often obtain a compliance with such orders throu.gh its power to punish disobedience by contempt proceedings.- The court, however, will not appoint a person as receiver in such cases who is not within its jurisdiction or subject to it,^ nor when to make the ap- pointment would be a useless proceeding.* § 207. Receivership Over Annuities. A receiver ^\dll be appointed wdiere necessary to pre- serve the rights of an annuitant, or other parties to the litigation.^ The effect of the appointment in such circum- 10 Hare App. 71; Duder v. Amster- damsch Trustees Kantoor (1902), 2 Ch. 132. A receiver has been appointed to collect an annuity in another state. Frazier v. Barnum, 19 N. J. Eq. 316, 97 Am. Dec. 666. -' Langford v. Langford, 5 L. J. Ch. (N. S.) 60. Courts frequently pass upon liti- gation affecting pi'operty outside of the territorial jurisdiction of the court where they have juris- diction of the parties. Their or- ders and decrees are enforceable by means of contempt proceed- ings. In this connection see: Allen V. Allen, 95 Cal. 184, 16 L. R. A. 646, 30 Pac. 213; Vail v. Jones. 31 Ind. 467; Fuller v. Horner, 69 Kan. 467, 77 Pac. 88; Noble v. Grandin, 125 Mich. 383, 84 N. W. 465; Fall v. Fall. 75 Neb. 104, 121 Am. St. Rep. 767, 106 N. W. 412, 113 N. W. 175; Gartrell v. Stafford. 12 Neb. 545, 41 Am. Rep. 767, 11 N. W. 732; Rochester etc. Land Co. v. Roe, 8 App. Div. 360, 40 N. Y. Supp. 799; Chase v. Knicker- bocker Phosphate Co., 32 App. Div. 400, 53 N. Y. Supp. 220; Mead v. Brockner, 82 App. Div. 480, 81 N. Y. Supp. 594; Pruyn v. Mc- Creary, 105 App. Div. 302, 93 N. Y. Supp. 995; Buel v. Baltimore etc. R. Co., 24 Misc. Rep. 646, 53 N. Y, Supp. 749; Kirdahi v. Basha, 36 Misc. Rep. 715, 74 N. Y. Supp. 383; Reading v. Haggin, 58 Hun 450, 12 N. Y. Supp. 368; House v. Lock- wood, 40 Hun 532; Sloan v. Baird, 162 N. Y. 327, 56 N. E. 752; John- ston V. Wadsworth, 24 Ore. 494, 34 Pac. 13; Chapman v. Pittsburg etc. R. Co., 26 W. Va. 299; note to 58 Am. St. Rep. 541. But see Car- penter V. Strange, 141 U. S. 87, 35 L. Ed. 640, 11 Sup. Ct. 960. 3 Carron Iron Co. v. Maclaren, 5 H. L. C. 416; Houlditch v. Lord Donegal, 8 Bligh 344. ■i Mercantile Inv. Co. v. River Plate Trust (1892), 2 Ch. 303. 1 Probasco v. Probasco, 30 N. J. Eq. 108. A receiver may collect an ann"- ity in another state. Frazier y. Barnum, 19 N. J. Eq. 316, 97 Am. Dec. 666. Where annuities are chargeab'e 510 LAW OF RECEIVERS. stances is to sequester the rents and profits of tlie prop- erty in controversy.- But there should be an absence of any other legal remedy in order to warrant an appoint- ment of a receiver in such cases. ^ Thus where a power of distress was given by the statute to enforce an annuity which was a charge on land, the appointment of a receiver was refused.^ But where such power of distress or other similar legal remedy does not exist, the court may appoint a receiver.^ Where, however, the instrument creating the annuity also makes provision for the appointment of a receiver to collect it, the appointment of the receiver becomes a matter of course.** § 208. Effect of Statutory Provisions Upon Appointment in Ejectment and the Like. Undoubtedly w^here the statutory provisions are explicit allovdng receivers to be appointed in ejectment or other actions relating to the recovery of real property, such statutory provisions are ample authority for the appoint- ment of receivers in circumstances in which receivers had not been customarily appointed. Several innovations in that line have been observed in statutory provisions, but such cases are generally so specific that no question against real estate against which 2 Hay den v. Shearman, 2 Ir. Ch. there are several equitable mort- Rep. 137. gages, a receiver of the rents and 3 Taylor v. Emerson, 4 Dv. & profits will be appointed on the -^^r^^^ ^j^^y. gankey v. O'Maley, 2 application of the mortgages j^jqj 49;^. Beamish v. Austen, Ir. where none of the mortgages are j^ 9 ^g 36I; Kelly v. Butler, 1 in possession. Dalmer v. Dash- jj. -gg 435 wood, 2 Cox 378. An annuitant is entitled to have a receiver appointed over the ben- efice upon an interlocutory appli- ^ P^ase v. Fletcher, 1 Ch. D. cation, made for that purpose, pre- 273; Mason v. Westoby, 32 Ch. D. vious to the hearing of the cause. 206; Re Prytherch, 42 Ch. D. 590. Eattersby v. Homan, 2 Ir. Ch. Rep. 6 Cradock v. Scottish Provident 232 Institution, W. N. 1893, 146. 4 Sollory v. Leaver, L. R. 9 Eq. 22. INTERESTS IN REAL ESTATE. 511 arises as to the power of tlie court to make the appoint- ment although, as is the case with all legislative action, language is sometimes employed which needs a decision of a court to give a judicial meaning to it.^ Some confusion has heen found in several instances on account of the statutory provisions reciting a inimbei- of specific instances in which receivers may be appointed and ending with a clause permitting the appointment of receivers. The effect of such statutes was considered in the forepart of our subject.^ They are generally pro- visions substantially giving power to appoint receivers to courts of law or providing for the appointment of receiv- ers in special proceedings. Such statutes in order to make it clear that they are not attempting to take away any of the powers of a court of equity to appoint a receiver, a power wdiich is necessarily inherent in a court of equity, end with a clause which permits the appointment of a receiver '4n all other cases where receivers have here- tofore been appointed by the usages of courts of equity "^ or a clause of the same substantial import. 1 In Oehme v Rucklehaus, 50 words 'waste or destruction of N J L 84 11 Atl. 145, a statute real estate.' The law courts exer- p;ov'ided that in an action in cised the right to prohibit waste ^ , . ^, , , . , „,o. in ejectment suits before the pas- which the right to real estate was ^^^^ ^^ ^^^.^ ^^^^^^^^ ^^^^ ^^^^ ^.^^^^ in controversy, the court or any ^^ ^ ^^^^ ^^^^^ ^^ ^^^^ ^^^^^^^ ^^ judge thereof may make an order ^^^ ^.^^j estate in controversy, for the protection of the property through the intervention of a re- in controversy from waste, de- ceiver, has never been recognized struction, or removal beyond the in our practice. It would of neces- jurisdiction of the court upon sat- sity imply the right to exercise isfactory proof being made of the equitable powers, which do not m- necessity for such order. The here in the common law cour s, court, in construing its meaning, and which, in my judgment, the .aid: "No authority has been legislation referred to has not be- cited, and none is known to the stowed." court which holds that the appro- 2 See § 21, supra, priation of the rents of real estate ^ Rateman v. Superior Court. .4 is within the meaning of the Cal. 2S5. 512 LAW OF RECEIVERS. The question has arisen under statutes of that char- acter whether the appointment of a receiver in an action of ejectment is authorized under the clause allowing appointments in accordance with the usages of courts of equity, "in the absence of specific authority in the statute," and it is held that the appointment of a receiver in an action of ejectment before judgment is not permissible in the absence of those exceptions to the rule which have been discussed in this subdivision.^ The rule in this 3 The statute construed in Smith V. White, 62 Neb. 56, 86 N. W. 930, is perhaps typical of the provisions of statutes in a large number of states. It was § 266 of the Code of Civil Proced- ure which provided as follows: "A receiver may be appointed by the Supreme Court, or the District Court, or by the judge of either, in the following cases: First, in an action by a vendor to vacate a fraudulent purchase of property, or by a creditor to subject any property or fund to his claim, or between partners or others jointly owning or interested in any prop- erty or fund, on the application of any party to the suit, when the property or fund is in danger of being lost, removed or materially injured. Second, in an action for the foreclosure of a mortgage, when the mortgaged property is in danger of being lost, removed, or materially injured, or is prob- ably insufficient to discharge the mortgage debt. Third, after judg- ment, or decree to carry the same into execution, or to dispose of the property according to the de- cree or judgment, or to preserve it during the pendency of an ap- peal. Fourth, in all other cases provided for by special statutes. Fifth, in all other cases where re- ceivers have heretofore been ap- pointed by the usages of courts of equity." The suit was in the form usual in actions of ejectment, setting up ownership of the property in con- troversy. Plaintiff claimed his title under a sheriff's deed result- ing from a mortgage foreclosure, to which defendant was not a party, defendant being in posses- sion under a prior unrecorded deed from the mortgagor. Plain- tiff sought a receiver of the rents and profits, which the court re- fused. The court held that the appointment of a receiver if sus- tainable was so under the 5th sub- division mentioned above. In so holding the court said: "It seems clear that this subdivision was not intended to confer any additional authority upon the court, but to make it plain that the preceding subdivisions, providing for the ap- pointment of receivers in particu- lar cases, were not exclusive, and did not attempt to, and, indeed, could not, take from the court the equitable jurisdiction given by the constitution to appoint receivers where the usages of courts of equity had heretofore authorized their appointment. Or, differently INTERESTS IN REAL ESTATE. 513 respect is clear that all that is meant by a clause of this character is a mere declaration that in addition to the circumstances specified in the statute, the powers of a court of equity in respect to appointing receivers as determined by usage are not impaired by the statute and that in fact such powers could not be impaired if the efficacy of courts of equity are not to be interfered with and their constitutional functions as chancery courts not abrogated.'* stated, the fifth subdivision is de- claratory of a power already exist- ing under the constitution. (Bate- man V. Superior Court, 54 Cal. 285.) It therefore follows that unless the case at bar is one where 're- ceivers have heretofore been ap- pointed by the usages of courts of equity' the order complained of is erroneous and should be re- versed." After reviewing cases in which receivers had been ap- pointed, the court continued: "While reported cases may be found in which courts of equity, in actions in the nature of eject- ment, have appointed receivers in aid of actions at law, an examina- tion discloses that such appoint- ment is based upon some statute expressly authorizing it, or that some very exceptional conditions, such as fraud, etc., are shown to exist. It may therefore be safely stated as the rule sustained by the weight of authority that the usages of courts of equity do not authorize the appointment of a receiver in ejectment cases before judgment. So carefully does the law in this state guard the rights of a defendant in possession, that he is entitled to have a jury twice say that his possession is wrong- ful before he can be ousted. It I Rec. — \i-^ may therefore be safely stated as the rule in this state that the court will not appoint a receiver in an action of ejectment before judgment. Not only is the fore- going rule based upon right rea- son, but it is supported by author- ity. (State v. District Court c: Second Judicial District, 13 Mo^it. 416, 34 Pac. 609; Sengfelder v. Hill, 16 Wash. 355, 58 Am. St. Rep. 36, 47 Pac. 757; Bennallack v. Richards, 125 Cal. 427, 58 Pac. 65; Emerson's Appeal, 95 Pa. St. 258.) Whether there may be authority to appoint a receiver in an action of ejectment after judgment is a question not presented in this case, and will not be considered." ■i The Supreme Court of Califor- nia in passing upon a statute sim-' ilar to the one construed by the Nebraska court, supra, also held that a receiver could not be ap- pointed in an action of ejectment. Bateman v. Superior Court, 54 Cal. 285. In the above case the court in construing the meaning of the sub- division which allowed receivers to be appointed "in all other cases where receivers have heretofore been appointed by the usages of courts of equity," said: "We think the sixth subdivision of the Code 514 LAW OF RECEIVERS. § 209. Questions Relating to the Procedure. Where the complaint setting up the facts which are urged as a basis for the appointment of a receiver are met by an answer or affidavits denying the same or deny- ing the plaintiff's ownership of the property, the court will not ordinarily appoint a receiver.^ And likewise of Civil Procedure was but declar- atory of the equity jurisdiction conferred upon the District Courts by the former constitution, and was intended to include all cases not previously enumerated, in which a court of equity would have appointed a receiver. If the sixth subdivision had been omit- ted from the section, the District Courts would have had power to appoint receivers in 'cases where receivers had heretofore been ap- pointed by the usages of courts of equity' ; because by art. 6, § 69 the late constitution, the District Court had jurisdiction in 'all cases in equity.' This power was recog- nized in La Societe Francaise, etc. V. District Court, 53 Cal. 495. Throughout the opinion in that case it is assumed that the sixth subdivision of § 564 of the code was intended to include only the suits in which (upon the plead- ings, or upon appropriate showing by affidavit or other proofs) it has been the usage of courts of equity to appoint a receiver. If it had been intended to confer the power to appoint an officer of that char- acter in an action at law for the recovery of the possession of real property, it is not credible that the Legislature would not have said so in terms, since it is appar- ent that it was their purpose to specify all cases, whether at law or equity, in which receivers could be appointed. The five subdivi- sions containing such specifica- tions are followed by the sixth which provides for the appoint- ment where 'receivers have here- tofore been appointed by the usages of courts of equity,' which expression we conceive to be the equivalent of that employed in the third subdivision of the 143rd sec- tion of the former Practice Act — 'such cases as are in accordance with the practice of courts of equity jurisdiction.' Either of these expressions simply means, that in addition to the particular instances mentioned in the preced- ing subdivisions, the appointment should be made by the District Court, as a Court of Equity, in the other suits in which the power would have been employed had there been no statute on the sub- ject, and can not be construed as authorizing the appointment in an action at law." 1 A preliminary injunction or receivership will not be granted upon the ground that the com- plainant is the owner of the prop- erty and business sought to be reached in the action, the legal title of which is in defendant, where the facts set up in the answer and affidavits amount to a denial of such ownership, and the case is not within any of the ex- ceptions to the general rule deny- ing such relief under such circum- INTERESTS IN REAL ESTATE. 515 where the party seeking- the appointmoiit of a receiver has no interest in the property, the court will refuse to make the appointment. - A receiver of the rents and profits will not be appointed so as to affect the interest of purchasers if they are not made parties.^^ Nor will a receiver be appointed in such circumstances unless the person in possession is a party to the action and before the court. ^ A person who is not a party to the suit, although claim- ing certain real property which is under a receivership, is not entitled to be heard on an order to show cause why a conditional order for the appointment of the receiver should not be made permanent. His remedy is to remove the receiver as to the lands which he claims to own.^ It has been held that the court may, instead of appoint- ing a receiver, direct that the tenant in possession pay an occupation rent.^ An order appointing a receiver over real property should clearly designate the particular property over which he is appointed so as to avoid any uncertainty as to the extent of the authority of the receiver over the rents and profits.'^ stances. Guild v. Meyer, 56 N. J. 3 Lumsden v. Fraser, 1 Myl. Eq. 183, 38 Atl. 959. & Cr. 589. Where charges of mismanage- 4 A receiver of the rents and ment and appropriation of profits profits of real property will not be not constituting an exclusion of appointed unless the person in plaintiff shown by affidavits are possession is a party to the action met by counter-affidavits denying and before the court. Mays v. the charges and setting up a claim Wherry, 3 Tenn. Ch. 34. of a balance due defendant from 5 Creed v. Moore, 4 Ir. Eq. 684. the plaintiff and an agreement for « Porter v. Lopes, 7 Ch. D. 359. arbitration, it was held that a re- 7 Crow v. Wood, 13 Beav. 271. ceiver would not be appointed. A receiver appointed to take Milbank v. Revett, 2 Meriv. 405. charge of property, particularly -' Gartrell v. McCrary, 144 Ga. real estate, should ordinarily be 249, S6 S. E. 932. directed to hold, care for, and 516 LAW OF RECEIVERS. An equitable interest in real property may be effectu- ally conveyed to a receiver by the holder of the same even thougi the title stands in the name of another.^ Where the order appointing the receiver and authoriz- ing him to take possession of certain real estate is void, he will become liable to the owner for the rents and profits collected by him from the property.^ § 210. Appointment of Receiver Pending Appeal. Where the plaintiff in litigation over the title to real estate has been defeated and has taken an appeal from the decree in the main case, a receiver will not be appointed for the rents and profits at his instance pend- ing the appeal on the ground that he was defeated because of the erroneous admission of oral testimony over a written contract since to do so would in effect nullify the solemn decree of the trial court adjudging the title to be in defendant.^ § 211. Effect of Termination of Receivership Upon Real Prop- erty Covered by It. Where the real property over which a receiver has been appointed has not been disposed of during the receivership or assigned to the receiver upon a termina- tion of the receivership the property becomes subject to preserve it until the issues in the real estate, the title to which was action are finally determined. in the name of another, who was, Boothe V. summit Coal Mining Co., in fact, a mortgagee a conveyance 63 wash 630, 116 Pac. 269. ?' the propex-ty by the debtor and DO vvaaia. u , j^.g ^jjg ^^ ^.j^g receiver was ef- Where the litigation concerns jg^j^j^g ^^ convey such equitable some specific property it is proper interest. Maples v. O'Brien, 116 in appointing the receiver to j^ y. Supp. 175. specifically describe the property 9 Bowman v. Hazen, 69 Kan. 682, in the order of appointment. 77 pac. 589. Havemeyer v. Supreme Court, 84 1 Corbin v. Thompson, 141 Ind. Cal. 327, 18 Am. St. Rep. 192, 10 128, 40 N. E. 533. L. R. A. 627, 24 Pac. 121. In this connection see discussion 8 Where a judgment debtor had of receiverships pending appeals an equitable interest in certain in separate subdivision. INTERESTS IN REAL ESTATE. 517 the lien of a judgment and execution against it in the same manner as if there had been no receivership.^ § 212. Whether the Appointment of Receiver Prevents Running of Statute of Limitations. Inasmuch as the ai^plication for the appointment of a receiver does not prejudice the action^ nor indicate what view of the litigation will be taken by the court at the trial" it is apparent that such an appointment does not affect the title of either litigant to the property. The primary object of the appointment, as has been shown before, is the preservation of the property or of the rents and profits, from destruction or waste pending the litigation. The appointment of the receiver, of course, results to the benefit of the party ultimately prevailing in the litigation, but until such determination the prop- erty is in the custody of the court although the title thereto is not changed. Hence it is held that the appoint- ment of a receiver does not operate to interrupt the run- ning of the statute of limitations as far as it concerns the subject matter of the litigation^ and as applied to real estate the same rule is held to be applicable and thus the operation of the statute of limitations is not interrupted pending the receivership litigation."' § 213. On Breach of Covenants. A receiver may be appointed in litigation between a covenantor and covenantee where the allegations show 1 Montgomery v. Merrill, 18 statute of limitations. Shelby Nat. Mich. 338. Bank v. Hamrick, 162 N. C. 216, 1 Hugnenin v. Basley, 13 Ves. 78 S. E. 12. 107. The appointment of a receiver 2 Fripp V. Chard Ry. Co., 11 Hare or the existence of a receivership 264. does not interrupt prescription of 3 The mere appointment of a re- claims against the corporation to ceiver does not affect running of which the receiver was appointed, limitations. Cain v. Seaboard Air Taylor v. Vossburg Mineral Line Ry., 138 Ga. 96, 74 S. E. 764. Springs Co., 128 La. 364, 54 So. Payments by a receiver of a 907. debtor are not effective to toll the 4 Anonymous, 2 Atk. 15. 518 LAW OF RECEIVERS. the necessity of a receivership for the preservation of the property pending the litigation. Such cases occur where one party sues the other, who is in possession, to compel specific performance of the covenant.^ And like- wise where irreparable damages will result from the breach of the covenant, the court may interfere by appointing a receiver of the property.^ 3. Eeceiverships in Actions Between Vendors and Purchasers. § 214. In Suits to Set Aside Conveyances on Ground of Fraud. The courts always look with favor toward the appoint- ment of a receiver in a case w^here fraud is alleged or shown. Hence in a suit to set aside a conveyance of real property on the ground that it w^as obtained by fraud or undue influence practiced upon the plaintiff where a show- ing is made by the bill and answer raising a strong likeli- hood of plaintiff prevailing in the action the court will appoint a receiver.^ On the other hand where it appears 1 Free v. Hind, 2 Sim. 7. Met- Loaiza v. Superior Court, 85 Cal. calf V. Archbishop of York, 6 Sim. 11, 20 Am. St. Rep. 197, 9 L. R. A. 225; Shakel v. Duke of Marl- 376, 24 Pac. 707. borough, 4 Madd. 463. See also A receiver is properly appointed subdivision respecting leases. to take charge of property trans- 2 Riches v. Owen, L. R. 3 Ch. ferred by a failing debtor in fraud 821. of creditors. Bomar v. Means, 53 1 Mitchell V. Barnes, 22 Hun S. C. 232, 31 S. E. 234. {N. Y.) 194; Huguenin v. Baseley, Property in the hands of a re- 13 Ves. 105; Lloyd v. Parsingham, celver appointed In an action by 16 Ves. 59; Stilwell v. Williams, 6 judgment creditors in aid of their Madd. 49 (affirmed under the name executions to set aside certain of Stilwell V. Wilkins, Jac. 282) ; transfers by the debtor as fraudu- Mordaunt v. Hooper, Amb. 311; lent, at the time of his discharge, Woodyatt v. Gresley, 8 Sim. 187. pursuant to a decree adjudging A receiver may be appointed to that the only relief plaintiffs could take charge of the property of a obtain was the removal of the non-resident pending a suit by a transfers as an obstruction to the foreign corporation to rescind a enforcement of their executions, contract and restore the property, and that the appointment of a re- which has been placed in escrow. ceiver was improper, should be re- INTERESTS IN REAL ESTATE. il9 that the property is being properly cared for by the defendant, who is solvent and capable of responding for all of the rents and profits received during the pendency of the litigation, the court may properly refuse to appoint a receiver.2 Where, however, the showing made by the turned to the transferees, and not turned over to the sheriff holding the executions. Home Bank v. J. B. Brewster & Co., 33 App. Div. 330, 53 N. Y. Supp. 867. The appointment of a receiver of the property of a debtor will not be set aside where the debtor does not deny the allegations in the bill charging that specified deeds of trust were made with the intent to hinder, delay, and defraud cred- itors and secure a fictitious debt, and the trustee does not deny that he knew of such fraudulent intent. Lyle V. Commercial Nat. Bank, 93 Va. 487, 25 S. E. 547. A receiver may be appointed in an action by a judgment creditor to set aside a fraudulent convey- ance of his land, even though the judgment debtor had only an eqviity of redemption in the land, where the fraudulent grantee is in possession of the land and receiv- ing the rents thereof. Freeman v. Stewart, 119 Ala. 158, 24 So. 31. And where the grantor was a person of weak intellect and the grantee was insolvent, the court appointed a receiver in a suit to set aside a conveyance alleged to have been procured by fraud and undue influence. Mitchell v. Barnes, 22 Hun (N. Y.) 194. An injunction may properly be granted and receivers appointed in an action involving the fraudulent character of a deed by the execu- tor and sole heir of a decedent, to a sister of the latter in settlement of an alleged debt due to such sis- ter, where there is evidence war- ranting a judge in finding that no such indebtedness ever really ex- isted. Brown v. Stanley, 105 Ga. 469, 30 S. E. 656. Where the vendor seeks a re- scission and the purchaser's acts are liable to cause a loss to the plaintiff, a receiver is properly ap- pointed. Cook v. Andrews (1897), 1 Ch. 266. 2 A receiver pendente lite will not be appointed in an action to set aside conveyances of real prop- erty as fraudulent, where it ap- pears that the buildings and im- provements on the property are properly kept and cared for by the defendant, and that he is solvent and capable of responding for all rents or profits received during the pendency of the action, especially if he offers to enter into a bond to the plaintiffs in such sum, with such conditions, and with such sureties as the court may desig- nate, to account for such rents and profits. Spokane v. Amsterdamsch Trustees Kantoor, 18 Wash. 81, 50 Pac. 1088. A mere showing, in a suit to avoid a conveyance for want of mental capacity of deceased gran- tor, of a probability of plaintiffs succeeding, and likelihood of in- jury to the property, or loss of rents and profits, if left in defen- dant's possession, is not sufficient 520 LAW OF RECEIVERS. complainant in liis suit to set aside the conveyance amounts to a mere suspicion of fraud, the court will refuse to appoint a receiver.^ Where the character of the property is of such a nature that it is necessary to keep it in operation, such as a mine, where the showing in a suit to rescind the purchase upon the ground of fraudu- lent representations is of the character mentioned above, the court will appoint a receiver pending the litigation.^ § 215. As Between Vendor and Purchaser in General. Sometimes the court is asked to appoint a receiver in behalf of the owner of real estate where he has executed a contract of sale to a purchaser, and delivered possession under the contract, and there is a default in the pay- ments. The action in such case is based upon the plain- tiff's right to rescind the contract by reason of nonpay- ment, or to have the property sold in payment of the remaining unpaid purchase money, coupled with proof showdng insolvency of the purchaser or waste or other inadequacy of security.^ to warrant the appointment of a value. Smith v. Kelley, 31 Hun receiver pendente lite. Thomas v. (N. Y.) 387. Timonds, 179 Iowa 509, 159 N. W. A vendor who has sold land upon 881. a credit to one who has given 3 George v. Evans, 4 Y. & C. Ex. notes signed, as trustee, for the 211. payment of the purchase money in 4 Gibbs V. David, L. R. 20 Eq. 373. two equal annual instalments, is 1 Gunby v. Thompson, 56 Ga. not entitled to have a receiver, 316; Worrill v. Coker, 56 Ga. 666; upon failure to pay one of the in- Tufts V. Little, 56 Ga. 139; Chap- stalments when due, where it does pell V. Boyd, 56 Ga. 578; Jordan v. not appear that the purchaser or Beal, 51 Ga. 602; Collier v. Sapp, his cestui que trust is less solvent 49 Ga. 93; Phillips v. Eiland, 52 than at the time of the purchase. Miss. 721. Tumlin v. Vanhorn, 77 Ga. 315, 3 A receiver of rents and profits S. E. 264. may be appointed in an action to In a suit to recover the purchase foreclose a contract for the sale of price of land, a receiver is prop- land where the land affords inade- erly appointed where the purchaser quate security for the amount due, is in possession committing waste and is rapidly depreciating in and threatening to continue doing INTERESTS IN REAL ESTATE. 521 But relief will not be granted if it appears that the insolvency of the purchaser was known to the vendor when the contract was made,^ or where the plaintiff's right of recovery is fully denied, or the amount of this indebtedness is in dispute.^^ so, such as threatening to cut down and remove timber. McCas- lin V. State, 44 Ind. 151. A receiver will be appointed in behalf of a vendor, as against a vendee who has obtained posses- sion, and refuses to pay the pur- chase money. Payne v Atterbury, (Mich.) Har. 414. And also where real estate has been sold and the purchaser is per- mitting the property to go to waste and thus lessening the vendor's se- curity. This, of course, is based upon vendor's right to a lien for the unpaid purchase money. Gibbs V. David, L. R. 20 Eq. 373; Smith v. Keliey, 31 Hun (N. Y.) 387; Phil- lips V. Eiland, 52 Miss. 721. V^'here, on application for a re- ceiver of property sold under a vendor's execution for purchase money, it appeared that the claim of the vendee's wife was filed after the second entry of levy made on the fi. fa., the fi. fa. is properly ad- mitted in evidence over objection that there were two entries of levy thereon and no showing of the dis- position of the first entry. Young V. Germania Sav. Bank, 133 Ga. 699, 66 S. E. 925. But a receiver should not be ap- pointed by vendors to recover the purchase money where there is no evidence of waste. Collins v. Rich- art, 14 Bush (Ky.) 621. 2 Jordan v. Beal, 51 Ga. 602. ,A bill by a vendor, charging the insolvency of the purchaser, and the deterioration in value of the land, but not showing that the pur- chaser was less able to pay when the debt matured than when it was incurred, or that the deterioration is due to the purchaser's waste or mismanagement, makes no case for the appointment of a receiver, of the rents and profits of the pur- chased premises, or for an injunc- tion against transferring obliga- tions taken for the rent. Tumlin v. Vanhorn, 77 Ga. 315, 3 S. E. 264. 3 Where no insolvency is shown and the amount of the indebted- ness is in dispute, the court will not appoint a receiver. Hughes v. Hatchett, 55 Ala. 631. Where one is personally in pos- session of premises under a con- tract for the sale thereof, the court will not, in an action to recover the possession of said premises, appoint a receiver pendente lite. La Bau v. Huetwohl, 60 Hun 407, 15 N. Y. Supp. 491. It has been held, however, that a receiver pendente lite will not be appointed in an action to recover possession of real estate from one in possession under a contract of sale. Guernsey v. Powers, 9 Hun (N. Y.) 78. See Boehm v. Wood, 2 Jac. & W. 236. In that case it was uncertain to which of two parties an estate belonged because, although the plaintiff who was vendor, had sold it to the defendant who, however, objected to the title. If his objec- 522 LAW OF RECEIVERS. So also where a purchaser of a leasehold was let into possession before paying all of the purchase money and while he was in default in his payments, the vendor was obliged to pay the rent and taxes to avoid a forfeiture, a receiver may be appointed upon application of the ven- dor.^ § 216. Effect Where Insolvency of Purchaser Alleged. The insolvency of a defendant in a legal proceeding frequently gives rise to an equitable remedy on behalf of the plaintiff which often is analogous to that of an equi- table sequestration. But something more than the fact of mere insolvency is required although the fact of insol- vency, coupled with other facts tending to show a fraudu- lent disposition on the part of the defendant, or a course of conduct which will result in a waste or depreciation of the subject matter of the litigation, will be frequently sufficient ground for the appointment of a receiver. These same principles obtain in respect to the appointment of a receiver in litigation between vendors and purchasers. ^ In tions were well founded, the estate i The owner of land who has con- belonged to the vendor, otherwise tracted to sell it can not maintain to the purchaser. In these circum- a bill to cancel the contract and stances the court appointed a re- recover the land and to have a re- ceiver of the property. The case ceiver appointed to take charge of of Gibbs V. David, L. R. 20 Eq. 373, the property, merely on the ground was also to the same effect. that the purchaser is insolvent, 4 Cook V. Andrews (1897), 1 Ch. where it does not appear that he 266. became insolvent after making the It is good ground for the appoint- contract of purchase. Jordan v. ment of a receiver of land where Beal, 51 Ga. 602. the decree below declares the ap- The appointment of a receiver plicant to have a lien on the land was refused where the plaintiff had for the payment of the purchase sold land, giving only a bond for money, that there are taxes due title, and had subsequently trans- and unpaid which are about to be ferred the purchaser's notes given enforced by a sale of the land, un- for the purchase price, and had less the party in possession will been sued on his indorsements of pay the taxes in a reasonable time. them, even though the purchaser Darusmont v. Patton, 72 Tenn. (4 had become insolvent. Williams v. Lea) 597. Stewart, 56 Ga. 663. INTERESTS IN REAL ESTATE. 523 other words a receiver will not be appointed in cases of this character merely on the ground that one of the par- ties is insolvent without a showing that there is danger of loss in respect to the subject matter. - . So also a receiver will not be appointed at the suit of trustees on the ground that one to whom they sold land failed to pay a large part of the purchase money and is insolvent but remains in possession of the property re- ceiving its profits where an order of resale of the premises directed by the court remains unexecuted by them and the defendant has not been heard in reference to the applica- tion.^ The fact that a receiver has been appointed over tlie property of the purchaser will not affect the right of the vendor to enforce his contract by means of declaring a forfeiture and the fact that the legislature has given an additional remedy to the vendor will not deprive him of his equitable remedy upon failure of the purchaser to make his payments.* 2 A receiver may be appointed to apply the proceeds to the purchase enforce a vendor's lien where there price. McCaslin v. State, 44 Ind. is danger of loss through the pur- 151. chaser's insolvency or otherwise. 3 Anderson v. Cecil, 86 Md. 490, Hughes V. Hatchett, 55 Ala. 631. 38 Atl. 1074. A receiver and injunction may 4 Tower v. Detroit Trust Co., 190 properly be granted in behalf of a Mich. 670, 157 N. W. 367. In the vendor, where the purchaser has above case the court had appointed been put into possession without a receiver over the corporation paying anything toward the pur- defendant which has agreed to chase money, is allowing the prem- purchase certain property but ises to deteriorate, and has gone made default in its payments. The into bankruptcy. Tufts v. Little, receivership was not created in a 56 Ga. 139; Gunby v. Thompson, 56 suit respecting the contracts, but Qa. 316. the vendor filed a petition in the Vendor may have receiver ap- receivership praying, among other pointed where he still has the things, that the contracts be de- legal title and has given a bond for clared forfeited. The Chancellor title and the vendee is insolvent refused to so declare. The appel- and committing waste and he is late court said: seeking to sell the property and "It is argued in defense of the 524 LAW OP RECEIVERS. action of the trial court in refus- ing relief, that petitioner failed to comply with the provisions of Act 200 of the Laws of 1911, providing a method of forfeiting land con- tracts. It is conceded by petitioner that he did not comply with the terms of that act in forfeiting the contract, because he brought him- self within its proviso. The act provides a mode for forfeiting land contracts without the aid of court proceedings, and contains the fol- lowing proviso: " 'Provided further, that this act shall not be held to debar the ven- dor or his proper representatives or assigns from enforcing the for- feiture of said contract through proper procedure in a court of chancery, nor to debar proceed- ings to recover possession of said premises in any manner now au- thorized by law or through sum- mary proceedings, provided said contract by its terms so allows.' "A fair construction of this act seems to be that the legislature undertook to and did provide an additional method, whereby land contracts could be forfeited with- out the aid and expense of a court proceeding. There is nothing in the act which supports the view that the act is mandatory or ex- clusive with respect to the added remedy, but there is express lan- guage in the proviso which leads to the conclusion that it was in- tended to be elective with the ven- dor. In other words, the act in effect says to the holder of a de- faulted land contract, if you desire to forfeit your contract, here is an additional method of doing so, by which you can accomplish it with- out the aid of court proceedings. Or, if you choose, you may pursue one of the existing remedies. Pe- titioner chose one of the existing remedies, and we think he was well within his rights in so doing, inasmuch as the contract in ques- tion makes provision fpr declaring a forfeiture of the contract by giv- ing notice thereof, "But counsel for the receiver argue, in substance, that to main- tain the status quo will not preju- dice the rights of the petitioner, but will materially assist the re- ceiver in disposing of the assets of the vendee on a sale thereof. The petitioner executed these con- tracts with the Chippewa Con- struction Company, and the record shows that he has not only com- plied with all the terms of the contract which were incumbent upon him to perform, but that he has borne with the defaults of the vendee longer than he contracted to. When the time finally arrived for payment in full, no payment was tendered. There is no show- ing that the receiver is in any position financially to tender it, or, if it can, that it will. The in- ferences are very strong that the vendee is insolvent. Unless we are entirely to overlook the peti- tioner's rights under the contract for the purpose of augmenting the value of the assets of the vendee upon a sale thereof, some relief must be granted him. "It is urged that equity abhors forfeitures, and that equity will not enforce a forfeiture, and peti- tioner is charged with being un- willing to do equity, although he is asking it." This court not infre- quently goes beyond the strict terms of the contract to enforce equities between parties, and an INTERESTS IN REAL ESTATE. 525 § 217. Vexatious Legal Proceedings for Purposes of Delay. In one case^ a receiver was appointed on behalf of the vendor because of vexatious legal defenses and proceed- ings made without merit for the purposes of delaying the fruits of the judgment. The plaintiff had alleged that he sold the land, receiving one-half of the purchase price, and sought and recovered judgment for the balance. Upon levying execution, the ^purchaser's wife claimed the land on the ground that she had paid the amount received by plaintiff, which was all that the land was worth ; that after much delay the claim was decided against the wife, and on again attempting sale, plaintiff was met by another frivolous claim by the wife 's brother pretending to hold title under deeds from the husband and wife; that these parties colluded to delay the plaintiff with a view to keep- ing the rents and profits, and that the purchaser boasted that he would retain possession without paying. § 218. Upon Disagreement Between Vendors Upon Partitions Between Them. Where lands, which are in part subject to executory contracts of sale of separate parcels, are partitioned, each parcel of the common estate covered by a contract of sale may be treated as a distinct estate and partitioned in severalty, subject to the conditions of the contract, and, if the interested parties can not agree in respect to whom illustration of that is the recent the contract, but such is not the case of Northern Michigan Build- case. Defendant is simply asking ing & Loan Association v. Fors, that the contract be not forfeited, 155 N. W. 736. If the receiver, in because its equity therein will as- sist in making a sale of its other assets. The statement of counsel that a court of equity will not en- default at this time, or if it were j^j.^^ ^ forfeiture under any condi- able to express some hope and tJons is sufficiently answered by ability to make payment in the the recent case of Donnelly v. near future, this court might see Lyons, 173 Mich. 515, 139 N. W. fit to still grant the defendant the 246." privilege of making payment upon i Chappell v. Boyd, 56 Ga. 578. answer to the petition, were ten- dering payment to make good the ')26 LAW OF RECEIVERS. payments shall be made, the court, in aid of the final judgment of partition, may appoint a receiver under a code provision which permits the appointment of a re- ceiver in an action between parties jointly interested in any property or fund.^ § 219. Upon Enforcement of Vendor's Lien. Where the vendor is seeking to enforce his vendor's lien and there is danger of loss from the purchaser's insolvency or otherwise, a receiver may be appointed.^ In all cases of this character affecting real property, it is, however, essential that there should be an absence of an 1 In the event that the inter- ested parties can not agree as to whom payments made from time to time under the contracts of sale shall be made, the court may, in aid of the final judgment in parti- tion, appoint a receiver for that purpose under the provisions of section 564 of the Code of Civil Procedure. Rich v. Smith, 26 Cal. App. 775, 148 Pac. 545. 1 Hughes V. Hatchett, 55 Ala. 631. Civ. Code Prac, § 298, provides that, on motion of any party to an action showing that he has a lien on any property, the right to which is involved in the action, and that the property is in danger of being lost, removed, or materially in- jured, the court may appoint a re- ceiver to take charge of the prop- erty. Section 299 provides for the appointment of a receiver of mort- gaged property at the instance of the mortgagee for the same rea- sons, and further provides for a receiver if the property is prob- ably insufficient to discharge the mortgage debt. Under these pro- visions it was held that a receiver will not be appointed at the instance of the vendor, who has a lien for the purchase price, where the property is in no danger of being materially injured, though it may not be sufficient to satisfy the debt. Murray v. Murray, 124 Ky. 426, 30 Ky. Law Rep. 286, 99 S. W. 301. The appointment of a receiver in an action to enforce a vendor's lien has been refused upon the ground that the vendor has no right to anything other than a sale of the property to satisfy the un- paid portion of the purchase price and the purchaser is entitled to the possession until such sale takes place. Morford v. Hamner, 3 Baxt. (Tenn.) 391. On the other hand it has also been held that after a decree al- lowing a vendor to sell land to satisfy the unpaid portion of the purchase price, where the pur- chaser appeals and pending the appeal fails to pay the taxes, a receiver will be appointed. This is for the purpose of making the judgment effective. Darusmont v. Patton, 4 Lea (Tenn.) 597. IXTEUESTS IN REAL ESTATE. 527 adequate remedy outside of the appointment of a re- ceiver, and the averments in respect to the matter should not be vague and uncertain.- It has been held, however, that where the vendor has placed the purchaser in possession, reserving a lien for the purchase money, the court will not, in a suit to enforce the lien, appoint a receiver since the lien attaches to the land and not to the rents and profits, even though the purchaser is insolvent and the land is merely adequate to meet the indebtedness. A receiver might, however, be appointed upon a showing of waste.^ §220. Receiver Takes Property Subject to Existing Vendor's Liens. In accordance with the general principles applicable to all liens, a receiver is in no better position than the party over whom he has been appointed receiver. He takes the property subject to the right of the vendor to assert his vendor's lien and he can not obtain title without compli- ance with the contract of sale.^ 2 Where the filing of a lis pen- that a petition containing aver- dens will operate so as to prevent ments of a vague and general a transfer of real property the character are insufficient to war- title to which is in litigation, a rant an ex parte appointment of a receiver will not be appointed receiver. Arnold v. Meyer, (Tex. since there is in such circum- Civ.) 198 S. W. 602. stances an adequate remedy at i A receiver of a corporation law. Gregory v. Gregory, 33 N. Y. who takes possession of property Super. Ct. R. 1; Spokane v. Am- purchased, but not paid for, by the sterdamisch Trustees Kantoor, 18 corporation, takes it subject to the Wash. 81, 50 Pac. 1088. right of the sellers to have the 3 Collins V. Richart, 14 Bush property sold for their payment, (Ky.) 621. and so a proceeding by the sellers Under statutory provisions au- to assert their privilege in that thorizing the appointment of a re- respect can not be stayed until ceiver in foreclosure where prop- liquidation of the receivership. In erty is in danger of being lost or re Receivership of Augusta Sugar materially injured, in a suit to Co., 134 La. 971, 64 So. 870. foreclose certain liens on personal The receiver of a corporation property and crops and a vendor's has the same right which it had to lien on certain land, it was held perfect title to property in its pos- 523 LAW OF RECEIVERS. § 221. Receiverships in Suits for Specific Performance. . In an action for specific performance where there is danger of loss from waste, insolvency, or other perils to the property cognizable by the rules relating to receiver- ships, a receiver will be appointed pending the litigation.^ session under a contract with the vendor that title should not pass to it until the property was paid for. Moore v. Mercer Wire Co., (N. J.) 15 Atl. 305. Where an order of the court re- quires a purchaser of lands to give security for the application of the rents and profits to the payment of the purchase price, or on his fail- ure to do so directs that a receiver of the rents and profits be ap- pointed, a further condition of the order restraining him from trans- ferring in any manner any obliga- tion for the rents is onerous and should not be made. Tumlin v. Vanhorn, 77 Ga. 315, 3 S. E. 264. A receiver for corporation can not compel the vendor, under an executory contract with the cor- poration for the purchase of land, to deliver possession without pay- ment of the purchase price in ac- cordance with the contract. Con- tinental Trust Co. V. Brown, (Tex. Civ. App.) 179 S. W. 939. In a suit by receiver of federal court to enforce vendor's lien on property sold under a decree ren- dered in a federal court, he should not be required to procure title papers, making description of prop- erty sold more definite than that in deed conforming to decree of federal court. McClintic v. Hech- mer, (W. Va.) 92 S. E. 653. 1 A receiver was appointed in a suit for specific performance. Reade v. Hamlin, 62 N. C. (.Phill. Eq.) 128; Munns v. Isle of Wight Ry. Co., L. R. 5 Ch. App. 414. McCaslin v. State, 44 Ind. 151. In an action for specific per- formance of a contract for sale of land, under which defendant was to retain the land for a certain time and pay plaintiff half the crops, plaintiff asked for a re- ceiver, and subsequently filed a separate petition for such appoint- ment, on the ground that defendant threatened to convert grain grown. Both appeared, and a continuance was granted, pending which defen- dant prepared to thresh the grain under threat to convert it, and plaintiff applied, during vacation, for the appointment of a receiver. It was held that the court had power to appoint this receiver on the application in vacation. Wil- son V. Hays, 139 Mo. App. 513, 123 S. W. 540. But under a contract between father and son that in considera- tion of the son cultivating the father's land until the latter's death, it would be given to the son, the father having outlived the son, it was held, in an action for the specific performance by the son's widow, that the farm would not be placed in the hands of a receiver. Walters v. Walters, 132 111. 467, 23 N. E. 1120. In Hyde v. Warden, 1 Ex. D. 309, the plaintiff in a suit to enforce specific performance of an agree- ment to lease a farm was ap- INTERESTS IN REAL ESTATE. 529 In a suit for specific performance instituted by the vendor, if the property is an inadequate security for the balance of the purchase money and the purchaser is insolvent, a receiver will be appointed upon the same sort of a show- ing in which one would be appointed in an ordinary fore- closure proceeding.- And in an action to compel a con- veyance from the heirs of a deceased person, many of whom are minors, it is proper to appoint a receiver in whom the legal title may be vested for the purpose of pointed receiver pending his ap- peal from a judgment in favor of the defendant. In one case of specific perform- ance a receiver was appointed be- cause the purchaser was managing the land in a manner contrary to the usual course of husbandry. Osborne v. Harvey, 1 Y. & C. C. C 116. And where by a post-nuptial set- tlement between husband and wife the rights of a purchaser from the husband were being jeopardized, a receiver was appointed at his ap- plication upon the court being sat- isfied that he would probably ob- tain a decree for specific perform- ance. Metcalf V. Pulvertoft, 1 Ves. & B. 181. In George v. Evans, 4 Y. & C. 211, the court refused to appoint a receiver in a suit by a beneficiary to set aside a purchase made by his trustee from him on the ground that there was no showing that the property was likely to be damaged by the de^fendant and that the facts set forth in the bill merely raised a suspicion of unfair dealing on the part of the trustee. A vendee may procure the ap- pointment of a receiver pending a suit for specific performance of a I Rec— 31 contract to convey where through fraud the vendor is in possession. Dawson v. Yates, 1 Beav. 301. A vendor may obtain the ap- pointment of a receiver in an ac- tion of specific performance of a contract of purchase on a showing of the insolvency of the vendee and that he is about to convey hia property to trustees for the benefit of creditors. Hall v. Jenkinson, 2 Ves. & B. 125. On the refusal of one who has contracted to purchase property to complete the purchase because of not being satisfied with the title, a receiver may be appointed pend- ing the determination of the suffi- ciency of the title. In this cast; the property had large ornamental grounds which required consider- able care and expense to main- tain, besides insurance. Boehm v. Wood, 2 Jac. & W. 236. A receiver and manager of a hotel business may be appointed in a suit for specific performance of a contract for the sale of the lease, furniture, and good will of the business, but he can take no chattels other than those which would pass by an assignment of the lease. Poole v. Downes, 76 L. T. N. S. 110. 2 Phillips v. Eiland, 52 Miss. 721, 530 LAW OF RECEIVERS. carrying the judgment into effect.^ Where there is no such default as entitles the vendor to sell the property, the order appointing the receiver should be revoked since the receivership is merely incidental to the main action/ The same class of relief by the appointment of a re- ceiver in a proper case is, of course, accorded the pur- chaser in a suit to compel performance by the vendor. Thus where the vendor has fraudulently obtained re- possession of the property, a receiver was appointed at the instance of the purchaser in a suit for specific per- formance.^ A receiver will be appointed over property in the hands of a vendor at the suit of a purchaser who has completely performed his contract of purchase upon the principle that in such a case the purchaser holds the entire benefi- cial interest in the property and the vendor holds it simply as trustee for him.^ A receiver was appointed in one case for the purpose of applying the rents and profits in payment of the interest and costs awarded a purchaser upon failure of the vendor to make title.^ § 222. Receivership in Aid of Judicial Sales. A receiver will be appointed at the instance of a pur- chaser at a judicial sale on a bill alleging fraudulent conveyances by the judgment debtor of the estate so sold for the purpose of defeating plaintiff's title.^ If the judgment debtor after a judicial sale continues in possession of the property and uses it, the purchaser may have a receiver appointed w^here the defendant is insolvent and waste is likely to occur. ^ 3 Scadden Flat etc. Min. Co. v. i Mays v. Rose, Freem. Ch. Scadden, 121 Cal. 33, 53 Pac. 440. (Miss.) 703. 4 Jones V. Boyd, 80 N. C. 258. 2 HiU v. Taylor, 22 Cal. 191. See 5 Dawson v. Yeates, 1 Beav. 301. also Harris v. Reynolds, 13 Cal. 6 Mead v. Burke, 156 Ind. 577, 60 514, 73 Am. Dec. 600. N. E. 338. And a purchaser at a sheriff's 7 Hill V. Kirwan, 1 Hog. 175. sale who is entitled to the pos- INTERESTS IN REAL ESTATE. 531 And where defendant in possession of land sold at a sheriff's sale obtained possession through fraud, and the rents and profits are in danger of being lost by reason of the insolvency and fraudulent actions of the defen- dant, a receiver may be appointed.^ But a receiver will not be appointed to collect the rents and profits of land sold at a judicial sale for the time between the sale and its confirmation by the court since the purchaser is not entitled to them. And a receiver will not be appointed in such a case where an appeal from the order of confirmation has in effect suspended the sale.^ And executors who have placed a purchaser of the propert}" in possession under a sale and deed made by them and permitted him to make large improvements thereon can not, while refusing to report the sale to the court for confirmation, invoke the aid of a court of equity to compel an accounting of rents and profits or to place the property in the hands of a receiver.^ • § 223. Receivership Over the Rents and Profits. Where the contract of sale does not reserve to the vendor any right to the crops or rents and profits to apply upon the purchase price, the right of the vendor to enforce his vendor's lien will be limited to the land itself, and in such circumstances the court will not appoint a receiver of the rents, at least not until the property has been sold under a decree,^ although receiv- session may have a receiver ap- s Mays v. Rose, Freem. Ch. pointed to take possession of a (Miss.) 703. crop thereon and harvest the same 4 Pearson v. Gillenwaters. 99 where the judgment debtor is in- Tenn. 446, 63 Am. St. Rep. 844, solvent. Corcoran v. Dall, 35 Cal. 42 S. W. 9. 476 5 Bennallack v. Richards, 125 A receiver may be appointed Cal. 427, 58 Pac. 65. upon the application of a pur- i Morford v. Hammer, 62 Tenn. chaser at a sheriff's sale pending (3 Baxt.) 391. litigation. McFadden v. Nolan, 15 Where, pending a bill to fore- Phila. 187. close a vendor's lien, the land 534 LAW OP RECEIVERS. § 224. The Rule as Applied to Personal Property. Unless reservations of title, amounting to a condi- tional sale are made in a sale of personal property, the seller ordinarily has no such interest in the property as entitles him to the appointment of a receiver.^ But where the litigation is in respect to an executory sale of a stock of merchandise which the buyer refuses to accept, it is proper to appoint a receiver to take charge of and sell the goods, since to do so is a step reasonably calcu- lated to protect both litigants and insure a fair sale.- Likewise where there is reasonable ground to apprehend that pending the litigation the property, w^hich is the subject matter of the litigation, may be disposed of be in effect to hold that any cred- itor may obtain a receiver over personal property, before judg- ment, to secure the payment of any simple and unsecured debt. Neither our statute nor the policy of our laws contemplates any such remedy." Golden Valley Land etc. Co. V. .Johnstone, 21 N. D. 101, Ann. Cas. 1913B 631, 128 N. W. 691. In Hendrix v. American Free- hold etc. Co., 95 Ala. 313, 11 So. 213, a receiver was appointed ex parte of a growing crop upon a showing that defendants, after they had mortgaged the land to plaintiff, had conveyed it to an- other party for the purpose of de- frauding plaintiff out of the rents and profits of the land, and that upon a foreclosure of the mortgage plaintiff had bid in the land for its reasonable value, but nevertheless there remained a deficiency. 1 The seller of a stock of goods upon condition that they shall not be removed from town, and that the proceeds of sales shall be turned over to him until the bal- ance of the purchase price is paid, has, in the absence of an express reservation of title, no such inter- est therein as to entitle him to a receiver upon the failure of the purchaser to comply with the agreement as to proceeds, though the latter is insolvent. Steele v. Aspy, 128 Ind. 367, 27 N. E. 739. That he may by stipulation re- tain title is well settled, but it must be plain and express. Win- chester Wagon W^orks & Mfg. Co. v. Carman, 109 Ind. 31, 58 Am. Rep. 282, 9 N. E. 707; Hodson v. War- ner, 60 Ind. 214. 2 Swisher v. Dunn, 89 Kan. 412, 131 Pac. 571, 45 L. R. A. (N. S.) 810, 131 Pac. 571. In an action to enforce specific performance of a parol agreement to sell certain personal property, a receiver was appointed upon a showing of imminent danger of loss. Taylor v. Eckersley, 2 Ch. D. 302, 5 Ch. D. 740. INTERESTS IN REAL ESTATE. 535 fraudulently or in such a manner as to make futile any judgment which may be recovered in respect to it, the court is justified in appointing a receiver.^ § 225. Equitable Lien for Purchase of Personalty. An equitable lien for the price of personalty may be enforced, even though the property be in the hands of a receiver, as the receiver takes the title burdened with the equities to which it was subject when in the hands of the debtor.^ But a seller of goods, who reserved title to the same, by filing purchase money notes with the receiver of tlie corporation which had been the purchaser, waived a right 3 EUett V. Newman, 92 N. C. 519. Under Burns's Ann. St. 1901, § 1236, which provides that a re- ceiver may be appointed where it is shown that the property in con- troversy is in danger of being lost or materially injured, or where, in the discretion of the court, it may be necessary to secure ample jus- tice to the parties, where a com- plaint in an action by administra- tors for the appointment of a receiver showed that during the lifetime of decedent defendant, by fraud and undue influence, had ob- tained possession of certain notes belonging to said decedent and purporting to be indorsed by the latter, that the indorsements were forged, that no consideration was received for the notes; and that defendant was wholly insolvent, and, if not restrained, would col- lect and sell the notes and convert the proceeds, the appointment of a receiver was warranted. Sallee v. Soules, 168 Ind. 624, 81 N. E. 587. On application of the seller of goods in an action to rescind a sale for fraud, the court may ap- point a receiver, where the goods are in the hands of a sheriff, to secure the payment of mortgages, even though the mortgagees are solvent. Exchange Bank v. H. B. Claflin Co., 100 Ga. 640, 28 S. E. 439. A receiver will be appointed to take possession of property pen- dente lite in a replevin suit only under circumstances requiring summary relief or where there is imminent danger of loss vvithout adequate remedy at law, but not ordinarily where title is in dispute until there has been a determina- tion of the title or the plaintiff at least establishes a reasonable prob- ability of his ultimate success in establishing title. The question is addressed to the discretion of the court. Bacon v. Engstrom, 129 Minn. 229, 152 N. W. 264, 537. 1 Arkansas Cypress Shingle Co. v. Meto Valley Ry. Co., 97 Ark. 534, 134 S. W. 1195. 536 LAW OF RECEIVERS. to reclaim the property and have his claim allowed as a preferred claim, the property having been sold by the receiver. 2 4. Receiverships at Instance of Landlord or Tenant. § 226. Circumstances in Which Receiver Appointed. Where a person is clothed with title and possession, such as are conferred by a lease in w^riting, and is in the possession and enjoyment of rights apparently legal, a receiver will not be appointed unless under urgent and peculiar circumstances. The plaintiff in such a case must show a clear right or a prima facie one with such attend- ing circumstances of danger or probable loss as will move the conscience of a chancellor to interfere.^ Thus a receiver has been appointed to take possession and hold the rents and profits until final decree in a suit by a land- lord against an insolvent tenant who is allowing the land to deteriorate.- But where the landlord has an adequate remedy at law, a receiver will be refused.^ 2 Gordon Hollow Blast Grate Co. stantial breaches by the tenant, in- V. Zearing (Ark.), 198 S. W. 97. eluding the selling of live stock 1 Chicago, etc., Mining Co. v. and grain, without the knowledge United States Petroleum Co., 57 of the owner, who was entitled to Pa. St. 83; Burton v. Pepper, 116 share in the proceeds of such Miss. 139, 76 So. 762. See Wilson sales, and who had originally V. Wilson, 2 Keen 249; Charrington equipped the farm with stock. & Co. V. Camp (1902), 1 Ch. 387; Baker v. Bohnert, 158 Wis. 337, Levey v. Callingham (1908), 1 148 N. W. 1093. K. B. 79. Possession of leased premises In an action by a landlord to will not be awarded a landlord by enforce his lien for rent, where the appointment of a receiver other persons claim an interest in without notice. Burton v. Pepper, the property, which consists of 116 Miss. 139, 76 So. 762. live stock, farm produce and ma- 2 Hunter v. Bowen, 137 Ga. 258, terials, the appointment of a re- 73 S. E. 380. ceiver is proper. Smith v. Dayton, 3 Where the crops were severed 94 Iowa 102, 62 N. W. 650. from the soil and became personal Under St. 1913, § 2787, subd. 1, property, claim and delivery would a receiver may be appointed, in an be a plain, speedy, and adequate action by the landlord, to cancel a remedy, and the receiver will not farm lease, where he shows sub- be appointed. Montana Ranches INTERESTS IN REAL ESTATE. 537 § 227. Receivership Over Growing Crops. Eeceiverships are more apt to arise in litigation be- tween a landlord and tenant where the relation arises over a growing crop than in other circumstances for the simple reason that the existence of such growing crops in connection with friction between the parties is liable to give rise to what might be termed receivership facts. Thus where by the terms of a crop lessee the landlord and tenant are tenants in common of the crop and the tenant denies the right of the landlord to any part of the crop and threatens to sell the crop, a receiver may be appointed where in addition it is shown that the tenant is insolvent.^ But where by the terms of the lease the rent is not paid by way of a share in the crop but in the shape of a money rental and no lien is reserved upon the crops, a receiver will not be appointed to irrigate and cultivate the crops even though the tenant has failed to perform the conditions of the lease and is insolvent.^ The mere fact that the landlord is entitled to a share in the crop without any other showing will not entitle the landlord to the appointment of a receiver to take posses- sion of a growing crop.^ Courts, however, are reluctant to appoint a receiver over growing crops unless it be shown that the tenant is doing or threatening to do some act in respect to the crop or the leased premises which will tend to destroy the property or if the landlord has Co. V. Dolan, 53 Mont. 397, 164 crops would be removed and sold Pac 306 *° innocent purchasers and the proceeds converted; and it was not Where the statutory remedy to ^^^^^ ^^^^ defendant threatened collect for rent and supplies to ^^ intended to act in that manner, tenant is ample a receiver will not Montana Ranches Co. v. Dolan, 53 be appointed to administer ma- Mont. 397, 164 Pac. 306. tured crops. Barfield v. Dwight, i Paughman v. Reed, 75 Cal. 146 Ga. 824, 92 S. E. 633. 319, 7 Am. St. Rep. 170, 17 Pac. 222. A receiver will not be appointed 2 Ibbetson v. Peairson, 7 Cal. where the only necessity shown is App. 261, 94 Pac. 252. that there was danger that the 3 Williams v. Green, 37 Ga. 37. 538 LAW OF RECEIVERS. a lien upon the crop that the security upon which his lien operates is being impaired, or destroyed.* § 228. Combined Lease and Sale Contract. Even though a lease of a dairy farm contained provi- sions for the sale of cows therein on installments the fact that the tenant failed to meet the installments is not ground for the appointment of a receiver even though the tenant is insolvent since he has an adequate remedy at law. That is true even though the tenant was alleged to have placed the cows elsewhere with a view to selling them.^ § 229. Deed of Trust to Secure Advances to Tenants. Where a tenant gives a deed of trust upon growing crops and various personal property used in his planta- tion operations to secure the landlord for advances to be made for the purposes of managing the crop, he can not refuse to make the advances and then in a suit to fore- close the deed of trust obtain the appointment of a receiver to plant and harvest the crop, even though the tenant may be a man of limited means and practically insolvent. In such circumstances the tenant should have had an opportunity to expend the funds and manage the business in the absence of a shomng that he had a fraud- ulent intent of misappropriating the funds or abandoning the property and especially so where he had been a ten- ant for several years previously and had been spending money advanced for similar purposes by the landlord.^ § 230. Breach of Covenants of Lease. The fact that a tenant has breached the covenants of his lease is not ground for the appointment of a receiver 4 Burton v. Pepper, 116 Miss. 139, 76 So. 762. 1 Davis V. Kemp (Ala.), 77 So. 745. 2 Burton v. Pepper. 116 Miss. 139, 76 So. 762. INTERESTS IN REAL ESTATE. 539 since in sucli circumstances the landlord has an adequate remedy at law to regain possession of the property.^ But where the purchaser of a leasehold was placed in possession before paying the whole of the purchase money and thereafter made default and the vendor was obliged to pay the rent and taxes in order to prevent a forfeiture of the lease, a receiver was appointed at the instance of the vendor.- §231. Status of Receiver of Landlord in Relation to the Property. A receiver of a landlord, who had mortgaged the prem- ises, is not an assignee of the lease and an action for rent should be brought in the name of the landlord and not that of the receiver.^ §232. Receivership Determined Upon Conditions at Time of Application. The question whether a receiver will or will not be appointed at the instance of a landlord in litigation with his tenant is determined by the circumstances and con- ditions existing at the time of the application and not by conditions which may exist later on. The legality of the appointment will be determined by the facts existing at the time of the appointment.^ § 233. Duration of the Receivership. Where a receiver is appointed for the purpose of en- forcing and preserving a lien for rent, the receiver should be discharged upon the payment of the rent charge which forms the basis of the litigation.^ 1 Burton v. Pepper, 116 Miss. 2 Cook v. Andrews (1897), 1 Ch. 139, 76 So. 762. 266. But in a suit by the landlord to ^ Noble v. Brooks, 224 Mass. 288, recover the land under a provision ^^^ n E 649 in the lease for re-entry for breach ^ ^'^^^^^ ^- ^^^^^^^^ ^^^ ^^.^^ of covenant, a receiver may be ap- ^^^ pointed over the rents and profits i-^ • • "■ pending the litigation. Gwatkia v. r Patterson v. Northern Trus Bird, 52 L. J. Q. B. 263. Co., 132 111. App. 208 (judgment 540 LAW OF RECEIVERS. 5. Receiverships Affecting Leases. § 234. Receivers to Collect Rent. We have seen that in an action to foreclose a mortgage or other lien upon real property, either because the lienor may be entitled to the rent as additional security for his lien or because it is necessary to use the income of the property to repair waste already committed or to pre- serve the property pending the result of the litigation, a receiver may be appointed pendente lite to collect the rent of the property involved in the action. Such a receiver while in performance of his functions is entitled to the protection and assistance of all orders that the receivership court has power to make.^ Conflicting claims as to the rent are to be decided in the receivership pro- ceedings themselves or in actions commenced with the consent of the receivership court.^ If such a receiver resorts to litigation to enforce his rights he is bound, as other litigants, by statutory requirements concerning pleadings.^ Though the tenant may have claims arising before the appointment of the receiver of such a nature that they could be set-off against claims for rent, they affirmed in 230 111. 334, 82 N. E. erty upon which the personalty Is 837, and 231 111. 22, 121 Am. St. to be used does not deprive the Rep. 299, 82 N. E. 840). lessor of the personalty from col- 1 Reid V. Middleton, Turn. & R. lecting his rent from other 455. sources when a receiver has been 2 Where a mortgage is made appointed to collect the rent of the subsequent to and with notice of realty. J. M. Overall Furniture Co. a lease that gives the landlord a v. Superior Court, 36 Cal. App. 745, lien upon the rents due from sub- 173 Pac. 176. A tenant who has tenants, the landlord is entitled to paid rent in advance contrary to rents collected by a foreclosure the binding effect of the filing of receiver. Mellon v. St. Louis a notice of lis pendens may be Union T. Co., 225 Fed. 693, 140 compelled to pay again. Gaynor C. C. A. 567. A stipulation in a v. Blewett, 82 Wis. 313, 33 Am. St. lease of personal property that the Rep. 47, 52 N. W'. 313. rental of the personalty shall be 3 Everett v. Sglobiski, 125 N. Y. paid from the rents of real prop- Supp. 455. INTERESTS IN REAL ESTATE. 541 can not be so used against rent accruing after the ap- pointment unless they arise from contracts to which the lienor was privy and to which he consented.^ Where a lease is taken subject to a mortgage the rights of the lessee continue until there is a change of ownership by foreclosure and the foreclosure receiver is bound by the terms of the lease.^ Conflicting claims as to whether or not a lease is part of the receivership estate are to be settled in the receivership proceeding or in a separate action brought with consent of the receivership court." § 235. Receiver of a Lessee. It may of course happen that the person whose estate a receiver is appointed to administer is a lessee and that it may become the duty of the receiver to take possession 4 Farmers' Loan, etc., Co. v. Northern Pac. R. Co., 58 Fed. 257. When a lessee contracts with the lessor to make certain repairs at his own expense on condition that he is to be reimbursed from the rents, and the contract was made with the consent of the mortgagor, the lessee can recoup against the foreclosure receiver. Thomson Estate v. Washington Inv. Co., 146 Pac. 617. . 5 Busbe V. Wolff, 171 N. Y. Supp. 253. 6 James Everards' Breweries v. Wohlstadter, 177 App. Div. 862, 164 N. Y. Supp. 899. This was an action to foreclose a mortgage on a leasehold and to have it declared that a certain "renewal" lease was subject to the mortgage. Pending the term of the lease the landlord had regained possession in sum- mary proceedings based on failure to pay rent. The proceedings had been undefended and no notice had been given to the mortgagee. Im- mediately thereafter a new lease was given to the wife of the lessor and the possession of the premises, the husband continuing the busi- ness therein conducted, under her name. On an appeal from an order vacating a receivership that hal been created on the commence- ment of the action, it was held that the showing of fraud was sufficient to warrant the continu- ance of the receivership until the issue could be determined on a full trial. Downs V. Gunther, 128 Md. 626, 98 Atl. 138. This was a proceed- ing, instituted in the receivership court, on petition of the receiver of an insolvent corporation, to have the respondent, an officer of the corporation, ordered to assign to the receiver a certain lease that he claimed as his own, and to have him enjoined from collecting rents from subtenants. On the hearing of an order to show cause, the matter was decided against the re- ceiver and the decision sustained on appeal. 542 LAW OF RECEIVERS. of the leased property as an asset of tlie estate. The important special point to be observed in this regard is that a chancery receiver is not, merely by virtue of his appointment, an assignee of the lease. In considering an argument based upon a provision of a lease to the effect that an assignment thereof without the consent of the lessor would give the lessor the right to claim a for- feiture of the lease the United States Circuit Court of Appeals,^ in holding that such a provision is not appli- cable to an involuntary assignment produced by opera- tion of law, said: ''There has been no assignment what- ever, either voluntary or involuntary, of the lease. The chancery receivers are not assignees of the lease. By their appointment they acquired no title. They only obtained a right to the possession of the property as officers of the court. ' ' The receiver is merely a custodian of the property, representing the possession and author- ity of the court, and is not liable under the terms of the lease.2 The lease contract is in the nature of an executor}'' contract of the owner of the estate. The receiver may adopt or reject it.^ He is entitled to a reasonable time in which to form a decision.* He may hold posses- sion during such reasonable time as is necessary for investigation to determine which policy will be for the best interests of the receivership estate;^ and in the 1 Durand & Co. v. Howard & Co., v. Kalkhoff, 60 Minn. 305, 62 N. W. 216 Fed. 585, 132 C. C. A. 589; 335; see De Wolf v. Royal Trust citing Keeney V. Home Ins. Co., 71 Co., 173 111. 435, 50 N. E. 1049; N. Y. 396, 27 Am. Rep, 60, and People v. National Trust Co., 82 Stokes V. Hoffman House, 167 N. Y. N. Y. 283. 554, 53 L. R. A. 870, 60 N. E. 667. 3 See, § 34, supra. 2 Pennsylvania Steel Co. v. New 4 Sunflower Oil Co. v, Wilson, York City Ry. Co., 190 Fed. 609; 142 U. S. 313, 322, 35 L. Ed. 1025, Gaither V. Stockbridge, 67 Md. 222, 12 Sup. Ct. 235; Quincy, M. & P. 9 Atl. 632, 10 Ail. 309; Bell v. R. Co. v. Humphreys, 145 U. S. 82, American Protective League, 163 36 L. Ed. 632, 12 Sup. Ct. 787. Mass. 558, 47 Am. St. Rep. 481, 28 5 United States Trust Co. v. L. R. A. 452, 40 N. S. 857; Nelson Wabash W. R. Co., 150 U. S. 287, INTERESTS IN REAL ESTATE. 543 meantime may use the property in sucli way as may best serve the interests of the estate.^ What is a reasonable time for this purpose depends entirely on circumstances and is a question of fact/ though mere lapse of time may be sufficient to imply an adoption.^ A formal or express adoption is not necessary, but an adoption may be implied from the conduct of the receiver in respect to the prop- erty.^ In this respect, as in all other matters, the receiver is under the dominion and direction of the court. He is bound by any express limitations in the orders of the court setting forth his powers.^" If he decides to reject the lease, the lessor is entitled to a hearing by the court and an order to show cause in the matter should be issued as to why the lease should not be rescinded.^^ 37 L. Ed. 1085, 14 Sup. Ct. 86; Farmers' Loan & Trust Co. v. Northern Pac. R. Co., 58 Fed. 257; Carswell v. Farmers' Loan & Trust Co., 74 Fed. 88, 20 C. C. A. 282; Empire Distilling Co. v. McNulta, 77 Fed. 700, 23 C. C. A. 415; New York, P. & Q. R. Co. v. New York, L. E. & W. R. Co., 58 Fed. 268; Park V. New York, L. E. & W. R. Co., 57 Fed. 799; Clyde v. Rich- mond & D. R. Co., 63 Fed. 21; Day- ton Hydraulic Co. v. Felsenthall, 54 C. C. A. 537, 116 Fed. 961; Tradesman Pub. Co. v. KnoxviUe Car Wheel Co., 95 Tenn. 634, 49 Am. St. Rep. 943, 31 L. R. A. 593, 32 S. W. 1097. 6 Fisher v. Columbia Nat. Bank, 54 Ind. App. 558, 103 N. E. 119; Forepaugh v. Westfall, 57 Minn. 121, 58 N. W. 689; Nelson v. Kalk- hoff, 60 Minn. 305, 62 N. W. 335; Welch V. Central San Cristobal, 6 Porto Rico (Fed.) 310; Tradesman Pub. Co. V. Knoxville Car Wheel Co., 95 Tenn. 634, 49 Am. St. Rep. 943, 31 L. R. A. 593, 32 S. W. 1097 7 Fisher v. Columbia Nat. Bank, 54 Ind. App. 558, 103 N. E. 119. 8 Easton v. Houston & T. C. R. Co., 38 Fed. 784 ; De Wolf v. Royal Trust Co., 173 HI. 435, 50 N. E. 1049, reversing 72 111. App. 411; Link Belt Machinery Co. v. Hughes, 174 111. 155, 51 N. E. 179, affirming 62 111. App. 318. 9 Central Trust Co. v. Conti- nental Trust Co., 86 Fed. 517, 30 C. C. A. 235; Spencer v. World's Columbian Exposition, 163 111. HT, 45 N. E. 250; Fisher v. Columbia Nat. Bank, 54 Ind. App. 558, 103 N. E. 119; Moore v. Higgins, 53 Hun 629, 5 N. Y. Supp. 895, 2 Silvernail 298. 10 Kansas City Pipe Line Co. v. Fidelity Title & Trust Co., 217 Fed. 187, 133 C. C. A. 181. 11 Welch V. Central San Cristo- bal, 6 Porto Rico 310; Berwind- White Min. Co. v. Boringner Sugar Co., 7 Porto Rico 172. 544 LAW OF RECEIVERS. When tlie receiver abandons the lease, he is liable only for a reasonable rent of the premises during the time he was in possession,!^ if ^ny rent has become due in the meantime ;!2 circumstances may, however, render the amount reserved in the lease a reasonable amount for the receiver to pay.^^ When the receiver elects to adopt the lease he is liable for the full rent reserved in the lease unless, of course, other terms are made with the lessor.^^ The burden of showing that the receiver has elected to adopt the lease is on the lessor.^^^ Although there may not be an express adoption, if the receiver holds posses- sion during the full balance of the term of the lease, he is liable for the full rent as prescribed by the lease.^^ 12 Atkinson & Co. v. Aldrich- Clisbee Co., 248 Fed. 134. In this case it is also held that where there was a claim against the re- ceiver for damages to the leased premises, the claim must be dis- allowed as an expense of the re- ceivership where the evidence did not show what damage had been caused during the receivership and what damage had been caused during the occupancy of the owner of the estate. Fisher v. Columbia Nat. Bank, 54 Ind. App. 558, 103 N. E. 119. The reason for this is that he does not become an assignee of the term and is not liable on the covenants of the lease. Bell v. American Protective League, 163 Mass. 558, 47 Am. St. Rep. 481, 28 L. R. A. 452, 40 N. E. 857; Welch V. Central San Cristobal, 6 Porto Rico (Fed.) 310. 13 Gaither v. Stockbridge, 67 Md. 222, 9 Atl. 632, 10 Atl. 309. 14 Frank v. New York, L. E. & W. R. Co., 122 N. Y. 197, 25 N. E. 332; Stoepel v. Union Trust Co., 121 Mich. 281, 80 N. W. 13. Thus, where the lessor demands an im- mediate surrender or adoption of the lease and several months are allowed to elapse before the re- ceiver determines his policy in the matter, the receiver may be re- quired to pay full rent for the period occupied by him. Farmers' Loan & Trust Co. v. Northern Pac. R. Co., 58 Fed. 257. 15 Peoria, etc., R. Co. v. Chicago, etc., R. Co., 127 U. S. 200, 32 L. Ed. 110, 8 Sup. Ct. 1125; Thomas v. Peoria, etc., R. Co., 36 Fed. 808; Brown v. Toledo, etc., R. Co., 35 Fed. 444; Martin v. Black, 9 Paige (N. Y.) 641, 38 Am. Dec. 574; Woodruff v. Erie R. Co., 93 N. Y. 609. 16 Fisher v. Columbia Nat. Bank, 54 Ind. App. 558, 103 N. E. 119. IT Spencer v. World's Columbian Exposition, 163 111. 117, 45 N. E. 250; Morrison v. Blackall, 68 111. App. 504. INTERESTS IN REAL ESTATE. 545 Rent accruing before the appointment of the receiver, unless secured by some contract lien upon the property, or protected by forbearance to enforce a right of re-entry, is an unsecured claim against the estate and ranks with other claims of like character on distribution. But rent accruing after the appointment is an expense connected with the administration of the estate and has such pri- ority as may be accorded claims against the receiver himself. ^^ 18 Prenatt v. Messenger Printing Co., 250 Pa. St. 406, 95 Atl. 564. In this case the leased property was certain machinery absolutely essential to the continuance of the business. The appellate court quotes with approval from the opinion of the trial court as fol- lows: "There can be no doubt that the retention and use of these machines by the receiver for a period of one year and eight months enabled him to continue the publication of a daily paper, thereby conserving the principal value of the plant by keeping it a living institution. This is one in- solvent institution whose market price peculiarly depended upon its being a going business. While it is true that the preferred rent claim of these two machines, about $3100, being the amount due them as the cost of continuing the busi- ness, leaves only about $550 for general creditors, it is equally true that there would not have been a penny for general creditors, except for the marketability of this insolvent plant, which marketabil- ity was preserved or created by the use of these two indispensable machines." In Ball V. Improved Projierty Holding Co. of N. Y., 247 Fed. 645, I Rec. — 35 the rent was in arrears when the receiver was appointed and took possession. The lessor obtained an order of court permitting him to dispossess the receiver. Re- ceiver's certificates were issued to represent money borrowed to pay the accrued rent and through tho forbearance of the lessor the re- ceiver remained in possession. On the question of the priority of the certificates over the claim for rent accruing during the receivership, the Circuit Court of Appeals, re- versing an order made by the Dis- trict Court, says: "Among the creditors of a receiver we see no reason why either the lessors or the certificate holders should enjoy a priority unless some such was established by the court. . . . We recognize no difference in equity between the rent due before the insolvency which was secured by the right of re-entry and which the certificates paid, and that due afterwards which was equally secured, and which the lessors forebore to assert by re-entry. It is true that under Durand & Co. V. Howard & Co., 216 Fed. 585, 132 C. C. A. 589, the claim for rent due before the insolvency was held not to be iireferred in distribution, but that case rested upon the 546 LAW OF RECEIVERS. Since property in the possession of a receiver is in custodia legis, the lessor can not enter and distrain for rent after the appointment of the receiver. This is upon the theory that the receivership proceedings constitute an equitable execution upon the property which is the subject of the receivership.^^ When the receiver rejects the lease, the lessor has a claim against the estate, ranking as that of an unsecured creditor, for any damage he may suffer ; the damage to be measured by the rent reserved for the balance of the term or the difference between that amount and the rent that the lessor is able to obtain from some other tenant.^*^ Where the lessor, before the appointment of the re- ceiver, had brokeii the terms of the lease and thereby waiver of the existing forfeiture involved in asking the court to compel the receiver to exercise his option to affirm or reject. The lessors did not do so here and theirs was a claim upon which they could have re-entered. . . . The consideration advanced by each class of creditors, the lessors and certificate holders, was for the essential preservation of the estate, since without it the best asset would have been lost. Each was a debt strictly within the powers of a court of equity which may pledge a part of the assets for the preservation of the rest; each was as much an operating expense as the other." See also, Prince v. Schlesinger, 116 App. Div. 500, 101 N. Y. Supp. 1031; Welch v. Central San Cris- tobal, 7 Porto Rico (Fed.) 205; Lockport Felt Co. v. United Box Board, etc., Co., 189 Fed. 767. 10 The above rule is based upon the common-law rule to the effect that a landlord can not distrain upon goods on which an execution levy has been made, and as against a receiver, a lessor is not pro- tected by a statute that gives him the right to restrain for one year's rent after levy of execution or an assignment for the benefit of creditors. Grayson v. Richard H. Aiman, Inc., 252 Pa. St. 461, 97 Atl. 695; the lessor's right is pro- tected where the statute, giving a preference to the landlord's claim,, in enumerating the circumstances under which the preference is given, contains the expression, "other causes." Franz Realty Co. V. Welsh, 86 N. J. Bq. 228, 98 Atl. 387. A lessor's right to pledge rents is limited to one year after the appointment of a receiver of the lessee under a statute limiting that right to one year after the failure or death of the lessee. I. Trager Co. V. Cavaroc Co., 124 La. 611, 50 So. 598. 20 In re Mullings Clothing Co., 252 Fed. 667; Quincy, etc., R. Co. INTERESTS IN KEAL ESTATE. 547 given the lessor the right to claim a forfeiture and to retake the property, the lessor may pursue his rights against the receiver. He must, however, seek his relief either in the receivership proceedings or in an action brought with the consent of the receivership court.-^ A notice to quit served upon the lessee before the appoint- ment of the receiver is binding upon the latter ;-- but after the appointment, service of notice on an officer of the lessee corporation is of no avail, nor is service upon the receiver or ouster of the receiver without permission of the court effective. ^^ The right to claim a forfeiture because of default on the part of the lessor may be waived or lost, as against the receiver, and can not be revived until there has been some default on his part.^* With the consent and in pursuance of an order of the court, the receiver may sell the lease. A sale, or assign- ment, by the receiver, being involuntary and produced by operation of law, is not in violation of a provision against assignment in the lease.^^ The purchaser is of V. Humphrey's, 145 U. S. 82, 36 Procuring an order of court di. L, Ed. 632, 12 Sup. Ct. 787; Chi- recting the receiver to make his cago Fire Place Co. v. Tait, 58 III. election between adoption and re- App. 293; Woodland v. Wise, 112 jection within a certain period may Md. 35, 76 Atl. 502. constitute a waiver. Durand & 21 Odell V. H. Batterman Co., 223 Co. v. Howard & Co., 216 Fed. 585, Fed. 292, 138 C. C. A. 534; Palys 132 C. C. A. 589. v. Jewett, 32 N. J. Eq. 302. See Seeking to enforce a lien for also, Porter v. Sabin, 149 U. S. the rent may constitute a waiver. 473, 13 Sup. Ct. 1008, 37 L. Ed. 815; Blank v. Independent Ice Co., 153 Durand & Co. v. Howard & Co., 216 Iowa 241, 43 L. R, A. (N. S.) 115. Fed. 585, 132 C. C. A. 589. 133 N. W. 344. 22 Woodward v. Winchill, 14 25 Zwietusch v. Luehring, 156 Wash. 394, 44 Pac. 860. Wis. 96, 144 N. W. 257. 23 Commercial Trust Co. v. L. Where the lease grants also an Wertheim Coal Co., 88 N. J. Eq. option to purchase the receiver 143, 102 Atl. 448. may sell the option. Blank v. In- 24 Long delay in claiming the dependent Ice Co., 153 Iowa 241, forfeiture may amount to a waiver. 43 L. R. A. (N. S.) 115, 133 N. W. Commercial Trust Co. v. L. Wer- 344. theim Coal, etc., Co., 88 N. J. For a general discussion as to Eq. 143, 102 Atl. 448. the rights arising out of sales of 548 LAW OF RECEIVERS. course bound by the covenants of the lease,-'' and by the conditions of the notice of sale and the bill of sale.-' § 236. Receiver of Lessor. A receiver may be appointed to administer the estate of a lessor. Such a receiver is not an assignee of the lease and must distrain in the name of the person entitled to the rent,^ unless by assignment or attornment a right in himself has been created.- Payment of rent to a receiver will constitute an attornment,^ and tenants who have once attorned to a receiver can not thereafter ques- tion the validity of his appointment nor his right to pos- session.'* A supi)osed tenant may resist attornment on the score that he has the right to purchase the property.^ In the management of this asset of the estate, as in all other matters, the receiver acts under the authority and direction of the court and in the event of doubt as to the extent of his rights and obligations under the terms of the lease, he should seek an adjudication by the court upon the subject.^ the assets of the receivership see 3 Brown v. O'Connor, 2 Hogan the subject Sales. 77. 26 Zwietusch V. Luehring, 156 ^ Albany City Bank v. Schermer- Wis. 96, 144 N. W. 257. ^O''^' ^ ^^'^^ ^^- Y-) 272, 38 Am. Dec. 551. 27 The notice of sale and the ^ g^,^^^ ^ j^^^^^ 5 W. W. & A. bill of sale may be open to con- ^ (Victoria Eq.) 189; Sercomb v. struction by the court; and, if so, ^^^^.^^ ^gS 111. 556, 15 Am. St. Rep. the fact that they were given by a ^^rj 21 N E 606 receiver may lead to a different g'where "the" lease contains conclusion from that which might be reached if they had been given numerous restrictions as to the use of the propertv and a relief as by the lessor. Schwartz v. Cahill, . , j. ■ j.- , •, •^ 'to such restrictions would consti- 175 App. Div. 68, 161 N. Y. Supp 750. tute a valuable asset to the re- ceivership and such restrictions 1 Hughes v. Hughes, 3 Bro. C. C. are governed by other paragraphs 87, 1 Ves. Jr. 161. of the lease and other acts of the 2 Evans v. Mathias, 7 El. & Bl. parties, the question should be 590; White v. Smale, 22 Beav. presented to the court for adjudi- 72; Jolly v. Arbuthnot, 4 De Gex cation. Holmes v. Dowie, 177 Fed. & J. 224. 182. 100 C. C. A. 390. INTERESTS IN REAL ESTATE. 549 § 237. Receiver as Lessor or Lessee. The receiver of an estate may enter into lease contracts in his own name either as lessor or lessee. His acts in this regard must receive the permission or ratification of the court and contracts made without this sanction are not binding upon the estate.^ The chief practical diffi- culty in this matter is with reference to the term of the contract. It is only under exceptional circumstances that such contracts can remain in force after the tenure of the receiver has ceased and in most cases just how long the receiver will remain in authority is uncertain. How- ever, a court that has once authorized a receiver to make a lease contract for a certain term may afterwards amend the contract by shortening the term, if it appears that, as originally made the contract will extend beyond the continuation of the receivership; and in so doing may Where the receiver has no knowledge of material facts and circumstances affecting the valid- ity of the lease, his acceptance of the rents reserved under the lease will not constitute an acceptance of the lease. Groveland Imp. Co. v. Farmers' Supply Co., 25 Wash. 344, 87 Am. St. Rep. 755, 65 Pac. 529. 1 Weeks v. Weeks, 106 N. Y. 626, 13 N. E. 96; Simmons v. Alli- son, 118 N. C. 761, 24 S. E. 740; Farmers' Loan & Trust Co. v. Eaton, 51 C. C. A. 640, 114 Fed. 14; Neale v. Sealing, 3 Swanst. 304; Roberts v. Armstrong, 1 Wall. 27, note; W^nne v. Newborough, 1 Ves. Jr. 164, In Shreve v. Hankinson, 34 N. J. Eq. 413, it was held that a receiver could without a special order to that effect, execute a lease of a farm for one year, where the order appointing the receiver gave him authority to let the property from time to time. In this connection see also,. DufReld v. Elves, 11 Beav. 590. In Berwind-White, etc., Co. v. Barinquen Sugar Co., 6 Porto Rico (Fed.) 454, the property involved was a sugar plantation. The court refused to permit the receiver to lease except on condition that the receiver should supervise the oper- ation of the property and have the right to cancel the lease on reasonable notice if the property did not net sufficient to pay cur- rent interest to bondholders. It must, however, be noted that the property in question constituted the business of the receivership. An application for an order di- recting a receiver, appointed in creditors' proceedings, to make a lease binding on an infant remain- derman, has been refused. Gibbons V. Howell, 3 Madd. 469. See, also, Kimball v. Waldemar Co. et al., 169 App. Div.- 239, 154 N. Y. Supp. 415; Steanmer v. 550 LAW OP RECEIVERS. make sucli compensation to the lessee for damages as may be just. Such a lease may, however, remain in force after the termination of the litigation.^ Because of this limitation upon the receiver as to the term of any con- tract he may make, a receiver is not bound by stipulations as to renewal occurring in a lease contract belonging to the estate, unless he is estopped by reason of expendi- tures made by the lessor upon the strength of the renewal clause f and, if, as receiver of a lessor, he holds over, he is regarded as a tenant at will rather than as one holding from year to year.^ A receiver desiring to lease out property of the estate is not bound to accept the highest bid.^ A receiver, either as lessor or lessee, has generally the same rights and is subject to the same liabilities as other parties making such contracts with reference to matters connected with the performance of the contracts.*^ French, 13 Ir. Eq. 161; Chicago Deposit Vault Co. v. McNulta, 153 U. S. 554, 38 L. Ed. 819, 14 Sup. Ct. 915; Garlington v. McKibben, 99 Ga. 128, 24 S. E. 873. 2 Farmers" Loan & Trust Co. v. Eaton, 114 Fed. 14, 51 C. C. A. 640; Shreve v. Hankinson, 34 N. J. Eq. 413; Weeks v. Weeks, 106 N. Y. 626, 13 N. E. 96; Stanley v. Na- tional Union Bank, 115 N. Y. 122, 22 N. E. 29 ; Shaw v. Shaw, 51 Tex. Civ. 55, 112 S. W. 124. 3 Coy V. Title Guarantee & Trust Co., 198 Fed. 275. 4 Dietrich v. O'Brien, 122 Md. 482, 89 Atl. 717. Where a receiver holds over for a short time after the expiration of the term, and then sells per- sonalty on the premises to a pur- chaser who continues in posses- sion for a short time while dispos- ing of his purchase, paying rent for the time he actually holds, there is not such an uninterrupted continuance of the holding as to make the purchaser liable for a year's rent. Kyle v. Gadsden, etc.. Supply Co. (Ala.), 76 So. 951. 5 Knott V. Receivers of Morris Canal, etc., Co., 4 N. J. Eq. 423; Berwind-White, etc., Co. v. Berni- quen, etc., Co., 6 Porto Rico (Fed.) 454. 6 Pennsylvania Steel Co. v. New York City Ry. Co., 188 Fed. 680; Bodman v. Murphy, 35 Md. 154; Balfe v. Blake, 1 Ir. Ct. Rep. 365. A receiver of a leasehold who sublets a portion of the business is not liable for damages nor for improvements to his tenant if the latter is evicted by the superior landlord. Kimbark v. Waldemar Co., 169 App, Div. 239, 154 N. Y. Supp. 415. He may institute forcible de; tainer proceedings. McKeag v. Pirie, 134 111. App. 652. A receiver may terminate the tenancy upon notice in the same INTERESTS IN REAL ESTATE. 551 After the creation of the receivership the owner can not make a lease binding upon the receiver even though such a lease may create liabilities as between himself and the party with whom he contracts.^ manner as an individual lessor. Doe. Marsack v. Read, 12 East 58. Rent wrongfully paid to a re- ceiver may be offset against future rents. Grant v. Buckner, 172 U. S. 232, 43 L. Ed. 430, 19 Sup. Ct. 163. 7 Thornton v. Washington Sav. Bank, 76 Va. 432, CHAPTER XL MORTGAGES, PLEDGES, MECHANICS* AND OTHER LIENS. 1. Mortgages on Real Property, a. General Vieiv of the Subject. § 238. Scope of Treatment of Subject. The use of the auxiliary remedy of a receivership in connection with litigation affecting real property covered by a mortgage has been allowed from a very early time, courts of equity, in this regard, exercising their inherent jurisdiction, without the aid of statute.^ To the prac- ticing attorney it ^\dll immediately occur that its use in this connection is primarily in aid of a suit brought by a first mortgagee to foreclose the mortgage ; and, since the time when the Common Law view of a mortgage — that such an instrument is, in law, what it is in form, a convey- ance of the title — began to be displaced by the now preva- lent \dew — that a mortgage is simply security for a debt and grants to the mortgagee only a lien on the property covered thereby—such has been its primary and probably its most extensive use. There are other instances, how- ever, in which the remedy is employed in actions relating to such property. It is, for instance, at times an impor- tant aid to a junior mortgagee, either in collecting his debt or in protecting his rights.- It frequently happens that the real property, or a portion thereof, of an insolvent or bankrupt debtor is mortgaged and this prop- erty will be involved in a general receivership created to take charge of such debtor's affairs.^ It is the purpose 1 Grant v. Phoenix Mut. L. Ins. 101 N. Y. 478, 5 N. E. 316; Holleu- Co., 121 U. S. 105, 30 L. Ed. 905, beck v. Donnell, 94 N. Y. 342. 7 Sup. Ct. 841; United States 2 See, post, § 253. Trust Co. V. New York, etc., R. Co., s See, post, § 255. (552) MORTGAGES, PLEDGES, AND LIENS. 553 of this chapter to set forth the principles and rules that have governed courts of equity, acting under the later theory of a mortgage, in all of these phases of the ques- tion. It will be necessary first, however, to set forth briefly the law as applied under the Common Law view of a mortgage. This presentation will be brief because the matter is now largely of a historical interest only ; it is necessary because, in some respects, the practices under the former view have had important effects upon the development and growth of the law under the later view. The rules that govern with reference to property owned by corporations,^ public utilities,^ and mining companies^ are discussed in separate chapters. Questions that relate exclusively to procedure are also set forth in a separate chapter.^ § 239. Receivers Under Common Law View. As intimated above, courts operating under the Com- mon Law originally held that a mortgage following its form, was literally a conveyance of the title. It contained a defeasance back ; the mortgagor could recover the title by performing a certain condition ; but, until the condition was performed, the mortgagee owned the property. He was therefore legally entitled to the possession with all of its incidents, including the right' to the rents and profits.^ If wrongfully kept out of the possession he could recover it by an action in ejectment at law. In these circumstances an action to foreclose a mortgage was really an action to foreclose, or shut off, the right of the mortgagor to redeem. While courts of equity, in which such actions were maintained, found many occasions to come to the 4 See chapter devoted to Cor- 7 See chapter regarding Pro- porations. cedure in General. 5 See chapter devoted to Public i Oilman v. Illinois and Miss. Utilities. Tel. Co., 91 U. S. 603, 23 L. Ed. 6 See chapter devoted to Mines. 405; Callanan v. Shaw, 19 Iowa 183. 554 LAW OF RECEIVERS. relief of mortgagors on equitable grounds, and, perhaps, even deny the "strict foreclosure" sought by the mort- gagee, the action, nevertheless, maintained its general character and purpose. We have seen in earlier chapters dealing with the general principles that govern courts of equity in the use of their power to create receiverships, that, in this phase of their activities, as in all other matters coming within their exclusive jurisdiction, such courts are governed by the rule that equitable relief will not be granted to a party who has a plain, speedy, and adequate remedy at law, reaching the same purpose.^ Since the Common Law mortgagee, if not actually in possession and if wrong- fully denied possession, could use his legal remedy of ejectment to put himself in a position where he could himself do all that an equitable receiver could do in his behalf, we would expect courts of equity to refrain from assisting him, in an action for foreclosure, with a receiver- ship. And such was the rule — courts of equity would not create receiverships to aid foreclosure suits of mortgagees who failed or were unwilling to use their legal remedy.^ A burdensome duty of accounting was placed upon mort- gagees in possession and they were therefore reluctant to urge their rights in this regard; but the courts, seldom, if ever, departed from the strict rule.* If there was any peculiar circumstance that prevented a mortgagee from exercising his legal right to possession, then the rule failed, because the reason for it failed, and a receiver might be appointed;^ and it has been held that, under certain circumstances, a receiver might be appointed in an equitable proceeding brought in aid of a mortgagee's action to enforce possession.^ 2 See section 8. 5 Ackland v. Gravenir, 31 Beav. 3 Berney v. Sewell, Jac. & W. 482. 647; Sturch v. Young, 5 Beav. 557. 6 McLean v. Presley's Admr., 56 4 Sturch V. Young, 5 Beav. 557. Ala. 211; Brasted y. Sutton, 30 N. J. Eq. 462. MORTGAGES, PLEDGES, AND LIENS. 5^^ Under this view of a mortgagee's rights, then, there were only two actions in which, usually, a receivership might be successfully sought: (1) A foreclosure action brought by a junior mortgagee, and (2) an action for redemption brought by a mortgagor against a mortgagee in possession. A junior mortgagee, being barred from urging, at law, his right to possession by the superior right thereto of a prior encumbrancer, could not, when foreclosing in equity, be denied a receivership for the same reason for which the first mortgagee was denied this aid. As against a mortgagor in possession, a junior mortgagee was held, practically, to be entitled to a receivership as a matter of course and he did not have to show that his security was inadequate.'^ As against a prior mortgagee in possession, however, he could not obtain a receiver, unless he could show fraud, or waste, or some other similar equitable ground ; and if, on his application, as against the mort- gagor, a receiver was appointed, the latter 's possession was without prejudice to the rights of a prior encum- brancer whenever they might be asserted.^ In an action for redemption, brought by a mortgagor against a mortgagee in possession, the former could not have a receiver without showing fraud or waste. If the mortgagee declared that he had not been fully paid, a receiver would not be appointed, because the court would not attempt to settle the account on the hearing of the application for a receiver.^ The above rules were those that developed in the prac- tice of courts of equity acting under what was assumed to be their inherent powers. In England, where the Common TAckland v. Gravenir, 31 Beav. 482; Aikins v. Blain, 13 Grant. Ch. (Ont.) 646. 8 Fairfield v. Irvine, 2 Russ. 149; Davis v. Duke of Marlborough, 2 Swanst. 137. sCodrington v. Parker, 16 Ves. Jr. 469; Berney v. Sewell, 2 Jac. & W. 629. 556 LAW OF RECEIVERS. Law meaning and effect of a mortgage still largely pre- vails, the practice has in later years been largely affected by statute. ^° Under the Common Law view, a mortgagee who was so situated that he could not legally take possession of the mortgaged property and in whose favor a receiver in foreclosure might, therefore, be appointed, as above indi- cated, was said to hold an ' ' equitable mortgage. ' ' Since his position in this regard was very similar to what has been held to be the position of a mortgagee under what we have called the later, or prevalent view of a mortgage, namely, that the instrument is intended merely as security and grants, not the title, but a lien only — we will here- after speak of a mortgage, considered under this view, as an equitable mortgage. It is to be remembered, however, that this expression is now commonly used in an entirely different sense, namely, to designate an instrument, which, though not in the form of a mortgage, is intended to be and is treated as a mortgage. A grant, bargain, and 10 23 and 24 Vict. Ch. 145, §§ 11- consent, express or implied, of the 32 (1860). Judicature Act of mortgagor, recover possession of 1873. Conveyancing and Law the mortgaged premises in an ac- of Property Act of 1881. tion at law. A defense in the See Halsbury's Laws of Eng- nature of a bill for redemption land. Mortgage, §§ 131 et seq. enables the mortgagor to compel An interesting intimation of the a ti-ansfer of the cause to the development of the practice of equity side of the docket, where courts in this matter is given in the mortgagee can demand only the opinion of Judge Lindsay in such relief as a court of equity the case of Douglass v. Cline, 75 will afford. Hence, mortgages Ky. (12 Bush) 608. He says, in are now treated in this state as part: "But since the change in mere securities; and, although, our rules of civil procedure, which strictly speaking, the mortgagee allows equitable defenses to be is invested with the legal title, he interposed in actions at law, it has holds it only in pledge, and the been almost universally conceded mortgagor is considered, both at that the mortgagee in a strict law and in equity, the real owner mortgage can not, without the of the property." MORTGAGES, PLEDGES, AND LIENS. 557 sale deed intended to be only security for an obligation is an instance of such an equitable mortgage.^^ 6. BeceiversJiips on Behalf of First Mortgagees in Foreclosure of Equitable Mortgages. § 240. General Principles Applicable. We come now to the discussion of the rules and prin- ciples that have guided courts of equity in considering the question of receiverships in litigation affecting real prop- erty covered by an equitable mortgage. As above indi- cated the primary use, in this connection, of this auxiliary equitable remedy has been in aid of the first mortgagee, as against the mortgagor, in actions to foreclose the mortgage and that is the first branch of the subject which we will discuss. In the opening chapters we set forth the general grounds and circumstances in which a receiver is ap- pointed and the general principles applicable.^ The general grounds, circumstances, and principles there set forth are applicable in all kinds of litigation. Hence they are applicable in the present matter and all that we have to do now is to translate these general rules into terms that fit the special circumstances and conditions connected with foreclosure suits. Some of these rules are merely incidental to the main questions involved and are applicable without any such translation. Thus, where the court is of the opinion that the plaintiff is entitled to have a receiver appointed to take charge of the property or fund in litigation but nevertheless feels that the plaintiff could be made secure in respect to the outcome of the litigation in the event of his recovery by the furnishing of a bond by the defendant to secure any 11 Flagg V. Mann, 2 Sumn. i See chapter II. (U. S. C. C.) 486, Fed. Cas. No. 4847. 558 LAW OF RECEIVERS. such recovery, it is within the discretion of the court to make an order refusing to appoint a receiver upon con- dition that defendant furnish such a bond.^ So, in fore- closure suits, it has often been held that, with reference to the assistance that a receivership w^ould render a plain- tiff, the defendant might, by furnishing a properly con- ditioned bond, forestall the appointment of a receiver.^ Another general principle of the law of receivership is that it is essential that there shall be at the time of the appointment a suit pending in which relief other than the mere appointment of the receiver is sought.^ In order to authorize the appointment of a receiver it is an indis- pensable rule that the party petitioning for such an appointment must show to the court that there is a reason- able probability that he wdll ultimately prevail in the litigation.^ These rules naturally apply to foreclosure suits and in that connection may be stated in practically the same terms.^ A statement inclusive of the last two 2 See section 15. firmation Is binding and con- 3 Durant v. Crowell, 97 N. C. elusive. Anderson v. Riddle, 10 367, 2 S. E. 541; Cortelyeu v. Wyo. 277, 68 Pac. 829. Hathaway, 11 N. J. Eq. 39, 64 Where there is a conflict of alle- Am. Dec. 478. gations as to a default in the pay- Where there were outstanding ment of the obligation, the merits executions against the land and of this question can not be deter- the mortgagor offered to pay the mined on a hearing of a motion claims on which such executions for a receiver. Beecher v. Mar- were founded it was error to ap- quette & P. Rolling Mill Co., 40 point a receiver: Etna Steel & Mich. 307. Iron Co. V. Hamilton, 137 Ga. 232, A landlord agreed to make ad- 73 S. E. 8. vances to a tenant and received a 4 See section 14. deed of trust as security therefor. 5 See section 12. The landlord failed to make the 6 Appointment of a receiver be- advances as contracted for and fore commencement of the fore- the tenant remained in possession, closure suit is invalid; neverthe- In an action to foreclose the deed less, as against parties appearing of trust the landlord claimed that on a hearing for the confirmation the deed covered advances that of the acts of the receiver, and had actually been made the preced- not objecting to the validity of his ingyear. A receivership was denied appointment, an order of con- on the ground that the conduct of MORTGAGES, PLEDGES, AND LIENS. 559 ])ropositions is tlie following: The plaintiff must show that he has a clear right to the property itself or that he has some lien upon it, or that the property constitutes some special fund to which he has a right to resort for the satisfaction of his claim.'^ Where it does not appear that any advantage will be gained by the appointment of a receiver,^ or where it is difficult to see how the order appointing a receiver could result in benefit to any one except the receiver,^ a receiver will not be appointed; and, if a receiver is appointed in such circumstances, the making the appointment will be reversed by the appellate court.^* the parties appeared to amount to a rescission of the deed. Burton V. Pepper, 116 Miss. 139, 76 So. 762. In the face of a strong showing for the necessity of taking steps for the preservation of the prop- erty involved, crops on leasehold land, a receiver was appointed to hold the property pending a de- cision as to the real effect of the mortgage. Graham v. Consoli- dated Naval Stores Co., 57 Fla. 418, 48 So. 743. Where the court had never ac- quired jurisdiction of the action, the appointment of a receiver was absolutely void and subject to collateral attack. Thurber v. Miller, 11 S. D. 124, 75 N. W. 900. An appeal from a decision in another suit, in which decision it had been held that the property belonged to the United States was pending; it was held that a receiver should not be appointed. Eastern Trust & Banking Co. v. American Ice Co., 14 App. D. C. 304. Conflicting claims of several mortgages to the rent can not be adjudicated on the hearing of a motion to appoint a receiver. Put- nam V. Henderson, Hull & Co., 49 App. Div. 361, 63 N. Y. Supp. 250. Impeachment of the mortgage may be ground for denying the motion to appoint a receiver. Leahy v. Arthur, 1 Hogan 92. A denial by the mortgagee that he held assets In his hands suffi- cient to cancel the debt was held sufficient ground for removing the objection to the appointment of a receiver. Kerchner v. Fairley, 80 N. C. 24. Reasonable probability that the plaintiff asking for a receiver will ultimately succeed in obtaining the general relief sought for by his suit must appear. Warren v. Pitts et al., 114 Ala. 65, 21 So. 494. 7 See section 6. 8 See section 13, 9 Manhattan Life Ins. Co. v. Hammerstein Opera Co. et al., 180 App. Div. 69, 167 N. Y. Supp. 245. 10 Eastern Trust & Banking Co. V. American Ice Co., 14 App. D. C. 304. 560 LAW OF RECEIVERS. § 241. Preservation of the Property as Security as an Essential Ground. The matters just mentioned are really only incidental to the main question at issue when the propriety of ap- pointing a receiver is being considered. Others of like import vsdll be noticed later. Coming now to the vital point we find the general rule stated as follows: The plaintiff must show that the possession of the property by the defendant was obtained by fraud, or that the prop- erty itself, or the income arising from it, is in danger of loss from the neglect, waste, misconduct, or insolvency of the defendant.^ Sometimes, especially under statutes, the rule is stated to be that it must appear that the prop- erty is ''in danger of being lost, removed, or materially injured." An equitable mortgage is merely security for a debt. It grants a lien upon the property mortgaged but the extent of the lien is measured by the amount of the debt. The mortgagee can not complain about what may be done with the property so long as it is not impaired in such a way as to make it hazardous security for his claim. "The right of a mortgagee to have a receiver take charge of the mortgaged property during the pending of the action to foreclose is founded upon the proposition that it is necessary to preserve or protect the interest of tlie mortgagee. His only interest is the lien of his mortgage, and its extent is measured by the amount of the debt for which the lien is security. The" \:lebt is the substantial thing. Unless the security for his ultimate payment is in some way endangered or impaired, he can not be prejudiced. "2 1 See section 6. See, also: Meyer v. Thomas, 131 2 The above quotation is from Ala. Ill, 30 So. 89; Davis v. Alton Title Ins. & Trust Co. v. California J. & P. Ry. Co., 180 111. App. 1. Development Co., 164 Cal. 58, 127 Pac. 502. MORTGAGES, PLEDGES, AND LIENS. 561 §242. Indispensable Grounds or Conditions for the Appoint- ment of a Receiver. In view of this situation of the mortgagee, we find that the above mentioned general rule for the appointment of receivers is held to mean that there are two indispensable grounds, or conditions, the existence of which a mort- gagee must show before he can have a receiver appointed in foreclosure. These grounds are: (1) That the mort- gaged property will not, on a foreclosure sale, sell for an amount sufficient to pay his claim, with accrued interest and costs of suit; and (2) that there is no person who can be effectively held liable for any deficiency judgment that it might be necessary to render.^ The existence of these conditions must be properly proved.^ At least a very strong probability of the inadequacy of the security must be properly proved.=^ The inadequacy 1 Cone V. Combs, 18 Fed. 576, 5 McCrary 651; Strain v. Palmer, 159 Fed. 628, 86 C. C. A. 618; Al- britton v. Lott-Blacksher Com- mission Co., (Ala.) 52 So. 653; Skidmore v. Stewart, (Ala.) 75 So. 1; Williams v. Robinson, 16 Conn. 517; Planter's Oil Mill v. Carter, 140 Ga. 808, 79 S. E. 1120; First National Bank v. Gage, 79 111. 207; Glennon v. Wilcox, 159 111. App. 42; Callanan v. Shaw, 19 Iowa 183; Brown v. Chase, Wall. (Mich.) Ch. 43; Whitehead v. Wooten, 43 Miss. 523; Wolf v. Ward, 104 Mo. 127, 16 S. W. 161; Veerhoff v. Miller, 30 App. Div. 355, 51 N. Y. Supp. 1048; Astor v. Turner, 2 Barb. (N. Y.) 444; Sea Ins. Co. V. Stebbins, 8 Paige (N. Y.) 565; Quincy v. Cheeseman, 4 Sandf. Ch. (N. Y.) 405; Graybill V. Heylman, 139 App. Div. 898, 123 N. Y. Supp. 622; Ogden v. Chaf- fant, 32 W. Va. 559, 9 S. B. 879. I Rec— 36 2 The appointment may be based upon the complaint alone, if its allegations are sufficient and it is verified. Sherman v. Wichner, (S. D.) 152 N. W. 700. The appointment may be based upon a verified petition used as the basis for a motion to appoint even though the complaint is not verified. Cowell v. Gnatzig, 178 111. App. 482. 3 Lindsay v. American Mtge. Co., 97 Ala. 411, — So. — ; Moritz v. Miller, 87 Ala. 331, — So. — ; Planters' Oil Mill v. Carter, 140 Ga. 808, 79 S. E. 1120; Ruprecht v. Henrici, 113 111. App. 398; Calla- nan V. Shaw, 19 Iowa 183; Wil- liams V. Williams's Assignee, 7 Ky. Law Rep. 448; Blondheim v. Moore, 11 Md. 365; Rabinowitz v. Power, 131 App. Div. 892, 115 N. Y. Supp. 266; Warner v. Gouverneur's Exrs., 1 Barb. (N. Y.) 36; Shot- well v. Smith, 3 Edw. (N. Y.) Ch. 562 LAW OF RECEIVERS. must relate to the petitioning mortgagee's indebtedness without any reference to subsequent encumbrances. An allegation that the property is not worth the amount of all aliens against it is not sufficient.'* The burden of proof is on the petitioner and the presumption is that the secur- ity is adequate.^ The inadequacy must be a present con- dition, existing at least at the time of the hearing and not a threatened one, merely possible or even likely to come into being.® The proof must be competent and, if by affidavit on motion, must be in proper form."^ If a strong case is made by a showing of equitable causes for 588; Degener v. Stiles, 53 Hun. 637, 6 N. Y. Supp. 474; Quincy v. Cheeseman, 4 Sandf. (N. Y.) Ch. 405; Rogers v. Southern Pine Lumber Co., 21 Tex. Civil App. 48, 51 S. W. 26; Pullan v. Cincinnati & C. A. L. R. Co., 4 Biss. 35, Fed. Cas. No. 11461. 4 Warner v. Gouverneur's Ex'rs, 1 Barb. (N. Y.) 36. 5 Brown v. Chase, Walk. Ch. (Mich.) 43. 6 Jackson v. Hooper, (Ala.) 18 So, 254; Vila v. Grand Island, etc., Storage Co., Neb., 110 Am. St. Rep. 400; Laune v. Hauser, 58 Neb. 663, 79 N. W. 555. 7 Cone V. Combs, 18 Fed. 576, 5 McCrary 651; Burlingame v. Parce, 12 Hun (N. Y.) 144; New York Building Loan, etc., Co. v. Begly, 75 App. Div. 308, 78 N. Y. Supp. 169, 71 N. Y. Ann. Cas. 473. The rental value may be taken as evidence of the value of the property as security. Shotwell v. Smith, 3 Edw. Ch. (N. Y.) 588. An allegation that the value is inadequate, in the absence of some fact* indicating the value or of a statement of the value, is a mere conclusion and is insufficient. Locke V. Klunker, 123 Cal, 231, 55 Pac. 993; Title Insurance & Trust Co. V. California Development Co., 164 Cal. 58, 127 Pac. 502; Bank of Woodland v. Stephens, 144 Cal. 659, 79 Pac. 379; Sherman v. Wichner, S. D., 152 N. W. 700. An affidavit of plaintiff's attor- ney to the effect that the attorney had been informed by plaintiff that there was extreme doubt as to the adequacy of the security Is insufficient. Sickels v. Canary, 8 App. Div. 308, 40 N. Y. Supp. 948, 75 N. Y. St. Rep. 34. An affidavit of the plaintiff that he knew the value and that the property was meager security was held insufficient, though it con- tained additional averments to the effect that a recent street assess- ment of $225 was unpaid, that there was litigation over the prop- erty and that the rents were be- ing paid to some other person than defendant by tenants who were in possession. Murphy v. Hoyt, 93 111. App. 313. An averment that the property is insufficient to pay the debt, not denied, was held sufficient. 2 Neb. (unofficial) 523, 89 N. W. 388. MORTGAGES, PLEDGES, AND LIENS. 563 a receivership in addition to the two indispensable grounds, the court may give somewhat less attention to the question of the inadequacy of the security and the rule relating to the proof thereof may be relaxed.^ In regard to the second indispensable ground, it is sometimes stated that the rule requires a showing tliat the mortgagor or the person liable for a deficiency judg- ment is insolvent. It is apparent, however, that this statement of the rule is made simply in view of the special circumstances of the case, it happening that there is a person liable for a deficiency judgment and that such a judgment might be enforced if he had the means to meet it. On the other hand, the mortgage might stipulate that the mortgagee should look entirely to the security for pay- ment of his debt and that a deficiency judgment should not be rendered against the mortgagor nor any one else. In such a case a showing of the existence of the second indispensable ground is not required.'^ Again it might happen that the person liable for a deficiency judgment is out of the jurisdiction of the court so that a personal money judgment could not be rendered against him. A showing of this fact would establish the existence of this second condition for the appointment.^^ But where there is a person present and liable for a deficiency judgment 8 Oldham v. First Nat. Bank, v. Kellogg, 73 N. J. Eq. 524, 68 84 N. C. 304; Cortleyeu v. Hatha- Atl. 80. way, 11 N. J. Eq. 39, 64 Am. Dec. 10 Gale v. Carter, 154 111. App. 478; Winker v. Magdeburg, 100 478; Collins v. Gross, 51 Wash. Wis. 421, 76 N. W. 332. 516, 99 Pac. 573. In the face of conflicting testi- In this latter case, evidence mony as to the value of the se- tending to show that the defen- curity the general state of the dant had moved out of the juris- real estate market may be taken diction was given but was per- into account. Cohn v. Bartlett, haps not very conclusive. How- 182 App. Div. 245, 169 N. Y. Supp. ever in other respects the case was 604. a strong one. In view of the bear- See also Broad, etc., Bank v. Lar- ing of a possible liability for a sen, 88 N. J. Eq. 245, 102 Atl. 265. deficiency judgment upon the !> Mahon v. Crothers, 28 N. J. question of receiverships in fore- Eq. 567; Land Title and Trust Co. closure actions and the bearing 564 LAW OF RECEIVERS. then the rule is satisfied only by a showing of his insolv- ency by sufficient and proper proof. ^^ It need not, how- ever, be proved directly, but may be shown circumstan- tially, the case, in other respects, being a strong one.^- The fact that the payment of the debt is guaranteed by a responsible endorser or otherwise does not bar the mort- gagee 's right to a receiver.^^ § 243. Necessity for Showing Conditions, or Grounds, Addi- tional to the Indispensable Grounds. The question arises as to whether or not, in a fore- closure action, in order to obtain the appointment of a receiver, it is necessary for the plaintiff to show reasons for requesting this equitable relief in addition to the inadequacy of the security and the difficulty of realizing on a deficiency judgment. The general rule, as first stated above, ^ expressly requires that the circumstance that fur- nishes the ground for the appointment shall have been of the defendant's insolvency, or Assn. v. Carey, 114 Fed. 28S, 52 irresponsibility, in this connection, C. C. A. 174. the circumstances of this case A failure to show insolvency de- show that there may be a possi- feated the appointment on a fore- bility that the "property" will be closure of a trust deed, even though the defendant denied the "removed" (see second statement of the general rule, supra, § 341), even if it is real property. existence of the trust. Ham- burgh Mfg. Co. V. Edsall, 7 N. J. Eq. 298. 11 Myers v. Estell, 48 Misc. 372; 12 Broad, etc., Nat. Bank v. Lar- Sea Ins. Co. v. Stebbins, 8 Paige sen, 88 N. J. Eq. 245, 102 Atl. 265; (N. Y.) 565; Morris v. Branchaud, Schreiber v. Carey, 48 Wis 208 4 52 Wis. 187, 8 N. W. 883. n. W. 124. Where a receiver was appointed The value of the mortgaged without a showing of insolvency property is not to be considered and without taking that question in determining this question. into account as a ground for the Durant v. Crowell, 97 N. C. 367, appointment and a deficiency sale 2 S. E. 541. occurred, a balance of rents in the 13 Buck v. Stuben, 63 Neb. 273, hands of the receiver was distrib- 88 N. W. 483; Cohn v. Bartlett, uted to the mortgagor and not 182 App. Div. 245, 169 N. Y. Supp. toward payment of the deficiency 604. judgment. Southern Bldg. & Loan 1 See, supra, § 341. MORTGAGES; PLEDGES, AND LIENS. 365 caused by some delinquency, or failure of duty, on the part of the defendant. And even as set forth in the second statement there is an implication that such must be the situation.^ As to the inadequacy of the security, it is evi- dent that such a condition might arise through no fault of ^ the defendant.^ When the mortgage is executed the valu- K ation of the security is made by the respective parties."^ It has been said that when the mortgagee takes his security with full knowledge of its value and if he takes an inadequate security it is his own fault.^ Even if the defendant is insolvent, and though this situation may be ascribed to his own conduct, it does not necessarily follow that his continued possession will result in loss to the mortgagee. He may still be doing his full duty toward his creditor.^ Additional equitable grounds would be such conduct on the part of the defendant as would cause or would have a tendency to cause the loss, removal, or injury of the property and they might well be summed up under the general head of waste. Such waste might lie in general carelessness and mismanagement in handling the prop- erty ; failure to keep up repairs ; failure to restore burned improvements, especially if the defendant had received insurance; permitting taxes, interest on prior encum- brances, or even interest on the debt sued on to accumu- late, removal of products and appropriating the income to personal uses to the detriment of the mortgagee; similar 2 A general allegation that the 154; Barkley v. Reay, 2 Hall 308, defendant would, if left in pos- 67 Eng. Rep. (Reprint) 127.. session pendente lite, injure the ^ Norfor v. Busby, 19 Wash. 450, property, is insufficient. Arnold v. 53 Pac. 715. Meyer (Tex. Civ. App.), 198 S. W. 5 Conover v. Grover, 31 N. J. gQ2 Eq. 539; Cortleyeu v. Hathaway, s'lf the inadequacy of the se- 11 N. J. Eq. 39, 64 Am. Dec. 478. curity is due to a general depreci- 6 Warren v. Pitts et al., 114 Ala. ation in land values it may not 65, 21 So. 494; Twitty v. Logan, warrant the appointment. Horner 80 N. C. 69; Rollins v. Henry, 77 V. Dey, 61 N. J. Eq. 554, 49 Atl. N. C. 467. 566 LAW OP RECEIVERS. misappropriation of the rents ; or, generally, any fraud toward the mortgagee/ Certain acts, having the appear- ance of waste, may, however, be held not to constitute equitable waste.^ To constitute equitable w^aste the acts complained of must be of such a character as to cause or threaten such deterioration in the value of the property as to affect its worth as security for the debt.^ In some cases it has expressly been held that some showing of waste is necessary to warrant the appointment of a receiver. ^^ In many cases, though the decisions may not have been expressly based on that ground, waste was shown.^^ 7 James Everard's Breweries v. Wohlstadter, 177 App. Div. 862, 164 N. Y. Supp. 899. s Failure to insure the property where the mortgage does not place that duty on the mortgagor is not equitable waste. Ferguson v. Dick- inson (Tex. Civ.), 138 S. W. 221; so, where the mortgage gives the mortgagee the right to mortgage the property and add the costs to the debt, Planters' Oil Mill v. Carter, 140 Ga. 808, 79 S. E. 1120; or where the rates are prohibitive. Eureka Mining, etc., Co. v. Lewis- ton, etc., Co., 12 Ida. 472, 86 Pac. 49. 9 Union Mutual L. Ins. Co. v. Union Mills Plaster Co., 37 Fed. 286, 3 L. R. A. 90; Title Ins. & Trust Co. V. California Develop- ment Co., 164 Cal. 58, 127 Pac. 502; Lawton Mill, etc., Co. v. Farmers, etc., Bank (Okla.), 164 Pac. 670. 10 Warren v. Pitts et al, 114 Ala. 65; 21 So. 494; Dubois v. Bowles, 30 Colo. 44, 69 Pac. 1067; Adair v. Wright, 16 Iowa 385; Paine v. McElroy, 73 Iowa 81, 34 N. W. 615; Squire V. Hewlett, 141 Mass. 597, 6 N. E. 779; National Fire Ins. Co. of Hartford v. Broad- bent, 77 Minn. 175, 79 N. W. 676; Burton v. Pepper, 116 Miss. 139, 76 So. 762; Brown v. Erb-Harper- Rignay Co., 48 Mont. 17, 133 Pac. 691; Cortleyeu v. Hathaway, 11 N, J. Eq. 39, 64 Am. Dec. 478; Cheever v. Rutland & B. R. Co., 39 Vt. 653; Phoenix Mut. L. Ins. Co. V. Grant, 3 Mac Arthur (10 D. C.) 220. 11 Grant v. Phoenix Mut. L. Ins. Co., 121 U. S. 105, 30 L. Ed. 905, 7 Sup. Ct. 841; First National Bank of San Francisco et al. v. Detroit Trust Co. et al., 248 Fed. 16; American Nat. Bank v. North- western Mut. Life Ins. Co., 89 Fed. 610, 32 C. C. A, 275; Elmira Me- chanics' Soc. of New York v. Stanchfield, 160 Fed. 811, 87 C, C. A. 585; Jackson v. Hooper, 107 Ala. 634, 18 So. 254; Davis v. Alton, etc., Ry. Co., 180 111. App. 1; Ortengren v. Rice, 104 111. App. 428; Gale v. Carter, 154 111. App. 478; Harris v. United States Sav- ings, etc., Co., 146 Ind. 265, 45 N. E. 328; Stetson v. Northern, etc., Co., 101 Iowa 435, 70 N. W. 595; New- MORTGAGES, PLEDGES, AND LIENS. ^67 It has been said: '/riie object of a court of equity in appointing a receiveT^of mortgaged property pending foreclosure is either to preserve the corpus of the estate from deterioration or to sequester the rents and profits to make good an anticipated deficiency. "^9 Where the pur- pose of the receivership is the first one stated in the above quotation, the undoubted rule is that the applicant must show equitable grounds for the appointment, in addition to the two indispensable grounds, to wit, inadequacy of the security, and insolvency of the defendant. We have two interesting instances of this understanding of the rule in cases just cited. ^^ But when we come to the ques- port, etc., Bridge Co. v. Douglass, 12 Bush (Ky.) 673; Woolley v. Holt, 14 Bush (Ky.) 788; Mayfield V. Wright, 107 Ky. 530, 54 S. W. 864; Bailey v, Bailey, 10 Ky. Law Rep. 793, 10 S. W. 660; Collins v. Richart, 14 Bush (Ky.) 621; Don- nelly V. Butts, 137 Minn. 1, 162 N. W. 674; Farmers' Nat. Bank v. Backus, 64 Minn. 43, 66 N. W. 5; Marshall, etc.. Bank v. Cody et al, 76 Minn. 112, 78 N. W. 978; Lowell V. Doe et al., 44 Minn. 144, 46 N. W. 297; Mahon v. Crothers, 28 N. J. Eq. 567; Brasted v. Sutton, 30 N. J. Eq. 462; Chetwood v. Coffin, 30 N. J. Eq. 450; Cortleyeu v. Hathaway, 11 N. J. Eq. 39, 64 Am. Dec. 478; James Everard's Brew- eries V. Wohlstadter, 177 App. Div. 862, 164 N. Y. Supp. 899; Post v. Dorr, 4 Edw. (N. Y.) Ch. 412; Hol- lenbeck et al. v. Donnell, 94 N. Y. 342; Hyman v, Kelly, 1 Nev. 179; Meridian Oil Co. v. Randolph, 26 Okla. 634, 110 Pac. 722; Roberts v. Parker, 14 S. D. 323, 85 N. W. 591; Collins V. Gross, 51 Wash. 516, 99 Pac. 573; Dunlap v. Hedges, 35 W. Va. 287, 13 S. E. 656. 12 27 Cyc. 1622— Mortgages. 13 First National Bank of San Francisco et al. v. Detroit Trust Co. et al., 248 Fed. 16. In the above case the mortgagor was a lumber company and part of the mortgaged property was a large tract of timber land. The company was heavily involved and unable to operate. It was un- able even to finance the neces- sary safeguarding of its property against fire. It was shown that logging operations on the prop- erty could be conducted to ad- vantage and that the company could not finance the work. It was shown that logs already down and lying on the ground would rot if not cared for and that the company could not finance this detail of its business. A re- ceiver was appointed and author- ized to enter into an extensive logging contract. This contract was upon the same terms and con- ditions upon which it was stipu- lated, in the first mortgage, the company might make such a con- tract. It was held that a third mortgagee could not complain be- cause it had taken its mortgage 568 LAW OF RECEIVERS. tion of sequestering the rents and profits of the mortgaged property through the appointment of a receiver there is a difference of opinion among the authorities and the statement that the main object is to preserve the corpus of the estate from deterioration or sequester the rents and profits in anticipation of a deficiency judgment is not alto- gether accurate. Of course a receiver placed in general charge of mortgaged property will have the duty of col- lecting the rents and profits, if there are any. But it is to be also noticed that there is a difference between an order directing a receiver to collect the rents and profits, or appointing one simply to make such collections, and an order determining what shall be done with the money col- lected.^^ As to the questions, what is the necessary showing to warrant the appointment of a receiver of rents and profits, and what is the proper distribution of the money collected by such a receiver, some courts have expressly stated that there is a conflict among the decisions. The existence of such a conflict is evidenced also by a dissenting opinion in an interesting case from Kentucky.^^ In this case the mortgagor was an insolvent railroad company. A receiver had been appointed to with a knowledge of the terms of court would not have justified the the first mortgage and it was in appointment in the absence of a no worse position than if the showing of equitable waste, contract had been made by the ^^ Meridian Oil Company v. company under that mortgage. Randolph, 26 Okl. 634. 110 Pac. It was urged that an earlier de- ^f ' *^^ ^^^^ ^'^^ ^ ^^^^^ ^^^ ^^d .^. , , • ^ ^v, t"® mortgagor, the oil company, cision mitigated against the ap- , , , , . f ■■ > had been producing and disposing pointment of the receiver but the „<. ■, „ -^^i, x • . , • ^ of oil without using the income to court held that, in the case re- p^y the debt, contrary to a stipu- ferred to, "the appointment had lation in the mortgage. It is evi- not been made by virtue of any of dent that the order appointing the established general principles the receiver was based upon the of equity, which when alleged to showing of inequitable waste, exist, would authorize a court of u Garretson Inv. Co. v. Arndt, equity to appoint a receiver." It 144 Cal. 64, 77 Pac. 770. is apparent from the nature of the is Douglass v. Cline et al., 12 argument of the opinion that the Bush (Ky.) 608. MORTGAGES, PLEDGES, AND LIENS. 569 operate tlie road. There were outstanding claims for wages of mechanics and laborers for services rendered before the appointment. The majority of the court ruled that these claims should be paid out of money in the hands of the receiver in preference to the claim of the mortgage. In the majority opinion it is said: ''They [mortgagees] have a perfect right in equity to have the property pro- tected while they are prosecuting their actions to enforce their mortgages and against the general unsecured cred- itors of the mortgagors they may possibly have the equitable right to have the fund raised by the receiver held for their security. But this last, not being a legal or contract right, the chancellor is not bound to enforce it in any and all contingencies. He can in proper cases attach to its enjoyment reasonable conditions and may do so either by the order appointing the receiver or by an order made subsequent to the appointment." A dissent- ing opinion was filed by Judge Cofer in which he ob- served: "I have been unable to find a single case, and do not believe one can be found, except in the State of New Jersey, where the equitable doctrine respecting receivers in aid of junior mortgagees never obtained, in which an equitable mortgagee has been refused a receiver when he was able to show that the mortgaged property was probably an insufficient security and that the mort- gagor was insolvent ;" and, ''the sole object of appointing a receiver is to intercept the rents and profits and apply them on the debt." In all cases it is held that the only security granted by the mortgage is the corpus of the property. As to the rents and profits there are three lines of cases: (1) cases in which it is held that the mortgagee can not secure, through a receiver, even an equitable lien upon the rents and profits, which, as incidents of the ownership and right of possession, are held to belong to the mortgagor, or his grantee, until the ownership is 570 LAW OF RECEIVERS. changed as a result of the foreclosure; (2) cases in whicli it is held that, by showing equitable waste, the mortgagee, through a receiver, may acquire an equitable lien upon the rents and profits, but only for the purpose of restoring the waste that had been committed by the mortgagor, who had been collecting the rents, or preserving the property pending the suit; the balance, if any, remaining in the hands of the receiver to belong to the mortgagor, or his grantee, and not to apply toward a deficiency; (3) cases holding that, without showing equitable waste, the mort- gagee could, through a receiver, acquire an equitable lien on the rents and profits and have them applied toward his debt.^^ 16 It is to be observed that in most of the cases the courts were operating under a statute to the effect that "a mortgage on real property shall not be deemed a conveyance, whatever its terms, so as to enable the owner of the mortgage to recover possession of the real property without fore- closure and sale" (Mills' Ann. Code Colo. 261). It is universally held, however, that such a statute simply means that the Common Law view of a mortgage is abol- ished and a mortgage is to be treated simply as an equitable mortgage; and all the courts pro- fess to be deciding in accordance with what they deemed to be the rights of an equitable mortgage as developed in the practice of courts of equity. It is to be ob- served also that Federal courts probably considered themselves to be bound by what they considered to be the interpretation of state statutes made by state courts. Instances of the first line of cases are the following: Guy v. Ide, 6 Cal. 99, 65 Am. Dec. 490; Wagar v. Stone, 36 Mich. 364; "The legislature, in depriving him of the means of enforcing posses- sion, intended thereby also to cut off and deprive him of all rights which he could have acquired in case he obtained possession before acquiring an absolute title"; and, "We do not overlook the fact that a contrary doctrine has been held elsewhere under a similar statute." Union Mut. L. Ins. Co. v. Union Mills Plaster Co., 37 Fed. 286, 3 L. R. A. 90 — following interpreta- tion of Mich, statute by Mich, courts. Couper V. Shirley, 75 Fed. 168, 21 C. C. A. 288 — following state in- terpretation of state statute, and later distinguished where applica- tion for receiver was made on grounds of equitable waste. (See note 12, supra. First National Bank of San Francisco et al. v. Detroit Trust Co. et al, 248 Fed. 16.) Norfor v. Busby, 19 Wash. 450, 53 Pac. 715 — calls attention to con- flict of opinion on the question. Instances of the second line of MORTGAGES, ' PLEDGES, AND LIENS. 571 § 244. Effect of Statutory Provisions on the Subject. There are in most, if not all, of the states statutes relat- ing to the matter both of appointing receivers generally cases are the following: Ameri- can Nat. Bank. v. Northwestern Mutual, etc., Co., 89 Fed. 610, 32 C. C. A. 275. Elmira. Mechanics' Soc. v. Stanchfleld, 160 Fed. 811, 87 C. C. A. 585— both of the above following state interpretation of state statute. Marshall & Ilsley Bank v. Cody, 76 Minn. 112, 78 N. W. 978; Farmers' Nat. Bank v. Backus, 64 Minn. 43, 66 N. W. 5; Donnelly v. Butts, 137 Minn. 1, 162 N. W. 674; Lowell V. Doe et al., 44 Minn. 144, 46 N. W. 297— appeal from an order appointing a receiver; ques- tion as to whether showing of equitable waste was necessary, not decided because such showing was made; question of distribution of rents not decided because not yet raised. Philadelphia Mtge. & Trust Co. V. Oyler, 61 Neb. 702, 85 N. W. 899 ; Gerber v. Heath et al., 92 Wash. 519, 159 Pac. 691. Action by second mortgagee; grantee of mortgagor, who had not assumed the mortgage in possession; show- ing of delinquent taxes and un- paid interest; receiver appointed by consent; thereafter first mort- gagee intervened; first mortgagee purchased on sale for enough to cover his claim and taxes; order granting funds in hands of re- ceiver to second mortgagee re- versed on ground that they be- longed to grantee of mortgagor. Instances of the third line of cases are the following: Warner V. Gouverneur's Executors, 1 Barb. (N. Y.) 36. The decision is based upon what the court considered to have become the established rule in the courts of equity of New York State, although it was unable to see that the rule was logical, considering that it had been based upon a supposed analogy between the rights of an equitable mort- gagee and those of a mortgagee holding a Common Law mortgage. Hollenbeck et al. v. Donnell, 94 N. Y. 342: Rule is not based upon the mortgagee's right to posses- sion, as under a Common Law mortgage, but upon an analogy be- tween the rights of an equitable mortgagee and those of a vendee of real property in an action for specific performance. The mort- gagee had a right to the rents and profits on default and a court of equity, considering that to be done which ought to be done could appoint a receiver and'make his right to the rents date back to the commencement of the ac- tion. It was remarked, in the opinion, that the case was a strong one on account of the showing of equitable waste. Lofsky v. Maujer, 3 Sandf. Ch. (N. Y.) 69. Whole object of the receivership is to divert unpaid rents from the mortgagor to the mortgagee, the latter, as against the former, hav- ing a legal right to them after the mortgage debt falls due. Post v. Dorr, 4 Edw. Ch. (N. Y.) 412. Vice Chancellor McCann doubted the validity of the rule but inas- much as the assignee in bank- ruptcy of the mortgagor was a party at the time of the appoint- 572 LAW OF RECEIVERS. and of appointing receivers in foreclosure suits in par- ticular. It would be impracticable in tliis w^ork, intended for general use in the different states, to attempt to dis- cuss in detail the various statutory provisions as to receivers.^ Some of these provisions, together with their effect upon the question as to the showing necessary to warrant the appointment of a receiver in a foreclosure action, are disclosed in the decisions and to that extent we will here discuss the matter. A statute commonly found is to the effect that a mort- gage on real property shall not be deemed a conveyance, whatever its terms, so as to enable the owner of the mort- gage to recover possession of the real property without foreclosure and sale. This statute has generally been held to be merely declaratory of the fact that, in the jurisdiction in which the statute controls, the Common Law view of a mortgage has been abolished and that the rights of a mortgage are those only of an equitable mortgagee.^ A statute, whether referring to receivers generally or to foreclosure cases in particular, to the effect that a receiver may be appointed where it appears that there is danger that the property may be lost, removed, or mate- rially injured, has been held to be merely declaratory of the general rule.^ ment of the receiver and had Phoenix L. Ins. Co., 121 U. S. 105, made no objection the assignee 30 L. Ed. 905, 7 Sup. Ct. 841; was bound by the order appointing Kountze v. Omaha Hotel Co., 107 and could not complain of a dis- U. S. 378, 27 L. Ed. 609, 2 Sup. Ct. tribution of the rents to the mort- 911. gagee. Hyman v. Kelly, 1 Nev. i See § 21. 179; Myers v. Estell, 48 Miss. 372. 2 See § 243, note 15 thereunder. Perhaps there is a fourth line of supra. See, also: Fifth National cases holding that, on a showing Bank v. Pierce, 117 Mich. 376, 75 of equitable waste, a receiver may N. W. 1058; Collins v. Gross, 51 be appointed to preserve the Wash. 516, 99 Pac. 573. corpus of the property and "hold 3 Douglass v. Cline, 12 Bush the rents and profits for the satis- (Ky.) 608. Where such has been faction of the debt." See Grant v. the holding we have felt at liberty MORTGAGES, PLEDGES, AND LIENS. 573 A receiver may be appointed, either in the absence of a special statute, or in the presence of one, such statute being held not to be exclusive, if there is a statute author- izing the appointment of a receiver *4n all cases where receivers have heretofore been appointed by the usages of the court of equity."^ A statute, frequently found, is to the effect that a receiver may be appointed where it appears that the con- ditions of the mortgage have not been performed and that the property is probably inadequate security. Such a statute has been held to dispense with the necessity for showing the insolvency of the mortgagor and equitable waste in order to warrant the appointment of a receiver on foreclosure and also to give the mortgagee an equit- able lien upon the rents and profits after default even though he might not otherwise be entitled to tliem.^ Such a statute, however, is not mandatory upon the court as to the appointment.^ As might be expected, interesting instances of statutory construction appear in the decisions covering this matter.'^ to use the decisions in support of 1177; Waldron v. First Nat. Bank, propositions laid down in preced- 60 Neb. 245, 82 N. W. 856; Morris ing sections though they were de- v. Linton, 62 Neb. 731, 87 N. W. voted to discussion of the rules 958; Roberts v, Parker, 14 S. D. laid down by courts of equity op- 323, 85 N, W. 591; Sherman v. erating under their inherent Wichner, 35 S. D. 436, 152 N. W. powers. Ferguson v. Dickinson 700. (Tex. Civ. App.), 138 S. W. 221. 6 Douglass v. Cline, 12 Bush 4 Hollenbeck v. Donnell, 94 N. Y. (Ky.) 608. A dissenting opinion 342; De Barrera v. Frost, 33 Tex. in this case holds that the word Civ. App. 580, 77 S. W. 637. "may" in the statute means 5 Montgomery v. Merrill, 65 "must," or "shall." See § 243, Cal. 432, 4 Pac, 414; La Societe supra. Woolley v. Holt, 77 Ky. Francaise, etc., v. Selheimer, 57 (14 Bush) 788. Cal. 623; Leader Pub. Co. et al. v. v Morris v. Linton, 62 Neb. 731, Grant Trust & Savings Co., 182 87 N. W. 958; Roberts v. Parker, Ind. 651, 108 N. E. 121; Schultz v. 14 S. D. 323, 85 N. W. 591. In Stiner et al., 97 Kan. 555, 155 Pac. Collins v. Gross, 51 Wash. 516. 1073; Havana State Bank v. Dike- 99 Pac. 573, it was held that, al- man et al., 98 Kan. 222, 157 Pac. though, as had been held in Norfor 574 LAW OF RECEIVERS. § 245. Eflfect of Stipulations in the Mortgage. It is a common practice to insert in mortgages stipula- tions designed to affect, either directly or indirectly, the right of the mortgagee to have a receiver on foreclosure. These stipulations are so varied in form and language that it is impossible to give any general description of them or to lay down, under the decisions, any general rule as to their effect. All that can be done is to give a run- ning comment on some of the rulings that appear in the reports, so that, in any particular case, the practitioner, having in view a careful analysis of the wording of the stipulation, may find, not a precedent, but an impression as to the point of view from which a court would exam- ine it.^ Declarative statements in the text are not intended to be statements of a general rule but only of the purport of the decisions in the cases cited. y A stipulation to the effect that, upon default, the mort- gagee may enter and take possession of the mortgaged property, gives him an action at law to recover possession, as under a Common Law mortgage, and he can not have a receiver on foreclosure.V A stipulation that the mortgagor shall remain in pos- session until foreclosure bars the right to a receiver of rents and profits pendente lite.^ V. Busby, 19 Wash. 450, 53 Pac. be appointed on a showing that 715 (see § 243, supra) an earlier the property was In danger of be- statute had been repealed as jug lost, removed, or injured, to that portion of it that per- ^^^^^ ^^ Marcus, 118 N. Y. Supp. 1056. See, also, Douglass V. Cline, 12 Bush (Ky.) 608. mitted the appointment of a re ceiver on the grounds that there had been default and the security was inadequate by a later statute X 2 Eastern Trust & Banking Co. declaratory of the fact that a ^- American Ice Co., 14 App. mortgage was to be considered ^- ^-^ ^^^• simply an equitable mortgage (see 3 Chadbourn v. Henderson, 2 above, in this section), it had not Baxter (Tenn.) 460. See, also, been so repealed as to that por- Josey v. Smith (S. C), 95 S. E. fon which permitted a receiver to 133. MORTGAGES, PLEDGES, AND LIENS. 575 A stipulation in a mortgage that on default, a receiver or a receiver of rents and profits may be appointed may- be contrary to the public policy of the state as shown by its statute, and therefore void.^ Neither a direct pledge of the rents and profits, nor a stipulation for a receiver of rents and profits on default, is binding upon a court so as to compel the appointment of a receiver under it alone. ^ Such a stipulation may how- ever add force to a showing made on other grounds.*^ It 4 Couper V. Shirley, 75 Fed. 168, 21 C. C. A. 288; Thomson v. Shirley, 69 Fed. 484; Baker v. Varney, 129 Cal. 564, 79 Am. St. Rep. 140, 62 Pac. 100. Such a stipulation is void because it seeks to give jurisdiction where none is given by law where there is a state statute stating the circum- stances under which a court shall have power to appoint a receiver. See Hazeltine v. Granger, 44 Mich. 503, 7 N. W. 74. Elgin City Banking Co. v. Han- cock, 183 111. App. 23, 24; Schwarz v. Alexander, 178 App. Div, 641, 165 N. Y. Supp. 491. 5 Garretson Inv. Co. v. Arndt, 144 Cal. 64, 77 Pac. 770; Bank of Woodland v. Stephens, 144 Cal. 659, 79 Pac. 379. Such a provision does not dis- pense with the necessity for veri- fication of the moving papers. Daley v. Nelson, 119 111. App. 627. Stipulation will not be enforced when it appears that the security is ample, ^tna Life Ins. Co. v. Broeker, 166 Ind. 576, 77 N. E. 1092. Application can not be made upon the stipulation alone but only on a proper showing independent of the stipulation. Union Trust Co. v. Charlotte, etc., Co., 152 Mich. 568, 116 N. W. 379; Jarmulowsky v. Rosenbloom, 125 App. Div. 542, 109 N. Y. Supp. 968; Jarvis v. Mc- Quaide, 24 Misc. Rep. 17, 53 N. Y. Supp. 97. Stipulation not enforced when it is shown that there is probably ample security and responsible persons liable on deficiency. Eid- litz V. Lancaster, 40 App. Div. 446, 59 N. Y. Supp. 54. See, also. United States Life Ins. Co. v. Ettinger, 32 Misc. Rep. 378, 66 N. Y. Supp. 1. Appointment" is within the dis- cretion of the court even in pres- ence of the stipulation. New York Bldg., etc., Co. v. Begly, 75 App. Div. 308, 78 N. Y. Supp. 169; Brick v. Hornbeck, 19 Misc. Rep. 218, 43 N. Y. Supp. 301. 6 Bagley v. Illinois Trust & Sav- ings Bank, 199 111. 76, 64 N. E. 1085; Townsend v. Wilson, 155 111. App. 303; Leader Pub. Co. v. Grant Trust, etc., Co., 182 Ind. 651, 108 N. E. 121; Stetson v. Northern Inv. Co., 101 Iowa 435, 70 N. W. 595; Baier v. Kelley, 55 Misc. Rep. 368, 106 N. Y. Supp. 552; Fletcher v. Krupp,- 35 App. Div. 586, 55 N. Y. Supp. 146; Browning v. Sire, 56 App. Div. 399, 67 N. Y. Supp, 798. 576 LAW OP RECEIVERS. may even dispense with a showing of some of the grounds usually considered necessary to the making of the appointment.^ § 246. Discretion of the Court. It is not important to explain or try to resolve the apparent conflicts of opinion that we have noticed in the foregoing sections. There force is materially lessened when we consider the rule relating to the discretion to be exercised by courts of equity in applying this remedy in foreclosure suits. The rules concerning the discretion by which the power and conduct of equity courts in the cre- ation of receiverships generally have been hedged about have been fully set forth in earlier portions of this text.^ Nothing is necessary here but to say that what is there said in regard to the matter applies with equal force to the use of this remedy in litigation concerning mortgaged property, not only in foreclosure suits brought by first mortgagees, but in any sort of litigation affecting mort- gaged property, as in any other kind of litigation.- As was said in a Kentucky case,^ "It [the statute] does not deprive them [courts of equity] of their ancient and indis- putable right to consider the circumstances of the par- ticular case in hand and upon such consideration to grant T American Bridge Co. v. Heidel- Sage v. Mendelson, 89 App. Div. bach, 94 U. S. 798, 24 L. Ed. 144; 137, 85 N. Y. Supp. 1008; Pizer v. Ortengren v. Rice, 104 111. App. Herzig, 121 App. Div. 609, 106 428; Pringle V. James, 109 111. App. N. Y. Supp. 370; Whitehead v. 100 (Insolvency) ; West v. Adams, Wooten, 43 Miss. 523. 106 111. App. 114 (Insolvency) ; i See, supra, § 10. Lechner v. Green, 104 111. App. 2 First Nat. Bank of San Fran- 442; Ball v. Marske, 202 111. 31, Cisco et al. v. Detroit Trust Co. et 66 N. E. 845; McLester v. Rose, al., 248 Fed. 16; Ridgely v. Abbott 104 111. App. 433; Trussing v. Lan- Quicksilver Mining Co., 16 Cal. caster, 234 111. 462, 84 N. E. 1062; App. 773, 117 Pac. 1036; New York Handman v. Volk, 30 Ky. Law Rep. Bldg., etc., Co. v. Begly, 75 App. 818, 99 S. W. 660 (Inadequacy); Div. 308, 78 N. Y. Supp. 169, 11 Land Title & Trust Co. v. Kellogg, N. Y. Ann. Cas. 473. 73 N. J. Eq. 524, 68 Atl. 80; Butler 3 Douglass v. Cline, 12 Bush V. Frazer, 57 N. Y. Supp. 900; (Ky.) 608. MORTGAGES, PLEDGES, AND LIExXS. 577 or refuse this extraordinary relief as it may or may not be miconseientious for the mortgagee to ask it." § 247. Property Affected by the Receivership. The general rule of course is that the receivership can extend only to the property covered by the mortgage.^ But it might happen that the mortgaged property is so situated with reference to other property that the receiver can not effectively take possession of the former without also controlling the latter. In such a case the receiver's possession is extended over the entirety and the court makes proper provision for protecting the rights of the owners of the property not covered by the mortgage.- In the application of the general principle important questions of detail interpretation necessarily arise. Operating receivers may be appointed, especially if stipulated for in the mortgage, to carry on the business of the mortgagor conducted on the mortgaged property; and the proceeds of the receiver's operations may be considered as covered by the mortgage.^ . iNoyes v. Rich, 52 Me. 115; etc., Co., 117 Cal. 237, 49 Pac. 1. Central Trust Co. v. Worcester 3 First National Bank of San Cycle Mfg. Co., 114 Fed. 659; Francisco et al. v. Detroit Trust Staples V. May, 87 Cal. 178, 25 Co., 248 Fed. 16 and cases cited; p^g 3]^g_ Lowell V. Doe, 44 Minn. 144, 46 Wormser v. Merchants' Nat. N. W. 297; Truman v. Redgrave, Bank, 49 Ark. 117, 4 S. W. 198. L. R., 18 Ch. Div. 547. 2 Hotel property, containing fur- Claims for unpaid current ex- niture not covered by the mortgage penses incurred prior to the fore- and not owned by the mortgagor. closure may be paid from funds The receiver was ordered to pay arising from the receiver's opera- rent for the furniture. Sherman tions, especially if the claims re- V. Wichner, 35 S. D. 436, 152 N. W. mained unpaid because interest on 700, 701. ' the mortgage and the cost of im- Money coming into the hands provements for the benefit of the of an operating receiver and not mortgagee had been paid. See, covered by the mortgage was also, Merrell v. Pemberton, 62 Ga. ordered to be paid to a judgment 29. A business will not be begun creditor. California Title Ins. & if steps thereto had not been T. Co. V. Consolidated Piedmont, taken prior to foreclosure. See, IRec. — 37 578 LAW OF RECEIVERS. AVe have seen tliat there is a difference of opinion among authorities as to whether or not the rents and profits from mortgaged property may be counted as cov- ered by the mortgage so as to be placed under the control of a receiver.^ But even where the rents are covered by the mortgage, either because the mortgage pledges the rents, or because the mortgage stipulates that the mort- gagee may have' the rents after default, or because the doctrine of the jurisdiction is that the rents equitably belong to the mortgagee after default, the mortgagee can secure the rents, the mortgagor being in possession, only through the medium of a receiver, and then he can secure only such rents as accrue and remain unpaid after the receiver takes possession, having been appointed in proper proceedings and on proper showing.^ If no con- flicting equities intervene, the mortgagee's right to the rents may date back to the commencement of the action without reference to the time of the appointme«it of the receiver.^ The receiver's rights to the rents may be defeated by a valid assignment of them made prior to his taking proper steps to secure them.'^ The defendant mortgagor is not prejudiced by the fact that the receiver- also, Lincoln Trust Co. v. Mis- v. Carey, 114 Fed. 288, 52 C. C. A. souri Water, Light & Traction Co., 1^4; Hook v. Bosworth, 64 Fed. 151 Mo App. 322, 131 S. W. 889. 443, 12 C. C. A. 208; Argall v. , ^,„ ^ . ir Pitts etal., 78 N. Y. 239; Lofsky V. 4 See, supra, §243, and note 15 o o ^p r^-^ ,^m v \ cq -yc . „ Maujer, 3 Sandf. Ch. (N, Y.) 69,76; thereunder. See, also, MoncriefE v. ^^^^^^ ^.^^ ^^^ ^^ ^ Belknap, Hare, 38 Colo. 221, 7 L. R. A. ^^ ^^^ ^_ ^ ^j^ Y.) 345; Jer- (N. S.) 1001, 87 Pac. 1082; Title ^^^^ ^_ Hendricks, 100 N. Y. 279, Ins. & Trust Co. v. California De- 3 n. E. 193; Rosenthal v. Slutnik, velopment Co., 164 Cal. 58, 127 175 App. Div. 970, 162 N. Y. Supp. Pac. 502; Ortengren v. Rice, 104 143. 111. App. 428; Continental Ins. Co. 6 Havana State Bank v. Dike- V. Reeve, 149 App. Div. 835, 134 man, 98 Kan. 222, 157 Pac. 1177; N. Y. Supp. 78; Ray v. Henderson, Douglass v, Cline, 12 Bush (Ky.) 110 111. App. 542; affirmed 210 111. 608. 305, 71 N. E. 579. 7 Bank of Woodland v. Heron, 5 Southern Bldg. & Loan Assoc. 120 Cal. 614, 52 Pac. 1006. MORTGAGES, PLEDGES, AND LIENS. 579 ship is made to include property for which rent has been paid in advance.^ af the mortgage does not expressly cover rents, issues, and profits, the receivership does not extend to crops harvested from the mortgaged property before fore- closure^ As against the mortgagor, under a mortgage covering the rents and profits, the receivership covers a crop growing on the land at the time of the appoint- ment ;^" but, as against a tenant without actual knowledge of the stipulation, the receivership extended only to so much of the crop as covered the rent, where the mort- gage did not, as to an accompanying affidavit and as to recordation, conform to the statute covering croj) mortgages. ^^ Except as special statutes covering the matter may otherwise provide, a debtor's homestead may be mort- gaged, and, if mortgaged, will be governed by the same rules in regard to a receivership on foreclosure as govern in the case of any other property; though, in reference to the homestead, courts, because of the unusual hard- ship caused by a receivership over property so situated, exact a much stronger showing of the necessity for the receivership than in the case of other property.^^ 8 Thompson v. Hemenway, 218 12 Cone v. Combs, 18 Fed. 576, 111. 46, 109 Am. St. Rep. 239, 75 5 McCrary 651; Callanan v. Shaw, N. E. 791; Thorp v. Mlndeman, 123 19 jowa 183; Lowell v. Doe et al. Wis. 149, 107 Am. St. Rep. 1003. 44 j^j^„ ^44 4g ^ ^ 297; Mar- 68 L. R. A. 146, 101 N. W. 417. , .n f d 1 r^ ^ nr ,.• v.„T . T^, , ,00 ^ , on-. s^^^^l 6tc. Bank v, Cody, 75 Minn. >'9 Locke V. Klunker, 123 Cal. 231, 55 Pac 993 ' ^- * ^^^' C^^'^™" Loan 10 Montgomery v. Merrill, 65 ''^''- ^^^°^- ^- S"^^<^^' ^^ ^eb. 469. Cal. 432, 4 Pac. 414. '^^ A"^- ®*- ^^P- 1^8, 78 N. W. 938; 11 Scott V. Hotchkiss, 115 Cal. Nash v. Meggett, 89 Wis. 486, 61 89, 47 Pac. 45. See White v. Griggs, N. W. 283; Wisconsin Nat. Loan 54 Iowa 650, 7 N. W. 125; Myton etc. Assn. v. Pride, 136 Wis. 102, V. Davenport, 51 Iowa 583. 2 N. W. 116 N. W. 637. 402. 580 LAW OF RECEIVERS. § 248. Persons Other Than Mortgagor, Affected by Receiver- ship. A foreclosure suit, instituted for the purpose of col- lecting the mortgaged debt, is of course directed pri- marily against the mortgagor and any other person who may be liable for the debt. A variety of circumstances arise, however, because of which other persons, who are not concerned in any way with the debt, are interested in or affected by the receivership. The rights of junior mortgagees and other creditors of the mortgagor, who may or may not have liens upon the mortgaged property, will be discussed in later sections of this chapter. We are here concerned only with persons not so situated with reference to the property.^ Such persons are, generally, either in possession of the property either by themselves or their tenants, or have a claim upon the rents by assign- ment or otherwise. A person in possession of real property can not be disturbed in his possession unless he is made a party to the action or proceeding. If the person in possession of mortgaged property is a tenant of the mortgagor he can not be disturbed in his possession by a receivership cre- ated on foreclosure unless he is made a party and then he may simply be ordered to attorn to the receiver unless it is made to appear that his continued possession is liable to be detrimental to the property as security for the debtD 1 A mortgagor who has sold the Fed. 865. See, also, Woodward v. property has not an interest in Winehill, 14 Wash. .'^94. 44 Pec. the question of a receivership that 860; Harbottle v. Central Coal & .„ ,.,, r.- ^ • * .1,^ o„ Coke Co. (Ark.), 203 S. W. 1044. will entitle him to resist the ap- -'' „. ,, ^. . -r,. T - Burton v. Pepper, 116 Miss, pointment. Wall Street Fire Ins. ^^^^ ^^ ^^ ^g^; Huston v. Canfield, Co. V. Loud, 20 How. Pr. (N. Y.) ^^ ^.^^ 3^5^ ^^ ^^ ^^ ^33. g^^ 95. After the appointment of a re- ^^^ (j^ ^^ Stebbins, 8 Paige ceiver, the plaintiff may dismiss ^-^ y.) 565; Shotwell v. Smith, 3 parties not indispensable or not Edw's. Ch. (N. Y.) 588, 589; Amer- interested in the matter of the re- ican Mtg. Co. v. Sire, 103 App. Div. ceivership. Grove v. Grove, 93 396, 92 N. Y. Supp. 1082. MORTGAGES, PLEDGES, AND LIENS. 581 Where a mortgagee is not entitled to the rents until after the appointment of a receiver,^ a tenant who has paid rent in advance can not be dispossessed.^ A person who, having knowledge of the mortgage and of the inability of the mortgagee to pay, takes possession of the property may be compelled to pay rent to the receiver.^ The fact that the receiver could have an action at law against the tenant for the rents is not a. suificient reason for denying the appointment.*^ A mortgage which in express terms pledges crops growing on the premises as part of the security will entitle the receiver to so much of the crops as covers the rent, but not to any more if it is not exe- cuted with the formalities required by statutes governing- crop mortgages.'^ After a receiver has been appointed the mortgagor has no authority to accept a surrender, nor to vary the terms of a lease, nor to make a new one.^ If the person in possession is one who acquired pos- session before the tiling of the notice of his pendens and is claiming adversely to the mortgagor he must be made a party before a receiver can be appointed and he can not be dispossessed unless it is shown that he could not be made to respond to a claim for the rents if it should be decided that the receiver was entitled to them.^ Until the mortgagee has secured a claim to the rents and profits and crops, either by contract right under the mortgage or by equitable right through a receivership, the mortgagor is at liberty to assign or sell these prop- 3 Rhinelander v. Richards, 184 of New York v. London, 159 App. App. Div. 67, 171 N. Y. Supp. 436. Div. 484, 144 N. Y. Supp. 561. 4 Lawrence v. Conlon, 26 Misc. 6 De Barrera v. Frost, 33 Tex. Rep. 44, 56 N. Y. Supp. 345; Moll Civil App. 580, 77 S. W. 637. V. McKeon, 35 Misc. Rep. 551, 71 " Scott v. Hotchkiss, 115 Cal. 89, N. Y. Supp. 1127; Derby v. Brandt, 47 Pac. 45. 99 App. Div. 257, 90 N. Y. Supp. 8 Nealis v. Bussing, 9 Daly 980; Fletcher v. McKeon, 71 App. (N. Y.) 305. Div. 278, 75 N. Y. Supp. 817. 9 Warren v. Pitts, 114 Ala. 65, 5 Mutual Life Ins. Co. v. Spicer, 21 So. 494; Webber v. Ahearn, 155 12 Hun (N. Y.) 117; Public Bank App. Div. 892, 140 N. Y. Supp. 12. 582 LAW OF RECEIVERS. erties to a tliird party. Such assignments and sales are governed by the same rules of law and equity as govern similar transactions generally. They may be made, how- ever, under such circumstances concerning, on the part of the assignee or vendee, knowledge of the mortgage, or of a default, or of a suit pending, that they will not defeat the claim of the receiver to them.^*' A mere judgment creditor of the mortgagor is not entitled to complain of an order directing the receiver of rents and profits on foreclosure to apply the rents toward payment of taxes. ^^ § 249. Time for Applying and Duration of Receivership. An application for the appointment of a receiver may be made at any time before the sale on foreclosure or final decree of confirmation. If a receiver is appointed his power, unless sooner terminated,^ will continue until such sale or decree; and, so far as his right to the rents and profits is concerned, it may, with due regard to any inter- vening equities and regardless of the time of the application or appointment, be made to date from the commencement of the action.^ Usually the mortgagee 's interest in and lien upon the property ceases upon the sale and confirmation decree and a receiver appointed on behalf of the mortgagee pend- ing foreclosure should at that time be discharged.^ Ordi- 10 strain v. Palmer, 159 Fed. 628, determined in a collateral action, 86 C. C. A. 618; Elmira Mechanics' in which all the parties interested Soc. of New York v. Stanchfield, are not before the court. Esch v. 160 Fed. 811, 87 C. C. A. 585; An- White, 82 Minn. 462, 85 N. W. 238, derson v. Riddle, 10 Wyo. 277, 68 rehearing denied 85 N. W. 718. Pac. 829. 11 Elliott v. Magnus, 74 111. App. Where, on foreclosure of a 436. mortgage, a receiver has been i Balfour-Guthrie Inv. Co. v. appointed to take charge of the Geiger, 20 Wash. 579, 56 Pac. 370. property, and there has been no 2 Schultz v. Stiner et al., 97 Kan, accounting or settlement with 555, 155 Pac. 1073; Havana State such receiver, whether the mort- Bank v. Dikeman, 98 Kan. 222, 157 gagor or other person is entitled Pac. 1177. to the rents and profits can not be 3 Howard v. Tourbier, 98 Kaa. MORTGAGES, PLEDGES, AND LIENS. 583 narily a receiver on behalf of the mortgagee as such will not be appointed pending the period of redemption where under the statute the debtor is entitled to the possession during that period.'^ There can be no purpose for a receivership on behalf of the mortgagee as such during such period except to collect the rents and profits and apply them toward any deficiency judgment that may have been entered in his favor ; but if such a judgment has been entered and the mortgagee has a right, con- tractual or statutory, to the rents and profits, he may, on a proper showing, have a receiver appointed to preserve his rights.^ Such a receiver will not be appointed if the property is in possession of a tenant who has paid rent 624, 160 Pac. 1144; Elgin City Banking Co. v. Hancock, 183 111. App. 23. Where the full claim of the mortgagee was realized on fore- closure, and the property was bid in by the mortgagee under an agreement between the latter and the mortgagor, by which the mort- gagor, unless the property should be redeemed, was to pay the in- terest and costs, and remain liable for the principal with interest, does not entitle the mortgagor, as against the owner of the equity of redemption, who is not a party to the agreement, to the continuance of the receiver, in order to raise money out of the rents to pay plaintiff, who would not have bid so much had it not been for the mortgagor's agreement. Judgment (1898) 78 111. App. 223, affirmed; Bogardus v. Moses, 181 111. 554, 54 N. E. 984. Where the full claim of the mortgagee was realized from a foreclosure sale, the receiver need not be continued to pay a tax which the owner of the equity of redemption was not legally bound to pay until the period for redemp- tion expired, though he could have paid it before. Judgment (1898) 78 111. App. 223; affirmed, Bogardus v. Moses, 181 III. 554, 54 N. B. 984. 4 West v. Conant, 100 Cal. 231, 34 Pac. 705; Sheeks v. Klotz, 84 Ind. 471; White v. Griggs, 54 Iowa 650, 7 N. W. 125. 5 Davis v. Newcomb, 72 Ind. 413; Ruprecht v. Muhlke, 225 111. 188, 80 N. E. 106; Fountain v. Walther, 66 111. App. 529; Ball v. Marske, 100 111. App. 389; affirmed, 202 111. 31, 66 N. E. 845; Hubbell v. Ave- nue Inv. Co., 97 Iowa 135, 66 N. W. 85. A transferee of the equity of redemption who expressly agreed to pay all incumbrances can not object to the appointment of a re- ceiver to collect rents during the redemption period, although no deficiency decree was rendered against the transferee, when he and the mortgagor are insolvent. Cowell v. Gnatzig, 178 111. App. 482. 584 LAW OF RECEIVERS. in advance for the entire period.^ Such a receiver is entitled only to the rents that accrue after his appoint- ment."^ Where, by statute, the rents and profits pending redemption belong to the owner of the equity of redemp- tion, any surplus of rents remaining in the hands of a receiver will be distributed to such ow^ner notwithstanding a stipulation in the mortgage to the contrary.^ A receiver pending redemption is sometimes appointed in aid of a purchaser on foreclosure; but, if the right to such a receiver is based upon a statute, he will be appointed only on a showing and for a purpose in compliance with the statute/^ A purchaser on foreclosure, who is entitled to possession and is compelled to sue in ejectment, may, on a proper showing, have a receiver appointed in aid of his suit.^® When an appeal is taken from an order confirming a sale on foreclosure, the mortgagee may, on a proper showing, have a receiver appointed pending the appeal. ^^ § 250. Duties, Powers, and Liabilities of the Receiver. The rules that apply generally to receivers with refer- ence to their duties, powers, and liabilities apply to receivers appointed in foreclosure actions and but little change in the terminology of the general rules is neces- sary to make their application clear in this particular instance.^ The receiver derives his powder, primarily, from the court, and his official action, duties, and responsibilities 6 Swan V. Mitchell, 82 Iowa 307, lo American Freehold Land 47 N. W. 1042. Mortgage Co. v. Turner, 95 Ala. 7 Rider v. Bagley, 84 N. Y. 461. 272, 11 So. 211. f' Elgin City Banking Co. v. Han- n Buck v. Stuben, 63 Neb. 273, cock, 183 111. App. 23, 24; Schaeppi 88 N. W. 483; Philadelphia Mort- V. Bartholomae, 217 111. 105, 75 gage & T. Co. v. Goos, 47 Neb. 804, N. E. 447, 1 L. R. A. (N. S.) 1079. 66 N. W. 843; Sanford v. Ander- t'Hill V. Taylor, 22 Cal. 191; son, 69 Neb. 249, 95 N. W. 632. Howard v. Tourbier, 98 Kan. 624, See Adair v. Wright, 16 Iowa 385. 160 Pac. 1144. 1 See §§ 41 et seq., supra. MORTGAGES, PLEDGES, AND LIENS. 585 are measured by the scope of the order which, after his qualification, constitutes him receiver, and such supple- mentary orders and directions as he may subsequently from time to time receive in the due administration of the estate or matters in controversy. His discretionary powers are limited, as a rule, to those acts which are incident to the scope of authority given to him. He is an officer of the court and not the agent of any party to the action.- Such orders of the court are not open to collat- eral attack unless they are absolutely void.^ They are binding upon the parties at whose instance they are - See §§41 and 59, supra. Because a receiver appointed in mortgage foreclosure proceedings is the officer of the court, and not the agent of the mortgagee, the latter is not liable for his misap- plication of funds received. Rob- inson V. Arkansas Loan & Trust Co., 74 Ark. 292, 85 S. W. 413. If a mortgage creates a charge on the rents of the premises pledged, and provides that a re- ceiver, in case of foreclosure pro- ceedings, may be appointed and out of rent funds in his hands pay taxes, he has a right to do so. Boyd V. Magill, 100 111. App. 316. A foreclosure action was dis- missed on a stipulation entered into between plaintiff and defen- dant, to the effect that the action should be dismissed, and that the receiver theretofore appointed should continue to collect the rents and pay all "accrued" taxes. Held, that the term "accrued" was equiv- alent to "to become due and pay- able," and it was proper for the receiver to pay the taxes on the land which accrued subsequent to the making of the stipulation, as well as those which had accrued prior thereto. Moyer v. Badger Lumber Co., 10 Kan. App. 142, 62 Pac. 434. Where a receiver made repairs at the request of defendant, with knowledge that the rents and prof- its were insufficient to pay there- for, and before sufficient funds had been collected the proceedings were dismissed, defendant was not liable to the receiver for the de- ficiency. Cohen v. Feuerstein, 80 Misc. Rep. 398, 141 N. Y. Supp. 267. Since the receiver is an officer of the trial court, the compensa- tion of a receiver as costs on ap- peal, must be allowed by the trial court and not by the Supreme Court. McKenzie v. Coslett, 28 Nev. 220, 80 Pac. 1070. In the absence of proof to the contrary, it can not be assumed that an order appointing a re- ceiver in foreclosure conferred on him a greater authority than that usually conferred on receivers ap- pointed pendente lite to preserve property until the determination of the action. Dow v. Nealis, 47 Misc. Rep. 153, 93 N. Y. Supp. 379. 3 Thurber v. Miller, 11 S. D. 124, 75 N. W. 900; Davis v. Alton, J. & P. Ry. Co., 180 111. App. 1; White )S6 LAW OF RECEIVERS. obtained.* Acquiescence to the order of the court may- bar the right to object to it or to have it vacated or ignored.^ The order is res adjudicata as far as parties participating or having the right or duty to participate at the hearing are concerned so as to bar their right, in subsequent proceedings, to question the e\ddence on which it was made.^ The orders of the court appointing the receiver and stating his duties and powers should have due regard to the purpose of a receiver in a foreclosure action, namely, to protect the right of the mortgagee to obtain i^ayment of his debt from the property, and they should not be too general,^ To secure the enforcement of his rights the V. Suggs, 56 Ind. App. 572, 104 N. E. 55; White v. First Nat. Bank, 56 Ind. App. 708, 104 N. B. 60; White V. Bradfute, 56 Ind. App. 708, 104 N. E. 123. 4 Where the appointment of a receiver of the rents and profits pending foreclosure is void, such receiver is not entitled to compen- sation or expenses from the estate, but should be paid, if at all, by the party who procured his appoint- ment. Couper V. Shirley, 75 Fed. 168, 21 C. C. A. 288. A contract of case made by a receiver, with the approval of the court, is binding on the mortgagee, although it is not a formal party thereto. Western Union Tel. Co. V. Boston Safe-Deposit & Trust Co., 112 Fed. 37, 50 C. C. A. 106; Boston Safe Deposit & Trust Co. V. Western Union Tel. Co., 112 Fed. 37, 50 C. C. A. 106. Where the costs and expenses of the management of mortgaged property by a receiver, authorized by the court, exceed the proceeds of the property when sold, to- gether with its earning, the court has power to render judgment for the deficiency against the com- plainant, at whose instance the re- ceiver was appointed and contin- ued. Chapman v. Atlantic Trust Co., 119 Fed. 257, 56 C. C. A. 61. A mortgagee who obtains the appointment of a receiver pending litigation, is chargeable from the date of the possession of the re- ceiver, and is liable to account ac- cordingly. Land v. May, 73 Ark. 415, 84 S. W. 489; Teutonia Bank & Trust Co. V. Security Brewing Co., 137 La. 1046, 69 So. 833. 5 Lombard v. Wade, 37 Ore. 426, 61 Pac. 856; Conroy v. Polstein, 150 App. Div. 832, 135 N. Y. Supp. 419. e Storm v. Ermantrout, 89 Ind. 214; Land Title & Trust Co. v, Kellogg, 73 N. J. Eq. 524, 68 Atl. 80. 7 The receiver should not be given power to improve the prop- erty for the benefit of the holder of the certificate of sale. Standish V. Musgrove, 223 111. 500, 79 N. E. 161. An order giving a receiver power tc lease for a term not exceeding MORTGAGES, PLEDGES, AND LIENS. 587 receiver should seek the assistance of the court appoint- ing him f and persons having claims against the receiver should enforce them either in the receivership proceed- ings or in independent actions against him commenced with the approval of the court in which the proceedings are pending.^ An order of the court, even though erroneous, may serve to protect the receiver, at least so far as his acts and expenditures inure to the benefit of the property and the parties interested therein.^" Before taking any step in connection with his management of the property, the receiver, for his own protection, should, however, seek an order of the court directing him what to do,^^ but even though he proceeds on his own judgment and exceeds the strict letter of the order appointing him the court may subsequently ratify his acts.^^ a year, for sucii rentals "as he shall deem advisable and just," made without allowing to the mort gagor an opportunity to be heard, is too broad, since the receiver should not be given power to lease at will. Gooden v. Vinke, 87 111. App. 562. Where the mortgage covers property used for business pur- poses, the court may authorize the receiver to carry on the business. Leader Pub. Co. v. Grant Trust & Savings Co., 182 Ind. 651, 108 N. E. 121. The court has power to appoint a receiver whose duty it is to rent the property, if it is rentable; and the duty to rent implies authority to reduce rents at the expiration of existing leases, if such reduc- tion is necessary to secure tenants and make the property productive; but it is improper for the court to reduce the rent during the pen- dency of an existing lease, without any showing that such reduction will be for the benefit of the mort- gagor or the mortgagee. North- western Mut. Life Ins. Co. v. Burr, 60 Neb. 467, 476, 83 N. W. 663, 664. A receiver should be authorized to make only such repairs as are strictly necessary to preserve the property. Kronenthal v. Rosen- thal, 144 N. Y. Supp. 830; Schaefer V. Fanning, 170 N. Y. Supp. 849. ■s Van Pelt v. Russell (Ark.), 203 S. W. 267. 9 More et al. v. Lane et al. 37 N. D. 563, 164 N. W. 292. 10 Ball V. Improved Property Holding Co. of New York, 220 Fed. 637, 136 C. C. A. 245; Locke v. Klunker, 123 Cal. 231, 55 Pac. 993; Ruprecht v. Muhlke, 225 111. 188, 80 N. E. 106; Joslin v. Williams, 76 Neb. 594, 107 N. W. 837, 112 N. W. 343. 11 See § 55, supra. 12 Kronenthal v. Rosenthal, 144 N. Y. Supp. 830. 588 LAW OP RECEIVERS. When be uses ordinary care and prudence, that is, the care and diligence which an ordinarily prudent man uses in handling his own estate, he has fulfilled the measure of his official duty and is not answerable for losses which occur to the property and assets in his charge. ^^ Since bis powers are limited by the terms of the order appoint- ing him his liabilities are similarly circumscribed and he can not be held responsible for defective conditions aris- ing through want of repair in the property which he was not authorized to remedy^^ nor for failure to perform a service not within the scope of his authorized powers. ^^ A receivership can not displace vested liens upon the mortgaged property and if the receiver, even though act- ing under an order of court, seizes and disposes of prop- erty not covered by the mortgage or on which there is a prior lien, he may be held liable in conversion.^*^ The service imposed upon a receiver is a personal one and, as a rule, he can not delegate its performance to others ; and, if he does so wrongfully or without warrant, his agents will not be entitled to compensation out of the estate. ^'^ Neither the receiver nor any of his agents may be per- mitted, as such, to be interested in the property of the estate or to make any profit out of any transaction arising in the course of his administration.^^ 13 See § 43, supra. 156, 102 N. E. 484; More et al. v. See, also. Continental Ins. Co. Lane et al., 37 N. D. 563, 164 N. W. V. Reeve, 149 App. Dlv. 835, 134 292. N. Y. Supp. 78, and Barton's Exr. it Niagara Life Ins. Co. v. Lin- V. Ridgeway's Admr., 92 Va. 162, coin Mortgage Co., 175 App. Div. ]63, 23 S. E. 226. 415, 161 N. Y. Supp. 853; Schaefer 1^ Lichtenstein v. Belknap, 100 v. Fanning, 170 N. Y. Supp. 849. Misc. Rep. 468, 165 N. Y. Supp. is See § 49, supra. 936; In re Fischer, 168 App. Div. Elgin City Banking Co. v. Han- 326, 153 N. Y. Supp. 1008. cock, 183 111. App. 23, 24; Herrick 15 Dow V. Nealis, 47 Misc. Rep. v. Miller, 123 Ind. 304, 24 N. E. 153, 93 N. Y. Supp. 379. 111. 16 Old Colony Trust Co. v. Med- An attorney at law, who acted field & M. St. Ry. Co., 215 Mass. as attorney for the receiver, did MORTGAGES, PLEDGES, AND LIENS. 589 Q 251. Appointment Before Maturity of the Debt. generally a mortgagee can not seek the appointment of a receiver unless the entire debt is due and he is entitled to sue in foreclosure. Of course this right might arise through a stipulation in the mortgage to the effect that upon default in the payment of interest or any installment of principal or on default with reference to any other condition of the mortgage, the mortgagee might elect to consider the entire debt due. In exceptional cases, how- ever, where a default was imminent and serious detriment to the security was threatened it has been held that a receiver might be appointed even though the debt was not due.^ ' It happens more often, perhaps, than on default in payment of interest or part of the principal, the mort- gagee may have the right to sue in foreclosure and ask for a receiver. He must, in any event, to be entitled to a receiver, make whatever equitable showing is required to be made in foreclosure for the whole debt ; and whether the entire property or only a portion thereof will be placed under the receivership depends upon whether the property may be advantageously divided or is so situated that it must be sold as a whole, and whether or not the mortgage stipulates that the rents and profits shall be part of the security.^ not violate his trust by purchasing i Mayfield v. Wright, 107 Ky. the properties on foreclosure of a 530, 54 S. W. 864; Rose v. Bevan, mortgage which he himself owned. lo Md. 466, 69 Am. Dec. 170; Long Kock V. Burgess, 176 Iowa 493, 156 j^p^k Co. v. Mallery, 12 N. J. Eq. N. W. 174. 431. A sale by a receiver on foreclos- ^ ^^ ^ ^^.^^^ ^^ ^^^ ^^^ ure of a trust deed is not invalid „ ^, ^„„ _ . „, because the trustee was a stock- Bush) 608; Quincy v. Cheeseman. holder in a corporation that pur- 4 Sandf. (N. Y.) Ch. 405; Hollen- chased the property, although the beck v. Donnell, 94 N. Y. 342; trustee himself could not have Bank of Ogdensburg v. Arnold, 5 been the purchaser. Powers v. Paige (N. Y.) 38; Morris v. Braii- Maytag-Mason etc. Co. (Iowa), 166 chaud, 52 Wis. 187, 8 N. W. 883. N. W. 723. 590 LAW OF RECEIVERS. § 252. Questions Relating to the Procedure. jWe have seen that, as the practice of appointing receivers, either generally or in foreclosure actions, was developed in courts of equity acting under their inherent powers and without the aid of statutes, it was always rec- ognized that there was a wide discretion to be exercised by the chancellor in deciding whether or not to make the appointment and that, even in the face of a strong equi- table showing justifying the appointment, the matter resolved itself, in the last analysis, to the question whether or not the mortgagee could conscientiousTy^sli for the relief. In this view of the matter the chancellor could grant the petition for the appointment on condition and could require a bond either from the receiver, con- ditioned that he would properly perform the duties of his office, or from the petitioner conditioned that he would pay all damages suffered by the defendant through the receivership if it should finally be made to appear that he was not entitled to it. This matter is now largely gov- erned by statute, and statutory requirements as to the giving of bonds are mandatory.^ Likewise the chancellor might or might not require notice of the application for the appointment of a receiver to be given to defendant before hearing the motion, according as his discretion dictated. This matter is also now largely regulated by statute and the statutory requirements concerning notice are mandatory.^ Stipu- 1 Stoff V. Erken, 172 Cal. 481, 156 pointment of a receiver, it is error Pac. 1033; Van Alan v. Superior to appoint a receiver without a Court, (Cal. App.) 174 Pac. 672. bond being required of the com- An order appointing a receiver plainant, if the order of appoint- without bond should in its terms ment does not recite that in the dispense with the requirements of opinion of the court a bond ought the statute. Schoenecke v. Chi- not to be required. Aevermann v. cago Title & Trust Co., 178 111. Rizek, 160 111. App. 648. App. 387. - Belknap Sav. Bank v. Lamar Even though the trust deed be- Land & Canal Co., 28 Colo. 326, 64 ing foreclosed provided for the ap- Pac. 212. MORTGAGES, PLEDGES, AND LIENS. 591 lations relating to the matter of notice are frequently found in mortgages ; they are not necessarily binding on the court but, if the showing for a receiver is based on other than the usual equitable grounds, are usually followed.^ Schoenecke v. Chicago Title & Trust Co., 178 111. App. 387. A clause in a mortgage granting the mortgagee the right on default to enter the premises, take the rents and profits, and apply them on account does not pertain to a receiver; and a further clause merely giving the right to a re- ceiver does not obviate the neces- sity for giving notice of the appli- cation. Straus V. Minkowski et al., 181 App. Div. 877, 169 N. Y. Supp. 442; Jarraulowsky v. Rosenbloom, 125 App. Div. 542, 109 N. Y. Supp. 968. Citizens' Savings Bank v. Wilder, 11 App. Div. 63, 42 N. Y. Supp. 481. Coleman v. Goodman, 37 Misc. Rep. 517, 75 N. Y. Supp. 973. Dazian v. Meyer, 66 App. Div. 575, 73 N. Y. Supp. 328. Conroy v. Polstein, 150 App. Div. 832, 135 N. Y. Supp. 419. Fletcher v. Krupp, 35 App. Div. 586, 55 N Y. Supp. 146. Where the mortgage was given by two tenants in common owning the property, and an application is made for the appointment of a re- ceiver of the premises, it is not necessary to serve notice on a re- ceiver appointed in supplementary proceedings of the property of one of the mortgagors, such receiver not being an adverse party within the statute requiring notice to be served on the adverse party. Grover v. McNeeley, 72 App. Div. 575, 76 N. Y. Supp. 559. Where a receiver was properly appointed the court had authority on the death of such receiver to appoint a successor without fur- ther notice. Buchanan v. Berk- shire Life Ins. Co., 96 Ind. 510. Where the receiver did not do any act under his appointment, and on a hearing soon after the appointment was discharged, and the costs pertaining to his receiv- ership were charged to plaintiff, the appointment of the receiver without notice to defendants was harmless. Wilkie v. Reynolds, 34 Ind. App. 527, 72 N. E. 179. 3 Fletcher v. Krupp, 35 App. Div. 586, 55 N. Y. Supp. 146. Even though a mortgage pro- vides that a receiver may be ap- pointed without notice, the court in its discretion may require no- tice to be given. Hawkins v. Max- well, 156 App. Div. 31, 140 N. Y. Supp. 909. Though the parties have stipu- lated that notice should be given, the court may appoint a receiver without notice, but either inability to give the notice or prejudice in- cidental to the delay should be shown. Woerishoffer v. Peoples, 120 App. Div. 319, 105 N. Y. Supp. 506. A ptfovision of a mortgage, that eight days' notice shall be given, does not apply to an application 592 LAW OF RECEIVERS. The general rules, pointed out in a foregoing section,'* that govern the chancellor in his choice of a person to be appointed receiver apply to the appointment of a receiver on foreclosure.^ We have seen that a mortgagee, seeking the appoint- ment of a receiver, must show the existence of certain facts as an equitable foundation for his petition before he can expect it to be granted. Of course if he fails to make the necessary showing a receiver will not be ap- pointed. But even where the showing might otherwise be deemed sufficient it may be offset by a showing of counter, or opposing equities on the part of the defendant and a receiver be denied.^ c. Receiverships on Belial f of Junior Mortgagees. § 253. Right of a Junior Mortgagee to a Receiver as Against the Mortgagor. The preceding division of the chapter has set forth the rules and principles governing the use of a receivership on behalf of a first mortgagee in aid of an action to fore- close his mortgage. We now take up the question of receivership on behalf of junior mortgagees. for a receiver on the ground of Where a second mortgagee, who the inadequacy of the security. had been appointed receiver on (1899) Putnam v. McAllister, 57 foreclosure by the third mortga- N. Y. Supp. 404; modified (1900), gee, commences proceedings on 49 App. Div. 361, 63 N. Y. Supp. his own mortgage and applies for 250. a receiver, a new receiver will be Jarvis v. McQuaide, 24 Misc. appointed in both actions, if ob- Rep. 17, 53 N. Y. Supp. 97, 6 N. Y. jections are made to the propriety Ann. Cas. 303. of the second mortgagee acting as Graybill v. Heylman, 139 App. receiver, notwithstanding there be Div. 898, 123 N. Y. Supp. 622. no question as to his good faith. 4 See, supra, § 62. (1899) Putnam v. McAllister, 57 5 The holders of a tax certificate N. Y. Supp. 404; modified (1900), covering premises involved in a 49 App. Div. 361, 63 N. Y. Supp. foreclosure suit was appointed in 250. Walker v. Fitzgerald, 69 Neb. 52, 6 In Adair v. Wright, 16 Iowa 95 N. W. 32. 385, the Judge rendering the opin- MORTGAGES, PLEDGES, AND LIENS. 593 As far as the mortgagor is concerned, a junior mort- gagee's right to have. a receiver appointed in aid of his foreclosure are governed by the same rules and principles ion stated that in his opinion the appointment of a receiver in fore- closure proceedings where the de- fendant was in the volunteer mili- tary service of the government was in violation of the spirit and intendment of the Act of the Leg- islature exempting property of such volunteers from sale under deeds of trust, mortgages and judgments. A defense of usury sworn to only on information and belief will not be regarded as against a stipu- lation for a receiver in the mort- gage itself. Knickerbocker Life Ins. Co. V. Hill, 2 Hun (N. Y.) 680, 5 Thomp. & C. 694; McKellar v. Rogers, 20 Jones & S. (N. Y.) 360. (See same case on appeal, 109 N. Y. 468, 17 N. E. 350.) In Hesse v. Ledesma, 7 Porto Rico Fed. 521, a mortgage fore- closure had been instituted by the first mortgagee, who was a German non-resident. The World War had just started. Our country was not yet a participant. The complain- ant, who also was a German non- resident and held a second mort- gage upon the property, sought an injunction against the foreclosure proceedings and the appointment of a receiver upon the ground that the money markets had become so strained that it was impossible for him to meet the mortgage situa- tion and that the sugar crop upon the mortgaged property would be ready for harvesting within sixty days, whereas if the foreclosure took place all creditors other than the first mortgagee would be wiped I Rec— 38 out, there being no right of re- demption under the laws of Porto Rico but that a receivership would preserve the property for all creditors. The holder of a second mortgage appeared and admitted the allegations in the bill. The court, speaking through Judge Hamilton, in passing upon the question, said: "One reason given for denying the equity of the bill is that it is a bill for a receiver- ship, and that there is no such ground of equity jurisdiction. This !g true. A receivership is merely incidental to a suit to enforce an equity. It is not itself an equity. If the bill is to be construed as one in which the court must take charge of property in order to work through a receiver, so that profits may be derived which would pay off the complainant as well as defendant, Westphaling, then it must be dismissed for want of equity. A Court of Chancery can not go into business. It can not, on the ground of hardship, take possession of an enterprise and appoint a receiver to run it for the benefit of those in interest, merely because the managers have been unsuccessful in running it themselves. A receivership ex- ists only as incident to a suit under some recognized head of equity jurisprudence. Although the bill is entitled one for a re- ceivership, however this does not control. No matter how it is en- titled, if it presents an equitable case in its recitals, it may be sus- tained. In much the same manner 594 LAW OF RECEIVERS. as are applicable to the rights of a first mortgagee in tliat regard. In regard to a showing he may be authorized to intervene in a foreclosure action affecting the property of his debtor and control the valid- ity of the mortgage.21 jj^ fact the receiver, in so far as mortgaged property under his control is concerned, is in 15 Walker v. Linden Lumber 222 Mass. 378, 110 N. E. 1029; Co., 170 N. C. 460, 87 S. E. 331. Thomson Estate v. Washington 16 Jaggers v. Sparks et al., 127 Inv. Co., 84 Wash. 326, 146 Pac. 617. Ark. 567, 193 S. W. 67. In this ^^ ^^erican Trust, etc., Bank v. case it is decided that a judgment McGettigan, 152 Ind. 582, 71 Am. rendered in an action brought by g^ pgp_ 345^ 52 n. e. 793; Wim- the receiver on the note and mort- pfheimer v. Perrine, 67 N. J. Eq. gage is binding upon the holder 597^ 50 Atl. 356. and therefore a protection to the 19 Heermans v. Clarkson, 64 maker against any subsequent ac- n, y. 171. tion by the holder. 20 Jaggers v. Sparks, 127 Ark. 17 Hatch V. Johnson Loan, etc., 567, 193 S. W. 67. Co., 79 Fed. 828; American Water- 21 Equitable Trust Co. of New works & Electric Co. v. Towle, York v. Great Shoshone & Twin 245 Fed. 706, 158 C. C. A. 108; Falls Water Power Co., 245 Fed. Williams v. Old Colony Trust Co., 697, 158 C. C. A. 99. MORTGAGES, PLEDGES, AND LIENS. 611 the same position as the owner would be except for the protection and restrictions above indicated.^^ Analogous to the matters just above considered is the question of the effect upon the rights of mortgagees of the institution of bankruptcy proceedings against the mortgagor. It is sufficient here to say that practically the same rules apply to a receiver or a trustee in bank- ruptcy, as far as mortgaged property of the estate is con- cerned, as apply to a general receiver of the mortgage debtor.^^ In various other relations, where the mortgaged prop- erty comes, in a sense, into custodia legis, questions sim- ilar to those that arise in general receivership and bank- 22 The receiver may be author- ized to borrow money to buy a mortgage. Beaton v. Seaboard Portland Cement Co., 211 Fed. 84, 127 C. C. A. 508. A provision in a mortgage to a building association that it is non- negotiable and uncollectible by any other person than the associ- ation does not militate against an assignment made by a receiver of the association under an order of court. Spinney v. Miller, 114 Iowa 210, 89 Am. St. Rep. 351, 86 N. W. 317. Where partners transferred property to another so as to en- able him to mortgage it for the benefit of the firm, a receiver of the partnership can not in equity be permitted to cancel the transfer without relieving the mortgagor of all liability. Security Trust Co. V. Dinsmore, 186 Mich. 273, 152 N. W. 964. A mortgagee may sue a re- ceiver to compel a reformation of the mortgage so as to have the deccription include property in- tended by the parties to be in- cluded. Ryder v. Ryder, 19 R. I. 188, 32 Atl. 919. 23 In re Elmore Cotton Mills, 217 Fed. 808, 810; In re Jersey Island Packing Co., 138 Fed. 625, 71 C. C. A. 75, 2 L. R. A. (N. S.) 560; Sample v. Beasley, 158 Fed. 607, 85 C. C. A. 429; Matter of Mayer, 156 Fed. 432; Central Trust Co. v. Worcester Cycle Mfg. Co., 86 Fed. 35; Mirabal v. Albu- querque, etc., Mills, (N. M.) 170 Pac. 50; Rhinelander v. Richards, 184 App. Div. 67, 171 N. Y. Supp. 436; In re Busch Brewing Co., 41 App. Div. 204, 58 N. Y. Supp. 812. In matter of Dooner & Smith, Bankrupt, 40 Am. Bankruptcy Rep. 116, it was held that where mort- gaged property sold by a trustee brought only sufficient to pay a first and a second mortgagee, a third mortgagee was entitled to rents collected by the trustee even though he had taken no steps to have the rents sequestered in his behalf. As against the trustee he was held to be the virtual owner after bankruptcy. (312 LAW OF RECEIVERS. ruptcy proceedings arise and the same rules are generally held to apply.^'' §258. Receiverships Created at Instance of Others Than Mortgagees. In foreclosure proceedings it may happen that the mort- gagee does not desire or is not in a position to ask for a receiver. It might happen that a mortgagee, having the senior lien on the property, could not show that the prop- erty was inadequate security for his debt. A subsequent lienor would be in a different position in this regard since his security is only the equity remaining in the property after all prior liens are satisfied. Parties other than the complaining mortgagee may have receivers appointed on making a showing to the effect that such a course is necessary for the adequate protection of their interests.^ There are various sorts of litigation, not instituted by mortgagees and not in foreclosure, in which, at the in- stance of parties other than mortgagees, receiverships may be created under such circumstances as to affect or involve mortgaged property. For instance, a judgment creditor of the mortgagor may have the right to levy upon and sell the property under execution, and if the mortgagee attempts to interfere with the proceeding the creditor may enjoin him from so doing and have a re- ceiver appointed. The levy must be upon the property with the intention of selling it subject to the mortgage ; and it must be shown that the debtor has no other prop- erty out of which the creditor 's claim can be satisfied and that the mortgaged property is more than sufficient to 24 Property of decedents: Tetz- Property of an incompetent: loff V. May, 172 Iowa 617, 154 Hodges v. McDiiff, 69 Mich. 76, 36 N. W. 905; Mayfield v. Wright, 107 N. W. 704. Ky. 530, 54 S. W. 864; St. Louis Property of a minor: Wilson v. Nat. Bank v. Field, 156 Mo. 306, 56 Wilson, 2 Keen. 249, 48 Eng. S. W. 1095; Cohn et al. v. Bartlett Reprint. 624. et al., 182 App. Dlv. 245, 169 N. Y. i Graver et al. v. Greer et al., Supp. 604. 107 Tex. 356, 179 S. W. 862; First MORTGAGES, PLEDGES, AND LIENS. 613 pay tlie movigage debt. The case for a receiver is strengthened if it is made to appear that the mortgagee is claiming a lien npon more property than is rightfully covered by his mortgage.^ In such proceedings as various sorts of creditors' suits against failing or insolvent debtors, proceedings in aid of execution, bankruptcy proceedings, and the like, receivers may be appointed and in such cases mortgaged property of the debtor will be involved in the receivership. It is not our purpose here to discuss the conditions or grounds under which these receiverships will be created but to point out the various respects in which they may affect the rights and interests of the parties to the mortgage. It is to be observed in the first place that a receiver will not be appointed as against a mortgagee in posses- sion unless he is wrongfully or fraudulently interfering with the rights of other creditors.-^ It is not necessary that a creditor's receivership be made to cover the mort gaged property if the creditor's interest in the equity be otherwise properly protected.* The general rule that a receivership does not create nor destroy vested interests in property and that a receiver takes the property subject to all valid existing liens upon it applies to these receiverships. One important applica- tion of this rule, in so far as mortgaged property is con- cerned, is to the effect that where the receivership has not been created, at his instance, the priority of the mort- gagee 's interest in the property can not, unless he has in some way created an estoppel against himself, be dis- State Bank, etc., et al. v. Hub- Atl. 265; Brayton, etc. v. Monarch, bard, etc., Gin Co. et al. (Tex. etc., Co. et al., 87 Ore. 365, 169 Civ.)', 178 S. W. 1015; Rice v. Pac. 528, 170 Pac. 717. Ahlman, 70 Wash. 6, 126 Pac. 64. 4 Burgwyn Bros. Tobacco Co. v. 2 Rose V. Bevan, 10 Md. 466, 69 Bentley, 90 Ga. 508, 16 S. E. 216; Am. Dec. 170; Vochell v. Hynson, Leadbetter v. Leadbetter, 125 26 Md. 83. N. Y. 290, 21 Am. St. Rep. 738, 3 Schultz V. Jerrard (N. J.), 3 26 N. E. 265. (J 14 LAW OF RECEIVERS. placed by the expenses of the receivership.' The doc- trine of ''confusion of property" will not apply against the priority of a mortgagee because the mortgaged prop- erty was sold in bulk with other property where the confusion was due to the conduct of a receiver for which the mortgagee was not more responsible than were the other interested parties.^ A mortgagee may, however, lose his claim by permitting the only fund on which he has a lien to be distributed by the receiver without objection J If the mortgagee has rightfully obtained possession of mortgage chattels before the commencement of the re- ceivership proceedings, an action in replevin will not lie against him at the instance of the receiver.^ In connection with the question of the displacement of prior vested liens by the creation of a receivership there frequently arise questions concerning the interpretation and application of statutes, now very commonly found throughout the United States, giving to laborers, me- chanics, and others, employed by corporations, a prior lien upon the property upon which they have worked, for their wages in case of insolvency or the appointment of a 5 First State Bank, etc. v. Hub- if necessary from the proceeds of bard, etc., Co. et al. (Tex. Civ.), the corpus of the company's 178 S. W. 1015; Craver et al. v. property and since the mortgagee Greer et al., 107 Tex. 356, 179 had not created any element of S. W. 862. estoppel against himself, it was 6 Walker et al. v. Linden Lum- held that he was entitled to be ber Co., 170 N. C. 460, 87 S. E. paid out of other funds and if 331. necessary out of the proceeds of A receiver appointed over the the corpus. Security Trust Co. v. property of a lumber company Bank of Bemice, 239 Fed. 665, 152 was authorized to continue the C. C. A. 499. business. Having on hand money ^ Hollenbeck v. Louden, 35 S. D. obtained from the sale of certain 320, 152 N. W. 116. lumber, he was ordered to pay 8 Security Trust Co, v. Bank of the wages of some of his em- Bernice, 239 Fed. 665, 152 C. C. A, ployees out of this money. A 499; Schmidtman v. Atlantic Phos- certain creditor held a mortgage phate, etc., Co., 230 Fed. 769, 145 on part of the lumber. Since the C. C. A. 79; Central Sav. Bank v. wages would have had to be paid Newton, 59 Colo, 150, 147 Pac. 690. MORTGAGES, PLEDGES, AND LIENS. 615 receiver over the affairs of the corporation. Such statutes are usually held to apply to the wages of laborers and mechanics employed by a receiver appointed to continue the business of the corporation and many of them ex- pressly apply to the general expenses of the receivership. It is universally held that these statutes fasten the liens they create only upon the property of the corporation. If a corporation acquires property subject to a mortgage, or if, at the time of acquiring property, the company gives a mortgage upon it to secure part of the purchase price, then the property of the corporation is only its equity of redemption in the property ; these liens attach only to this equity and can not displace the lien of the mortgages. It will not be assumed that the legislature intended that a vested contract lien should be subject to be displaced by subsequent occurrences unless it unmis- takably expressed its intention to that effbot; such statutes will be construed as giving to the objects of its protection only a preference over other unsecured creditors unless the intention of the legislature to give them a lien is so expressly declared as to have no room for doubt. Such statutes can not affect mortgage liens that are vested at the time the statutes go into effect but the existence of such a statute gives notice to a mortgagee that his secu- rity is subject to the impairment that the functioning of the statute causes.® While receiverships created at the instance of credi- tors of a mortgagor do not divest the lien of a mortgage they nevertheless in certain ways affect the rights of the mortgagee in the enforcement of his lien. The receiver is an officer of the court and his possession is the posses- sion of the court. The property is in custodia legis and the mortgagee can not disturb nor interfere with this possession without first obtaining the permission of the 9 Humphrey Bros, et al. v. Buell, 971; Walker et al. v. Linden Lum- etc, Co., 174 N. C. 514, 93 S. E. ber Co., 170 N. C. 460, 87 S. E. 331. 616 LAW OF RECEIVERS. court. Usually the mortgagee is required to present his claim in the receivership proceeding itself,^^ but the court may permit an independent suit in foreclosure to be insti- tuted and, if necessary, may extend the receivership to cover the foreclosure action. ^^ On the other hand the remedies of general creditors against a mortgagee are affected by the appointment of a creditor's receiver. It is, of course, a general rule that a mortgage that may be void as being fraudulent against creditors or as not complying with statutory provisions as to form and recordation is nevertheless good as be- tween the mortgagor and mortgagee and can not be attacked by a creditor of the debtor unless he first secures some lien upon the mortgaged property.^^ This rule does 10 Security Trust Co. v. Bank of Bernice, 239 Fed. 665, 152 C. C. A. 499. 11 Guaranty Trust Co. v. Inter- national, etc., Co., 231 Fed. 594, 145 C. C. A. 480; In re Webster Loose Leaf Filing Co., 240 Fed. 779; Equitable Trust Co. of N. Y. V. Great Shoshone, etc., Co. et al., 245 Fed. 697, 158 C. C. A. 99; Ar- kansas Cypress, etc., Co. v. Meto Valley R. Co., 97 Ark. 534, 134 S. W. 1195; Farmers' Loan, etc., Co. V. Hotel Brunswick Co., 12 App. Div. 626, 42 N. Y. Supp. 350. A chattel mortgagee who is en- titled to possession of the mort- gaged property may bring an ac- tion in conversion against a cred- itors' receiver who has taken it into his custody. Albien v. Smith, 24 S. D. 203, 123 N. W. 675; Hundley Dry Goods Co. v. Albien, 32 S. D. 60, 142 N. W. 49. When a creditor's receiver sells inortgaged chattels under an order of court, the proper course is for the mortgagee to present his claim in the receivership court and ask for a lien upon the pro- ceeds; if he unnecessarily sues the receiver in foreclosure the re- ceiver will be allowed the ex- penses of advertising and selling and the mortgagee will not be al- lowed attorney's fees stipulated for in the mortgage in case of suit. Pickering v. Richardson, 57 Wash. 117, 106 Pac. 614. It is within the discretion of the court whether or not to enjoin a suit commenced against the re- ceiver without its consent. Schwa- bacher Bros. & Co. v. Schade & P. Co., 99 Wash. 271, 169 Pac. 783. A chattel mortgagee may sue a receiver to have the mortgage re- formed to cover all the property intended to be included. Ryder v. Ryder, 19 R. I. 188; 32 Atl. 919. 12 Stephens v. Meriderr Britan- nia Co., 160 N. Y. 178, 73 Am. St. Rep. 678, 54 N. E. 781; Albien v. Smith, 26 S. D. 551, 128 N. W. 714, affirming judgment on rehearing 24 S. D. 203, 123 N. W. 675. MORTGAGES, PLEDGES, AND LIENS. 617 not apply to a creditor's receiver nor to creditors who have had their claims allowed in the receivership pro- ceeding. The reason for the exception is given in a Wash- ington case^^ as follows : ' ' This court has uniformly held that the property of an insolvent corporation in the hands of a receiver is a trust fund for the payment of all of its creditors. . . . While we have held in the cases first above cited that the word 'creditors' in the chattel mort- gage statute refers to creditors having some form of lien against the property, those were cases where the rights of creditors of an insolvent corporation after a receiver was appointed Avere not considered. It seems too plain for discussion that after a receiver has been ap- pointed and the property of an insolvent corporation taken into his possession, neither the debtor nor a creditor after that time by any act of his may create a new lien upon the property. While the receiver takes only the title of the debtor at the time of appointment and holds no greater interest than the debtor had yet he takes the prop- erty into his custody as an officer of the court and neither the debtor nor his creditors after that time can create or perfect liens which have not been perfected prior to the time of the receiver's appointment and possession of the debtor's property." Either the receiver or creditors mth approved claims may in the receivership proceedings, if the mortgage claim is presented there, or by intervention or as defen- dant in a foreclosure suit, or by independent action brought in equity for the purpose, contest the validity of the mortgage.^* 13 Mutual Inv. Co. v. "Walton of N. Y. v. International etc. Co., Mach. Co. et al., 91 Wash. 298, 157 231 Fed. 594, 145 C. C. A. 480; Ber- Pac. 682. liner v. Kuttner, 85 Misc. Rep. 461, 14 Equitable Trust Co. of N. Y. 147 N. Y. Supp. 308; Mutual Inv. V. Great Shoshone etc. Co., 245 Co. v. Walton Mach. Co., et al., 91 Fed. 697, 158 C. C. A. 99; In re Wash. 298, 157 Pac. 682. Webster Loose Leaf Filing Co., Where, as the result of the in- 240 Fed. 779; Guaranty Trust Co. tervention of certain creditors in 618 LAW OF RECEIVERS. S. Receiverships Affecting Mortgaged Chattels. a. Common Law and Equitable View of Chattel Mortgage and Bight of a Mortgagee to a Receiver on Foreclosure. § 259. Common Law View. The common law view of a mortgage that it is, in law, what it is, literally, in form, a conveyance of the title to the property by the mortgagor to the mortgagee, is ap- plicable, not only to mortgages of real property,^ but to chattel mortgages as well.^ During the pendency of the mortgage the mortgagee is as against the mortgagor, the owner of the property. This ownership is, however, qualified. It is, of course, subject to be defeated by the performance of the conditions, performance of which the mortgage stipulates shall entitle the mortgagor to resto- ration of the ownership. But there are other qualifica- tions to the mortgagee's title. If he is in possession he does not own the rents and profits, such as the increase a foreclosure suit, the portion of property thereunder did the corn- plaintiff's mortgage that covered pany manifest any intention of in- certain chattels is declared void tervening and not until those and a sum of money thus obtained creditors had made application to for the benefit of creditors it is the court for the payment of their not an abuse of discretion for the claims out of that fund did the court to deny an application for appellant company appear with permission to intervene, made its verified complaint in interven- after the suit was determined, on tion claiming such an amount as the part of another creditor who would practically take the whole had failed to apply earlier. The of the fund in question. We think court says: "Instead of availing that the most favorable view that itself of that right and opportun- can be taken of the application is ity (to intervene) it allowed the that it was addressed to the sound contest to be carried on by and at discretion of the court below and the expense of those of the gen- are of the opinion that such dis- eral creditors of the insolvent cretion was not abused by the de- that have been named, resulting nial of the application." Equitable in the decree that has been re- Trust Co. of N. Y. v. Great Sho- ferred to. Not until after the suit shone etc. Co., 245 Fed. 697, 158 in which it could have intervened C. C. A. 99. had been ended by the final de- i See, supra, § 239. cree therein and the sale of the 2 Wilson v. Brannan, 27 Cal. 258. MORTGAGES, PLEDGES, AND LIENS. G19 of cattle or the Avool on sheep, and if he takes these he must apply them toward the payment of the debt and account for them to the mortgagor. If he is out of pos- session he is not entitled to an accounting from the mort- gagor or any third party in possession, of the rents and profits; and, even though he subsequently takes posses- sion as after default and after his title has become abso- lute, he can not sue in his own right for rents or profits, such as charges for freight on a mortgaged ship, accruing after the mortgage but before possession.^ The common law mortgagee's ownership becomes absolute, however, upon default and if then out of possession he can recover the property in an action at law in replevin. Because he has this legal remedy he is generally held not to be entitled to a receiver if, without gaining possession, he conmiences an action to perfect his title by shutting off, or foreclosing, the mortgagor's equity of redemption. § 260. Equitable View. Both through actions brought by mortgagees to perfect their title upon default and actions brought by mort- gagors to redeem mortgaged property, courts of equity acquired jurisdiction over litigation concerning mort- gaged property. In the practice of these courts in deal- ing with such litigation there has developed a change from the common law view of a mortgage to what miglit be called the equitable view — namely the view that a mort- gage simply grants to the mortgagee a lien upon the property affected, as security for a debt, but does not transfer title to him. This equitable view is now estab- lished in many jurisdictions by statute. While this de- velopment has applied to chattel mortgages as well as to real property mortgages,^ in the case of the former the development has not been so extensive, either territorially 3Whitmore v. Parks et al., 22 Tenn. (3 Humph.) 95; Chimney v, Blackman, 3 Douglas (British) 391. 1 See § 239, supra. 620 LAW OF RECEIVERS. or as to its effect upon the legal rights of the parties, as in the case of the latter. The common law view of the effect of a chattel mortgage on the title still largely pre- vails, though in some jurisdictions the effect is declared by statute to be only the equitable one above mentioned. ^ Even in such jurisdictions the mortgagee is given the right on default, especially when the mortgage stipu- lates that he may do so, to sell the property by some sum- mary method, or proceed in foreclosure.^ The foreclosure here mentioned is an equitable foreclosure, that is, an action through which the mortgagee seeks the payment of his debt by a sale of the property, with the right on the part of the mortgagor to receive any surplus upon the sale or, on the part of the mortgagee, to have a personal judg- ment against the mortgagor for any deficiency. In such foreclosure actions it is now generally recognized, either because the right has come to be granted by courts of equity through their inherent powers or has been estab- lished by statute, that the mortgagee may, on a proper showing, have a receiver appointed; and, when he fore- closes, the mortgagee has this right, even though he has the right to take possession through an action at law in replevin.* &. General Principles Governing Receiverships in Actions to Foreclose Chattel Mortgages. § 261. Discretion of Court. The general principles governing the appointment of receivers and the operation of receiversliips, as set forth in the early chapters of this work, are applicable in actions to foreclose chattel mortgages. The purpose of the re- 2 See California Civil Code. Commonwealth Co., 43 Kan. 93, 22 3 See California Civil Code, Wil- Pac. 982; Haggard v, Sanglin, 31 son V. Brannan, 27 Cal. 258. Wash. 165, 71 Pac. 711; Libert v. 4 H. B. Claflin Co. v. Furtick. 119 Unfried, 47 Wash. 182, 91 Pac. 774. Fed. 429; State Journal Co, v. MORTGAGES, PLEDGES, AND LIENS. 621 ceivership is to preserve and care for the property in- volved in the action so that it may be available for proper disposal under the final decree of the court.^ The remedy is merely ancillary to a suit in equity ; it is not a matter of right; and whether it will be granted or withheld is largely within the discretion of the court. In a Maiyland case affecting mortgaged chattels,^ the court, after re- marking that the question of the propriety of appointing a receiver had been discussed in former decisions prob- ably more fully and more frequently than any other question, called attention to the fact that in a somewhat earlier case,^ the results of the court's previous deliber- ations on the matter had been reduced to five proposi- tions : *' (1) The power to appoint is a delicate one and to be exercised with great circumspection; 2. It must ap- pear that the claimant has a title to the property and the court must be satisfied by affidavit that a receiver is neces- sary to preserve the property; 3. There is no case where the court appoints a receiver merely because the measure can do no harm ; 4. The fraud or imminent danger of the intermediate possession should not be taken by the court but must be clearly proved ; 5. Unless the necessity be of the most stringent character the court will not appoint until the defendant is first heard in response to the alle- gation." § 262. Necessity for Pending- Suit. Since a receivership is merely an ancillary remedy there can not be an action merely for the appointment of a receiver ; there must be pending before the court some action seeking a general relief. In the matter we are now discussing an action seeking the payment of a debt by the 1 H. B. Claflin Co. v. Furtick, 119 2 Voshell v. Hynson, 26 Md. 83. Fed. 429; Libert v. Unfiled, 47 3 Blondheim v. Moore, 11 Md. Wash. 182, 91 Pac. 774, 365. 622 LAW OP RECEIVERS. sale of property in aid of which relief the power of the court to appoint a receiver may be called into operation.^ In a foreclosure action, as in any other action, the juris- diction of the court is limited to the issues raised by the proceeding; it can not permit n©r compel parties not directly interested in those issues to be brought before it nor permit nor compel its receivers to take possession of property which is not the subject matter of the liti- gation.^ ' 1 state V. "Union National Bank, 145 Ind. 537, 57 Am. St. Rep. 209, 44 N. E. 585. 2 Ex parte Equitable Trust Co., 231 Fed. 571, 145 C. C. A. 457. This matter was an appeal to the United States Circuit Court of Ap- peals, Ninth Cii-cuit, from the Dis- trict Court of the U. S. for the Second Division of the Northern District of California from certain orders made by the District Court and an original application for writs of prohibition and manda- mus. The Equitable Trust Co., as trustee under a deed of trust se- curing bonds of the Western Pa- cific Railway Company, brought suit in the District Court to fore- close the deed of trust and receiv- ers were appointed to take posses- sion of all of the property of the railway company. In due time all of the parties to the action were before the court with stipulations asking for and consenting to an immediate decree of foreclosure and an order of sale of all the properties of the defendant com- pany. At the time the mortgage, or trust deed, which was sought to be foreclosed, was executed, there was also made a certain con- tract. The defendant railway com- pany and the Denver & Rio Grande Railroad Company were among the parties to this contract. By the contract, for all practical purposes it may be said here, the Denver Company was obligated to pay certain amounts to the West- ern Company, if that company failed to meet payments of inter- est and sinking fund on the mort- gage and these amounts were to be turned over to the trustee under the mortgage. The Denver Com- pany, it was claimed, had failed to make the payments called for un- der this contract and at or about the time of commencing the fore- closure suit, the trustee. Equitable Trust Co. of New York, com- menced an action in the District Court of New York against the Denver Company to enforce the rights claimed under this contract. At one of the hearings in the fore- closure suit the existence of this contract and the pendency of the New York action were brought to the attention of the court and an order was made enjoining the trustee from proceeding with the New York suit without the con- sent of the California court and ordering that the Denver Company be made a party to the foreclosure suit and directed to interplead therein. The appeal was from this MORTGAGES, PLEDGES, AND LIENS. 623 In the summary of general principles quoted from a Maryland decision in the preceding section it is stated that ''it must appear that the claimant has a title to the proi)erty. " It is not necessary, however, in a foreclosure suit that the plaintiff should base his claim upon a strictly formal mortgage. The intent of the parties to a contract largely governs its effect and an instrument regardless of its form may, pursuant to the intent of its signers, be construed to have the force of a mortgage. The matter is not one of form but of substance and equity. In an Arkansas case,^ it is said: ''Equity requires no partic- ular words to be used in creating a lien. It looks through the form to the substance of an agreement and if from order and the prohibition proceed- ings sought an order forbidding the District Court from enforcing its order with reference to the in- terpleading of the Denver Com- pany. In the foreclosure suit it had been shown that there was need for an early sale because a favorable opportunity to re-organ- ize and re-finance the defendant debtor company had been arranged for, an opportunity which a very large majority of the bondholders were anxious to take advantage of, and this opportunity would be lost if an early sale was not had. The Court of Appeals reversed the order enjoining the trustee from proceeding in New York and issued the writ of prohibition. In the course of its opinion the Court of Appeals says: "The Dis- trict Court in California was not asked to give relief against the Denver Company, nor was it asked to appoint receivers, except to protect and preserve, pending the litigation, the property sub- ject to the mortgage lien, which did not include the right of the trustee to enforce rights, herein involved, against the Denver Com- pany, for it may be reiterated that it was not to be sold under fore- closure, but was to survive to the trustee for the benefit of the bond- holders. It comes then to this: The receivers had a right to the custody of only the property the subject matter of litigation de- scribed in the amended com- plaint." And again: "We would not in any sense lessen the power of a court of equity to protect itself against being made an in- strument of injustice. It may ap- propriately, and should, scrutinize matters brought before it and which are fairly within and di- rectly related to the issues pre- sented. But its jurisdiction is always limited to the subject mat- ter in the case before it. 3 Martin v. Schichtt, 60 Ark. 595, 31 S. W. 458. See, also, Arkansas Cypress Shingle Co. v. Meto. etc. Co., 97 Ark. 534. 134 S. W. 1195. (j24 LAW OF RECEIVERS. the instrument evidencing the agreement the intent ap- pears to give or to charge or to pledge property, real or personal, as a security for an obligation, and the property is so described that the principal things intended to be given or charged can be sufficiently identified the lien follows." Instruments that are in effect, though not in form, mortgages are sometimes spoken of as equitable mortgages and the liens they create as equitable liens. It is to be noticed, however, that the term ''equitable mortgage" is here used in a sense different from that in which we have used it above to designate a mortgage viewed simply as giving a lien by way of security, in con- trast wdth a common law mortgage viewed as granting title. While the court may not, on the hearing of a motion for the appointment of a receiver, finally deter- mine the intent of the instrument relied upon by plaintiff claiming it to be a mortgage, it may, however, determine that there is sufficient probability of the correctness of plaintiff's contention to warrant the appointment as far as that point is concerned.^ Though a mortgagee may have taken possession of the mortgaged property or purchased it at a summary sale, he may be under the necessity of commencing an action to foreclose or in the nature of an action to foreclose and may, on a proper showing, in such an action have a receiver appointed.^ 4 Keane v. Kibble et al., 28 Idaho intended as a mortgage. The re- 274, 154 Pac. 972. In this case the ceivership was allowed. See, how- contention of defendant was that ever, a strong dissenting opinion, the instrument sued upon was a In Semmes v. Rudolph Stecher conditional sale and not a mort- Brewing Co. (Ruediger), 195 Mo. gage; and that, title being in App. 621, 187 S. W. 604, it was held plaintiff, he could not have a re- that an instrument, "in the nature ceiver appointed over his own of a chattel mortgage," was a property. In his affidavit, used on transfer of the title sufficient to the motion, plaintiff contended bring it within the purview of a that he could under the law and statute concerning bulk sales, would show, on the trial, by parol 5 in Alexander v. Houston evidence that the instrument was (Miss.), 31 So. 211, complainants. MORTGAGES, PLEDGES, AND LIENS. 625 § 283. Property Affected by Receivership. Since the purpose of the receivership is to preserve the property involved in the action and hold it ready for distribution in accordance with the final decree of the court, in a foreclosure action, the receiver can be placed in possession only of the property covered by the mort- gage and it is error for the court to direct the receiver to take possession of property not so covered.^ AVhen it is claimed that certain property, such as a leasehold, had l^een taken in the name of a third party instead of in the name of the mortgagor, for the purpose of defrauding the mortgagee of his security, and a show- ing is made sufficient to warrant the belief that the claim is w^U founded, the court may order the receiver to take uuder a provision of the mortgage to the effect that they could claim a foreclosure at any time before the imturity of the debt if they becanif dissatisfied with the secur- ity, e.'fjrcised this option and pur- chafed at a summary sale for less ttaj the amount of the debt. De- findants refused to deliver posses- ion and complainants sued to per- fect their title, or, in case it was found defective, to foreclose. On the equitable showing made by the /complaint a receiver was ap- pointed, and in J. I. Case Thresh- ing Machine Co. v. Barney, 54 Okla. 686, 154 Pac. 674, the plain- tiff sued to foreclose a mortgage on a threshing machine securing a debt of about $2400. A receiver v/as appointed and on order of court, sold the property before trial to plaintiffs for $1400. De- fendants cross-complained on the ground that plaintiffs had before commencing suit wrongfully taken possession of the property and by I Rec. — 40 neglecting it had permitted it to deteriorate in value. On the trial the court, of its own motion, dis- charged the receiver and set aside all of his acts and refused to per- mit plaintiifs to prove that they had purchased at the receiver's sale. The appellate court ruled that this order of the trial court was erroneous, although it ex- pressly refrained from deciding whether or not the trial court had "authority" to appoint a receiver and order the property sold and "assumed" that it had that "power." It ruled however that the taking of the property by plaintiff before action was justified under a stipulation of the mort- gage giving it the power on de- fault to take and sell the property. 1 Ex parte Equitable Trust Co. of New York, 231 Fed. 571, 145 C. C. A. 457; State v. Union Nat. Bank, 145 Ind. 537, 57 Am. St. Rep. 209, 44 N. E. 585; Thomas v. Arm- strong, 51 Okla. 203, 151 Pac. 689. 626 LAW OF RECEIVERS. possession of the property and hold pending the result of a full hearing of the matter.^ When the mortgaged property is being used in a business and it is necessary for the purpose of preserving the value of the property as security for the debt the court may order the receiver to continue the business, especially when the mortgage expressly covers the good will.^ If the mortgaged property, while in the possession of the receiver, is destroyed by fire and the property was insured for the benefit of the mortgagee, the receiver will be authorized to collect the insurance, and the lien of the mortgage will be transferred to the fund.^ § 264. The Court's General Control Over the Receivership. As the question of propriety of creating a receivership is within the very wide discretion of the court and to be 2 Leader Pub. Co. v. Grant Trust & S. Co., 182 Ind. 651, 108 N. E. 121. Where goods which have been fraudulently purchased are mort- gaged by the purchaser and the seller is claiming the property as against the mortgagee, a receiver may be appointed to preserve the property pending the determina- tion of the title to it regardless ot the solvency or insolvency of the mortgagee. Exchange Bank v, H. B. Claflin Co., 100 Ga. 640; Wolfe v. Claflin, 81 Ga. 65. Unsecured creditors may iden- tify and separate what goods they can from the debtor's common stock and a receiver may be ap- pointed to take charge of the goods so identified and separated but not for the whole property where a mortgagee of it is solvent. Atlan- tic, etc.. Ice Co, v. Bluthenthal, 101 Ga. 541. 3 Cake V. Mohun, 164 U. S. 311, 41 L. Ed. 447, 17 Sup. Ct 100; Leader Pub. Co. v. Grant 1 & S. Co., supra. The fact that a mortgage ^1 ^- J- Eq. 126; State v. Dela- erty until the relative rights of ^^.^^ g ^^.^^ ^^_ y) 527- Ellett the Interested creditors couid be ^ Newman, 92 N. C 519- Mitchell '^'*"™^"^^- V. Barnes. 22 Hun. (N.'y.) 194; 1 Heard v. Murray, 93 Ala. 127, Simmons Hardware Co. v. Waibel, 9 So. 514; Webb v. First Baptist 1 S. D. 488, 36 Am. St. Rep. 755,' Church Trustees, 90 Ky. 117, 13 ii l. R. A. 267, 47 N. W. 814;' S. W. 362; In re Lewis Pet'tion, 52 Gunn v. Blair, 9 Wis. 352; North- Kan. 660, 35 Pac. 287; West v. ern Pac. R. Co. v. St. Paul M & Chasten, 12 Fla. 315; St. Louis, etc., M. R. Co., 47 Fed. 536; affirmed in Coal & Min. Co. v. Edwards, 103 4 U. S. App. 149; Towle v. Ameri- III. 472; Baker v. Backus' Admr., can Bldg. Loan & Invest. Soc, 60 32 111. 79; Powell v, Quinn, 49 Ga. Fed. 131. 654 LAW OF RECEIVERS. equity is because some embarrassment, impediment, or obstruction stands in the way of a safe and practical exhaustion of the law process due to the fact that the debtor has transferred the legal title or placed some en- cumbrance upon it for the purpose of hindering, delaying, or defrauding his creditors. ^ The purpose of the suit is to have the impediment declared fraudulent and void as to the plaintiff and thus open up the way to the effective sale of the property under the law process.^ § 274. Conditions for Appointment of Receiver. The equitable remedy of a receivership is not open to a litigant who has an available and adequate remedy at law.^ In some jurisdictions a judgment creditor, because the fraudulent conveyance is, as to him, a nullity, what- ever its effect as between the parties may be, could sell the property on execution and the purchaser could main- tain an action in ejectment against the vendee, trying the issue of fraud in such action.^ This method, however, would hardly be safe. Usually the judgment creditor would have to be the purchaser, setting off his judgment against the purchase price. He would then lose his judg- ment if he failed effectively to prove the fraud. Under these circumstances the legal remedy is held not to be exclusive and the equitable principle above referred to is held to be satisfied if the creditor shows that he has some sort of a lien upon the property. His judgment 2 Shainwald v. Lewis, 6 Fed. 766, gation. Kubl v. Martin, 26 N. J. 7 Sawy. (U. S.) 148; Fusze v. Eq. 60, or by a receiver, appointed Stern 17 111. App. 429; De Long v. for the purpose, after judgment. Rankin v. Schultz. 141 Iowa 681, Mechanics, etc., Bank, 168 App. Div. 525, 153 N. Y. Supp. 1010, 1012. 118 N. W. 383; Shand v. Hanley, 71 N. Y. 319. 1 See, § 8, supra. 3 Under some circumstances the ^ Maders v. Whallon, 74 Hun 372, property may be ordered sold pen- 26 N. Y. Supp. 614; Smith v. Reid, dente lite and the proceeds held 134 n. Y. 568, 31 N. E. 1082; Burch to await the outcome of the liti- v. Brantley, 20 S. C. 503. PROCEEDINGS IN AID OF GENERAL CREDITORS. 655 may give him a lien; or he may liave a lien by having attached the property at the commencement of the action ; or he may secure a lien by a levy of execution.^ In this way the creditor also removes the objection which, as we have just above shown, stands in the way, under another general rule concerning the creation of receiverships, of a mere contract creditor's going into equity and asking for that remedy. § 275. General Principles and Grounds for the Appointment of a Receiver. The appointment of receivers in actions against fraud- ulent conveyances has naturally developed under the practice of equity courts. Hence the general rules gov- erning receiverships apply in this class of cases. The appointment, like the appointment in general, rests in the sound judicial discretion of the court, under the statu- tory provisions, and the practice of the court, upon notice given to the debtor and those interested in the property, or their appearance. The order should receive special care and be drawn with reference to the object or purpose of the receivership, having reference to the nature and character of the property involved. The general duties imposed upon the receiver, and the general rules regard- ing the regularity of the appointment, and the methods of attacking the same, are equally applicable to this class of receiverships ; and so with reference to the bond and sureties of the receiver, as well as the general principles governing the selection of a receiver, his powers, duties, functions, and liabilities. 3 Hirsch v. Israel, 106 la. 498, 76 steps to procure a lien upon the N. W. 811; Beck v. Burdett, 1 property. Pearce v. Jennings, 94 Paige (N. Y.) 305, 19 Am. Dec. 436; Ala. 524, 10 So. 511. Storm V. Waddell, 2 Sandf. Ch. If the judgment lien has expired (N. y.) 494, 511. the action will not lie. Newman v. A creditor may lose his right to Willetts, 52 111. 98. See note 4, a receiver through laches in taking § 372, supra. 656 LAW OF RECEIVERS. Granting tliat the plaintiff has placed himself in a position that entitles him to ask for a receiver, the ques- tion as to whether or not he shows sufficient equitable necessity to warrant the employment in the case of this drastic remedy is decided under the general rules gov- erning that matter, with such adaptations as are necessi- tated by the circumstances of the case.^ Where possession of the proi^erty involved in the action has been obtained by fraud or the property has been dealt with in some fraudulent manner, a showing of the fraud is usually sufficient to warrant a receiver- ship.- The showing in this behalf must be sufficient to warrant the belief that the plaintiff will probably prevail in the action.^ Since all that the creditor is entitled to is the satisfaction of his judgment, a showing that the judgment debtor has sufficient other property for that purpose will defeat the application for a receiver, even though the creditor may have the right to pursue the par- ticular property involved in the action.^ A receiver of the property, or of the rents and profits thereof, will not be appointed if the vendee or transferee is in possession, is not insolvent, and can be made to respond to any judgment against him for the property, or the rents and profits, or any damage to the property.^ It might be that a receiver would be appointed to prevent a multi- plicity of suits involving it.^ The circumstances that may 1 See, chapter 2, supra. ceiver will be appointed, assuming 2 See, § 6, supra. that the plaintiff gets into court. 3 See, § 12, supra. Of course a receiver can not be 4 Second Ward Bank v. Upmann, appointed if the complaint does 12 Wis. 499. We are not in this not state a cause of action. text concerned with the question 5 Turnipseed v. Kentucky Wagon as to v.bat allegations are neces- Co., 97 Ga. 258, 23 S. E. 84; Clark sary to establish a cause of action v. Raymond, 85 la. 737, 52 N. W. so that the creditor may maintain 489; Gassaway v. Heidenheimer his suit, whether or not he shows (Tex. Civ. App.), 37 S. W. 343. that he is entitled to a receiver. c Thus where goods were seized Our province is simply to show under a writ of attachment and under what circumstances a re- were then replevied by the debtor, PROCEEDINGS IN AID OF GENERAL CREDITORS. 657 sufficiently show fraud and the necessity for a receiver are, of course, innumerable."^ § 276. Effect of Assignment for Benefit of Creditors. "While any transaction with reference to the debtor's title to property, such as a sale, a mortgage, or a judg- ment, may be attacked as a fradulent conveyance, an assignment for the benefit of creditors needs to receive special attention. This method of handling the assets of a debtor is entirely statutory and the proceedings under such an assignment are such only as are provided for in the statute permitting it. It is, of course, imprac- ticable to consider in detail the various statutes bearing on such questions. If there is in the hands of an assignee a surplus over and above what is necessary to satisfy the claims of the creditors to be benefited by the assignment, the surplus may be reached by garnishment.^ If the assignment is sufficiently defective to make it invalid it and a subsequent attachment ^ Werborn's Admr. v. Kahn, 93 creditor in the same court charged Ala. 201, 9 So. 729 ; Stern v. fraud and collusion between the Austern, 120 N. C. 107, 27 S. E. debtor and the first attaching 31; Wagener v. Pape, 46 S. C. creditor, it was held that a re- 245, 24 S. E. 340. ceiver should be appointed in Where, after the levy of execu- order to prevent a multiplicity of tion, a portion of the land involved suits. Sackhoff v. Vandegrift, 98 was sold in condemnation pro- Ala 192, 13 So. 495. . ceedings and the condemnation And where, after one creditor of price paid into court, a receiver a manufacturing firm attached his could be appointed to take the property, other creditors began fund and hold it pending the out- replevin proceedings, charging come of the action. Ahlbanser v. fraud, in an equitable action by the Doud, 74 Wis. 400, 43 N. W. 169; attaching creditor against the see, also. Rose v. Bevan, 10 Md. other claimants, seeking to pro- 466, 69 Am. Dec. 170; Beam v. tect the attachment lien, and to Bennett, 51 Mich. 148, 16 N. W. secure an adjudication in one suit 316. upon the conflicting claims, the i Leeds v. Sayward, 6 N. H. 83; appointment of a receiver was Viall v. Bliss, 9 Pick. (Mass.) 13; held proper. National Park Bank Ward v. Lamson, 6 Pick. (Mass.) V. Goddard, 62 Hun 31, 16 N. Y. 358; Brewer v. Pitkins, 11 Pick. Supp. 343. (Mass.) 298; Copeland v. Weld, I Rec. — 42 658 LAW OF RECEIVERS. does not operate to assign the property; under such cir- cumstances the property is not then in the custody of the law and remains open to seizure on legal process. ^ If permissible under the statute, general creditors may intervene in the proceedings, ask that the proceeds of property sold under an invalid assignment and one giv- ing an improper preference be distributed among all the assignor's creditors, and that a receiver be appointed to administer the trust.^ But the proposition that we are chiefly interested in here is that such an assignment may itself be attacked as a fraudulent conveyance in a suit of the kind that forms the subject of this subdivision. In an Alabama case the appointment, without notice, of a receiver as against an assignee for the benefit of creditors was sus- tained on appeal.^ The case well illustrates the sort of facts that will justify the appointment of a receiver in such a case. The complaint alleged that the defendants were insolvent; that they had, on the pretense of pay- ment of a simulated debt, transferred a large part of their stock of merchandise to their mother and that she was disposing of them through an agent; that the rest of their goods had been assigned, for the benefit of certain creditors, to an insolvent assignee, who was not under 8 Me. 44; Jewett v. Barnard, 6 A receiver will not be appointed Me. 381; Todd v. Bucknam, 11 Me. as against an assignee, or trustee, 41. who is responsible and denies the 2 Bradley v. Bailey, 95 Iowa, 745, charge of fraud. Levenson v. 64 N. W. 758. Elson, 88 N. C. 182. 3 Hockaday v. Drye, 7 Okla. 288, An assignment to the debtor's 54 Pac. 475. father, an insolvent, without actual 4 Maxwell v. Peters Shoe Co., change of possession is presump- 109 Ala. 371, 19 So. 412. A receiver tively fraudulent and justifies a re- will be appointed when the as- celvership. Connah v. Sedgwick, 1 signee, or trustee, is not responsi- Barb. (N. Y.) 210; see, also, Han- ble and will probably dispose of cock v. Wooten, 107 N. C. 9, 11 the property before the termina- L. R. A, 466, 12 S. E. 199; and tion of the suit. Ellett v. Newman, State v. Foot, 27 S. C. 340, 3 S. E. 92 N. C. 519. 546. PROCEEDINGS IN AID OF GENERAL CREDITORS. 659 bond ; that the assignee was making fraudulent prefer- ences ; that both the mother and the assig-nee were aware of defendant's insolvency; that the entire transaction was a scheme to hinder, delay, and defraud creditors. Mere delay on the part of the assignee, or trustee, will not justify the appointment of a receiver at the request of impatient creditors, who can point to no substantial fraud.^ It is improper to appoint a receiver to collect the assets and deliver them to the assignee ;« but the court, in lieu of appointing a receiver, may permit the assignee to collect the assets and restrain him from dis- tributing them until the suit has been finally determined."' An instruction to the receiver to sell the property and distribute the proceeds, so far as necessary, in settling the claims of the creditors plaintiffs, and the balance among other creditors is erroneous.* 3. Creditors' Equity Suits to Reach Assets Not Accessible Under Law Process. § 277. Nature of the Action. ''The principle being established that every species of property belonging to a debtor may be reached and applied to the satisfaction of his debts, the powers of this court are perfectly adequate to carry that principle into full effect."^ This quotation expresses the principle upon which the jurisdiction of equity courts to entertain the second class of cases in which they come to the aid of judgment creditors is based. The fundamental allega- tion that states the cause of action in a proper complaint, or bill, is one to the effect that the judgment debtor owns 5 Pyles V. Riverside Furniture ^ Spring v. Strauss, 3 Bosw. Co., 30 W. Va. 123, 2 S. E. 909; (N. Y.) 607. Dozier v Logan. 101 Ga. 173, 28 s Middleton v. Taber, 46 S. C. S. E. 612. 337, 24 S. E. 282. 6 Mussbaum v. Price, 80 Ga. 205, i Edmeston v. Lyde, 1 Paige Ch. 5 g g 291 ^'•- ^-^ ^2^' ^^^' ^'^ ^'^- '^®'^- ^^*" 660 LAW OP RECEIVERS. property, equitable interests, clioses in action, or what- not, that, under the laws of the jurisdiction in which the judgment was obtained can not be seized and sold under process of execution or the like. It has sometimes been held that such an action is available only to one whose judgment is based on a cause of action that was itself cognizable only in a court of equity ;- but the prevailing opinion is that it is open to one who has obtained a judg- ment at law as well as to one who has obtained his judg- ment in equity.^ The purpose of the action is to subject these * 'equitable," or non-executionable, assets of the debtor to the payment of the creditor's claim. § 278. Conditions for Appointing a Receiver. To meet the proposition that a litigant wdio has an available remedy at law is not entitled to a receiver, a creditor in this class of action is required to show that he has had execution issued and that the execution has been returned nulla bona} The positive affidavit that no 2 Donovan v. Finn, 1 Hopk. Ch. Rhodes v. Cousins, 6 Rand. (Va.) (N. Y.) 59, 14 Am. Dec. 531; Pettit 188, 18 Am. Dec. 715; Zell Guano V. Candler, 3 Wend. (N. Y.) 618, Co. v. Heatherly, 45 W. Va. 311, 624. 31 S. E. 932. 3 Board of Public Works v. Co- The legal remedy of mandamus lumbia College, 17 Wall. (U. S.) may be available to a creditor, as 521, 530, 21 L. Ed. 687; Spindle v. in the case of a judgment against Shreve, 111 U. S. 542, 28 L. Ed. a political corporation, like a 512, 4 Sup. Ct. 522; Spader v. county, or a city; if so, the fact Davis, 5 Johns. Ch. (N. Y.) 280. that it fails to produce the money 1 Biedler v. Douglas, 35 111. App. — "a very usual result in the use 124; Skeele v. Stanw^ood, 33 Me. of all remedies" — will not entitle 307, 309; Gorton v. Massey, 12 a creditor to maintain an equitable Minn. 145, 147, 90 Am, Dec. 287; action and have a receiver ap- Adee v. Bigler, 81 N. Y. 349; pointed to collect a tax: Thomp- Bayand v. Fellows, 28 Barb. son v. Allen County, 115 U. S. 550, (N. Y.) 451; Wiggins v. Arm- 29 L. Ed. 472, 6 Sup. Ct. 140; Rees strong, 2 Johns. Ch. (N. Y.) 144; v. Watertown, 86 U. S. 107, 22 Hendricks v. Robinson, 2 Johns. L. Ed. 72. In the latter case the Ch. 283, 296; Carter v. Hightower, court says: "The remedy (man- 79 Tex. 135, 15 S. W. 223; Hulse, damns) is in law and theory ade- etc, v. Wright, Wright (Ohio) 61; quate and perfect. The diflBculty PROCEEDINGS IN AID OP GENERAL CREDITORS. 6G1 execution has been returned is a sufficient answer to the motion for a receiver.^ The rule that a litigant asking- for a receiver must show that he has some interest in or lien upon the prop- erty sought to be involved in the receivership is met by the proposition that the filing of a bill in this class of cases gives the plaintiff a lien which dates from the com- mencement of the action.2 § 279. Grounds for the Appointment of a Receiver. When a creditor has qualified himself to commence his action and to ask for a receiver under the rules set forth in the preceding section, the judgment debtor has but little opportunity to resist the application. He can not ordinarily question the judgment;^ the fact that he refuses voluntarily to offer his property in satisfaction is in its execution only. The want of a remedy and the inability to obtain the fruits of a remedy are quite distinct, and yet they are confounded in the present pro- ceeding. ... A court of equity can not, by avowing there is a right but no remedy known to the law, create a remedy in violation of law, or even without authority of law. It acts upon established principles not only, but through established channels." A remedy at law is inadequate, in the equity sense, only when "in its nature or character it is not fitted or adapted to the end in view." Thompson v. Allen County, supra. A receiver will not be appointed merely because the equitable remedy may be more convenient than the law process. Harris v. Beauchamp, 1 Q. B. 801; Man- chester, etc., Co. V. Parkinson, 22 Q. B. 173. The facts that property subject to levy is not saleable and that the sheriff is disqualified from serving the writ, do not justify the appointment of a receiver. Buck- eye Engine Co. v. Donan Brewing Co., 47 Fed. 6. Acceptance of a note for the judgment does not, unless ac- cepted as satisfaction thereof, bar the creditor from this legal remedy. Balde v. Smith, 5 Ch. Sent. 11. 2 Wright V. Strong, 3 How. Pr. (N. Y.) 112; Ahlhauser v. Doud, 74 Wis. 400, 43 N. W. 169. 3 Heard v. Murray, 93 Ala. 127, 9 So. 514; Spader v. Davis, 5 Johns. Ch. (N. Y.) 280; Weed v. Pierce, 9 Cow. (N. Y.) 722, 728; Ames v. Blunt, 5 Paige Ch. (N. Y.) 13. 1 Mattingly v. Nye, 75 U. S. 370, 19 L. Ed. 380. 662 LAW OF RECEIVERS. of the judgment is considered as fraud and the appoint- ment of the receiver follows almost as a matter of course.^ A^ice-Chancellor Sanford, in an early New York case,^ has given a very clear epitome of plaintiff's rights in the action. First he called attention to the distinction be- tween this class of action and the one considered in the preceding division of the chapter, as follows: ''The power of the Court of Chancery to aid the creditor in removing fraudulent impediments in the way of levying on the personal property liable to execution, or selling the real estate of his debtor, is an old established ground of jurisdiction, which is not in question here. The bill in those cases was auxiliary to the carrying into effect the process of the law courts, and differed from our creditor's suit now under consideration, in this, that in the suit to set aside a fraudulent conveyance of land, so as to give effect to a judgment, the bill need not allege anything more than the recover}^ of the judgment, and where it was to remove an obstruction affecting movable property, it was only requisite to allege an execution issued to the county wiiere the property was situated;"* w^iile in the creditor's bill against equitable interests and things in action, the creditor must show the issuing of an execution and its regular return unsatisfied." Then, in regard to the latter sort of suit, the Vice-Chancellor said: "I may therefore assume, that by the law [not statute] of this state as settled more than twenty years 2 Gage V. Smith, 79 111. 219; that the property of the debtor, if Corning, etc., v. White, 2 Paige any he has, will be misapplied, and (N. Y.) 567, 22 Am. Dec. 659; entitles the complainant to an in- Congden V. Lee, 3 Edw. Ch. (X. Y.) junction in the first instance, it 304; Bank of Monroe V. Schermer- ^^^^^ ^^ ^^ ^^^^^^ ^ ^^^^^^ ^^ horn, Clarke Ch. (N. Y. 214; Aus- tin V. Figueira, 7 Paige (N. Y.) 56. In Bloodgood v. Clark, 4 Paige (N. Y.) 574, the rule is stated as follows: "In these cases of cred- ^ Storm v. Waddell, 2 Sandf. Ch. itors' bills where the return of (N. Y.) [1845] 494, at 511. execution unsatisfied presupposes ■* See, § 274, supra. course to appoint a receiver to collect and preserve the property pending the litigation." PROCEEDINGS IN AID OF GENERAL CREDITORS. 663 before this case arose, an unsatisfied execution creditor had a right to file a bill in this court to compel payment of his debt out of the equitable interests and things in action of the judgment debtor. *'I will now endeavor to show what is the effect of such a bill when filed and duly prosecuted. ''Before filing it, the creditor must have obtained a judgment or a decree for the payment of money, issued his execution against both the real and personal proi3erty of his debtor, and had it actually returned and filed. And he must state in his bill under oath that the sum claimed upon his judgment or decree is due to him over and above all claims of the debtor by way of off-set or otherwise. This makes a case which leaves little room for contin- gency or uncertainty in the result of the suit, so far as complainant's debt is concerned. His cause of action must be upon the records of some court of law which of themselves are evidence of the existence of the debt. "Upon filing the bill, an injunction is taken out and served with the subpoena to answer, restraining the debtor from parting with any of his property or effects till the further order of the court. And for the better pro- tection of the property and its conversion into money, a receiver is speedily appointed, who, under the order of the court, is vested with all such property (or with suffi- cient specific portions of it to pay the complainant 's debt and costs, and all prior claims upon the same), and the debtor is compelled to assign and deliver such property to the receiver under the direction of a master of the court. ''Unless the defendant can make a defense on some one of the very narrow grounds open to him, the decree presently ensues, which directs the receiver to pay to the 664 LAW OP RECEIVERS. complainant out of the fund in his hands, the judgment with interest, and the costs of the suit."^ § 280. Necessity for Showing Existence of Property of Debtor. The general rules respecting the necessity for the exr istence of property have heretofore been discussed.^ In our present discussion we have thus far spoken of this action as being designed to enable the creditor to subject to his judgment property, such as equitable inter- ests^ and choses in action, that, under the law of the jurisdiction, can not be subjected to seizure under execu- tion or other similar writs. In this phase of the action, the property sought to be involved is known to the cred- itor and is specifically mentioned in the bill. Such is also the situation with reference to the property involved in the creditor's action, just above discussed, to set aside fraudulent transfers.^ It may be, however, that the debtor has concealed his property in some way or other so that, while the creditor practically knows that the debtor has property, he does not know where or in what form it is. In this situation the creditor is entitled to the 5 The judgment, which, as above is essential to keep in mind the stated, is essential as a foundation distinction between a suit brought for the creditor's right of action in to enforce satisfaction of a judg- this character of suit, is not neces- ^lent already obtained— the kind sarily one obtained in a law court. ^^ ^^^.^ ^^ ^^^ ^^^ considering- The creditor's claim may be o" and a suit brought to obtain a judgment in the first instance. See Shainwald v. Lewis, 6 Fed. 766, 7 Sawy. 148. such a character as to be cogni- zable only in an equity court and the creditor may have to resort to such a court for his judgment. o- i.- i. • j„ 1 See, § 13, supra. Since executions on equity ]udg- . » . i • ments have been allowed a cred- 2 Equitable interests, choses in iter may maintain such a suit as action, etc., may, by statute, be we are discussing upon an equity subject to legal process and there- judgment and return unsatisfied fore be reachable by a creditor of execution based thereon. In without the necessity for an equit- considering the necessity for an able action. See Shainwald v. execution returned unsatisfied as Lewis, 6 Fed. 766, 7 Sawy. 148. a foundation for an equity suit, it 3 See, § 273, supra. PROCEEDINGS IN AID OF GENERAL CREDITORS. 665 aid of equity, the foundation of the jurisdiction being the identical principle above stated, namely, the power of equity to subject all the property of a debtor to the pay- ' ment of his debts. The action brought by a creditor seek- ing unknown property is identical in principle with that brought by a creditor seeking specific property not sub- ject to execution, and proceeds, in all material points, along the same lines and to the same end. The peculiar features of the action, not relating at all to the principle on which the jurisdiction is founded, are that the prop- erty is not specifically mentioned in the complaint and that the property, when discovered, may be of such a character that it could have been reached, at the outset, by execution, if its existence or whereabouts had been known. If it should happen to be of that character the court nevertheless retains jurisdiction and treats the property under the receivership in the same manner as it would any other property. The "discovery" is made either through replies, given in the answer, to inquiries set forth in the bill,^ or through a receiver to whom is given the duty and the power to ferret out the property and reduce it to possession. That equity courts have jurisdiction to entertain an action of this character was the main question at issue on a motion to vacate an order appointing a receiver and ordering the defendant to make an assignment to him in a suit arising in the Fed- eral District Court of the District of California." The allegations of the bill illustrate the nature of the juris- diction which the court was asked to exercise. The com- plainant, asignee of a certain bankrupt firm, had obtained a decree against defendant, in an equity action, based on the charge that he had obtained possession of funds of the firm "by fraud and collusion and by means of fraud- ulent and collusive judgments founded on fictitious 4Pettit V. Chandler, 3 Wend. (N. Y.) 618, 624; Vicksburg, etc., R. R. Co. V. Phillips, 64 Miss. 108, 1 So. 7. 5 Shainwald v. Lewis, 6 Fed. 766, 7 Sawy. 148. 666 LAW OF RECEIVERS. debts." In tlie complaint in the action referred to here, after alleging the jurisdictional facts of obtaining this judgment'' and of the return of an execution unsatisfied, averred: ''that respondent had procured a homestead to be declared upon his land — had sold valuable real estate, and threatens, intends, and is about to leave and depart from the United States, and take and carry with him all his money and other property, with the intent, object, purpose, and design of preventing the same from being levied upon or applied in satisfaction of said decree, and with intent to hinder, delay, and defraud this complain- ant of the moneys and property to which he is entitled under said decree. That since the enrolling of said decree the respondent has secretly transferred a large part of his property to divers persons, and has secreted the remainder of his property with the intent and design aforesaid, and to prevent said property from being seized on execution or secured or applied to satisfy said decree. ' ' Concerning the bill, the court said: "If these allegations are true, or even partially true, a stronger case for the appointment of a receiver could not well be imagined. Unless this court can interpose in the most summary manner the complainant will be remediless, and its decree abortive." It will thus be seen that this class of actions may be maintained and a receiver obtained without an actual showing that the debtor has any specific property that the receiver may take. All that is necessary is a circum- stantial showing that he has or ought to have some property.'^ 6 A question at issue on the 552, Fed. Cas. No. 13542, it was hearing of the motion was as to alleged that defendant Goldman, whether or not a creditor could who had been a wholesale boot maintain his action based on an and shoe dealer, had in a very unsatisfied equity judgment in- short time disposed of a very large stead of a judgment at law. stock of goods, contracted large 7 In Strong v. Goldman, 8 Biss. personal and commercial debts. PROCEEDINGS IN AID OP GENERAL CREDITORS. 667 § 281. Property Affected by the Receivership. Every species of property, owned by the debtor at the time of the commencement of the suit, may be brought under the administration of the receiver; and all of his property may be so brought, although the court may, in its discretion, instruct the receiver to impound only suffi- cient property to satisfy the demands of plaintiftV with interest and costs, after the property has been freed of any valid prior encumbrances.^ Property acquired by the debtor subsequent to the filing of the bill will not be affected, but may be brought in, if necessary, by a sup- plemental bill.^ § 282. Effect of an Assignment for Benefit of Creditors. The fact that the debtor has made an assignment for the benefit of creditors does not prevent a non-assenting creditor from maintaining an action in equity to secure the satisfaction of his judgment. Because of the limited powers that an assignee for creditors has under the stat- ute it is held that the proceedings under the assignment should not be considered exclusive and a bar to general equity action and that there will not be created any con- flict of jurisdiction between the equity court and the court having jurisdiction of the assignment proceedings.^ and then assigned a small rem- lumbia College, 17 Wall. (U. S.) nant for the benefit of his cred- 521, 530, 21 L. Ed. 687; Shainwald itors. V. Lewis, 6 Fed. 766, 7 Sawy. 148; In Bloodgood v. Clark, 4 Paige Storm v. Waddell, 2 Sandf. Ch. (N. Y.) 577, it is said: 'It is no (N. Y.) 494; Pettit v. Chandler, 3 sufficient answer to such an ap- Wend. (N. Y.) 618, 624; Spader v, plication to say there may not be Davis, 5 Johns. Ch. (N. Y.) 280. any property to protect, as the 2 Holmes v. Millage L. R., 1 Q. B. complainant proceeds at the peril Div. (1893) 551; Graff v. Bonnett, of costs if there be no property 25 How. Pr. (N. Y.) 470, 2 Rob. and if there is nothing for the re- 54; Storm v. Waddeil, 2 Sandf. ceiver to take the defendant can Ch. (N. Y.) 494; Eager v. Price, not be injured by the appoint- 2 Paige (N. Y.) 333. ment." i Strong v. Goldman. 8 Biss. 552, 1 Board of Public Works v. Co- Fed. Cas. No. 13542. This case was 668 LAW OF RECEIVERS. § 283. Lien and Priority Acquired by the Complainant. By filing his bill the creditor acquires a lien upon all of the property of the debtor that is brought into the receivership, and the lien dates from the filing. While there may be found expressions placing the lien at the time of some later step in the cause, such as the serving of the subpoena, or even the appointment of the receiver, they were probably made because they were sufficient for the purposes of the case under consideration.^ The lien establishes two priorities in favor of the creditor. His lien is superior to any right subsequently acquired in the property.- The lien gives the action a instituted in a federal court at a time when the debtor had made an assignment for creditors under an Illinois statute and proceedings thereunder were pending in the proper Illinois court. Such pro- cee'dings are purely statutory and such statutes exist in most of the states. While these statutes vary in detail they are sufficiently simi- lar in general provisions and in their purpose to warrant the opinion that the conclusion reached in the cited case would apply to such proceedings under any of the statutes. The equity jurisdiction was Invoked because of the evident fraudulent con- cealment of assets by the debtor and the conclusion of the court was: "On this showing It seems to me there is a case made for the appointment of a receiver to be clothed with powers competent for the court to confer, for the purpose of bringing suits, or prose- cuting this suit, and unearthing if possible the disposition this man has made of this property. A re- ceiver will therefore be appointed with such powers as the court may now or hereafter confer upon him in the premises." In this connection see also the general subject of Conflict of Juris- diction. 1 Shainwald v. Lewis, 6 Fed. 766, 7 Sawy. 148; Storm v. Waddell, 2 Sandf. Ch. (N. Y.) 494; Fetter v. Cirode, 4 B. Monroe (Ky.) 482; Newdigate v. Jacobs, 9 Dana (Ky.) 17. 2 Weed V. Smull, 3 Sandf. Ch. (N. Y.) 273. The point at issue in Storm v. Waddell, 2 Sandf. Ch. (N. Y.) 494, frequently referred to in these notes, was as to the respective priorities of a creditor suing in equity and an assignee in bank- ruptcy, when the equity suit had been commenced before the bank- ruptcy proceedings. The case was decided in favor of the equity com- plainant. The lengthy discussion in the opinion of the nature and force of the equity action was for the purpose of showing that the creditor had a lien within the meaning of that term as used in a certain section of the bank- ruptcy stati e then in force. PROCEEDINGS IN AID OF GENERAL CREDITORS. 669 certain aspect of an action in rem, and the action may continue as against tlie property even after the judgment debtor has been discharged from the debt in bankruptcy proceedings.^ If, however, the property discovered and brought into the receivership is such that it was subject to levy of execution the lien of an equitable complainant will not be superior to that of one who levies execution upon it prior to the appointment of the receiver.^ The lien thus acquired can not displace any prior valid lien ; if, however, a prior encumbrancer of land is not entitled to rents and profits until he secures a lien upon them by the appointment of a receiver, a judgment creditor will be entitled to all rents collected by his receiver until the encumbrancer by intervention or independent action secures his right to them by having the receivership ex- tended to cover his claim.^ An assignment under the insol- vent acts after the commencement of the suit only gives to the assignee a right to the surplus after the payment of the com- plainant's debt. Corning, etc., v. White, 2 Paige (N. Y.) 567, 22 Am. Dec. 659. 3 Fetter v. Cirode, 4 B. Monroe (Ky.) 482. 4 Lansing, etc., v. Easton, 7 Paige (N. Y.) 364; Storm v. Badger, 8 Paige (N. Y.) 130. In commenting on these two de- cisions in Storm v. Waddell, 2 Sandf. Ch. (N. Y.) 494, the vice- chancellor says: "Whatever may be the true grounds of the rule, it does not affect the force of the lien of a creditor's suit, upon equitable interests and things in action. In the absence of an authoritative exposition of the rea- sons, 1 submit that the decisions may be upheld on the following. Tha object of these suits is to remedy the defect of legal process in the collection of debts. There is no difficulty in obtaining satis- faction out of the chattels of the debtor, in ordinary cases, by sale on execution. And the creditor who first levies his execution on such chattels is entitled to priority by his greater vigilance. The effecting of such a levy indicates that the remedy at law was not imperfect, and, as that is the prin- cipal remedy, and the one in equity is ancillary, the former should take precedence, so long as the possession and title remain in the debtor. But when the proceed- ing in equity, by an oraer for a re- ceiver or otherwise, has made what is equivalent to an actual levy in behalf of the suitor in this court, he is then the vigilant cred- itor and obtains the prior lien." 5 Morrogh v. Hoare, 5 Ir. Eq. Rep. (1842-43) 195. See, also, Hol- land V. Cork & K. R. Co., Ir. Eq. 670 LAW OF RECEIVERS. In the second place, when more than one action has been commenced against the same debtor in an effort to reach the same property, the various creditors are pre- ferred in the order in which their complaints are filed.*^ § 284, Duties and Powers of Receiver.^ Upon the appointment of a receiver the title to the debtor's property is vested in him, subject to certain qualifications and conditions. Usually, however, the debtor is compelled to make an assignment to the receiver. His title is, of course, defeasible and the title to such property as remains after the claims of the creditors who are parties to the action reverts to the debtor. The receiver acts under the orders of the court. He has powder to take whatever steps are necessary to reduce the property of the debtor to possession. If he finds property that has been fradulently conveyed he has the powder to sue to have the conveyance set aside^ and reduce it to his possession. § 285. Effect of Statutory Provisions. The jurisdiction of courts of equity to entertain suits of this character has been maintained without the aid of statutory enactment and is an inherent power. However, in many jurisdictions statutes have been passed definitely Rep. (1868) 417. See, also, § 247, the hands of the debtor by the in- gupra. junction, may be decreed to be 6 Corning, etc.. v. White, 2 Paige delivered to the complainant or sold by a master and applied in (N. Y.) 567, 22 Am. Dec. 659; Bur rell V. Leslie, 6 Paige (N. Y.) 445 satisfaction of the debts and costs." Storm v. Waddell, 2 Sandf. See, however, Boynton v. Rawson, ^^ (NY) 494 544 1 Clarke's Ch. (N. Y.) 584. See, 2 oiney v. Tanner, 10 Fed. 101; also, Hancock V. Wooten, 107 N. C. Brown v. Folsom, 62 N. H. 527; 9, 11 L. R. A. 466, 12 S. E. 199. Miller v. MacKenzie, 29 N. J. Eq. 1 "A receiver is a convenient 291; Bostwick v. Menck, 40 N. Y. and important, but not indispens- 383; South Bend Toy Mfg. Co. v. able part of the proceeding. The Pierre, etc., Ins. Co., 4 S. D. 173, effects locked up, as it were, in 56 N. W. 98. PROCEEDINGS IN AID OF GENERAL CREDITORS. 671 assigning tlie jurisdiction and regulating tlie procedure. In some instances the statutes were prompted by diver- gencies of opinion among tlie courts as to the extent of the jurisdiction or respecting some details of the pro- cedure.i T^^^ statutes are frequently construed as being merely declaratory of the equity rule, or principle. Where the statute specifically makes provision concern- ing any particular detail of the procedure, such as the time when the lien of the creditor attaches to the prop- erty, it is conclusive.^ If the statute does not expressly provide for a receiver, one will be appointed in a proper case, under a general statute allowing a receiver in case of fraud or when there is danger of loss.* 4. Proceedings Supplementary to Execution.^ § 286. General Character of Such Proceedings with Reference to Receiverships. In many of the code states statutes have been enacted to permit a proceeding, commonly called '^proceedings supplementary to execution," designed to assist a judg- 1 "The provisions [of the N. Y. time of the service of a copy of the statute] referred to were Intro- petition and notice of the mjunc- duced into the statutes of New tion. , ,„« t ziqs 7fi York chiefly to set at rest the 3 Hirsch v. Israel. 106 la. 498. 76 questia vexata which had been N. W. 811. raised by the cases of Hadden V. i In some states, under the Spader and Donovan v. Fin, statute dealing with garnishments, already noticed." . . . The doc- a receiver may be appointed m aid trine of Hadden V. Spader was thus of the proceedings. Myres v. explicitly recognized by legisla- Frankenthal, 55 111. App. 390. tion" Shainwaldv. Lewis. 6Fed. Where the garnishee was a 766 7 Sawy 148. The statute re- pledgee of corporate stock, and his ferred to is 2 Revised Statutes debt was past due. and he raised 173 174 which went into effect on no objection, it was proper for the January 1. 1830; and in connec- court to appoint a receiver to sell tion with the above quotation the the stock, pay the pledgee, and court refers to Revisers' Notes. 3 hold any surplus to await the out- R S 669 2d ed come of the garnishment suit. 2 Under the Iowa statute the lien Kimbrough v. J. K. Orr Shoe Co.. of the plaintiff attaches as of the 98 Ga. 537, 25 S. E. 576. G72 LAW OF RECEIVERS. ment creditor in much the same way as a suit in equity of the sort just above considered assists him. Indeed these proceedings have been said to be a substitute for such suits.- There are two features usually provided for in these statutes which, as far as we are concerned, create the similarity between these statutory proceedings and the equit}" suit, to wdt: (1) The statutes provide for the discovery of hidden property of the debtor by examina- tion of the debtor himself and of third parties; (2) they provide for the appointment of a receiver with powers similar to those of the equity receivers. These proceed- ings are, however, purely statutory. They are not de- claratory of nor a development of any equity proceeding, except in so far as they have been perhaps suggested by the course of proceeding in creditors ' equity suits and except that, in some instances where the statutes have been silent on some detail of procedure, courts have fol- lowed the analogy of the equity proceeding. These pro- ceedings are usually ancillary to and a continuation of the main suit, by which the creditor's claim is established. The receiver appointed in such proceedings has no power except such as is conferred upon him by statute.^ Greneral statutes with reference to the powders of receivers are not Under Judgment Act, 13 and 14 sale Ry. Co., 2 Ir. Eq. Rep. (1868) Vict., C 29, a judgment creditor, 417. by registering a certain affidavit, 2 McCullough v. Clark, 41 Cal. attained the status of a mortgagee 298; Pacific Bank v. Robinson, of the debtor's property, and en- 57 Cal. 520, 40 Am. Rep. 120. titled to the rents and profits; if 3 Bates v. International Co., 84 there are prior encumbrances he Fed. 518; Pacific Bank v. Robin- may institute a proceeding in son, 57 Cal. 520, 40 Am. Rep. 120 equity or an accounting and have McCullough v. Clark, 41 Cal. 298 a receiver appointed; such a judg- Mason v. Weston, 29 Ind. 561 ment mortgagee would not have a Ludes v. Hood, 29 Kan. 49; Flint » claim to the rents and profits prior v. Webb, 25 Minn. 263; Miller v. to the holders of mortgage and de- Perkins, 154 Mo. 629, 55 S. W. 874 benture bonds w^hich had been Becker v. Farrance, 31 N. Y. 631 issued under a statute making the Pope v. Cole, 64 Barb. (N. Y.) 406 rents and profits security for the Levey v. Bull, 47 Hun (N. Y.) 350 interest. Holland v. Cork & Kin- Coates v. Wilkes, 92 N. C. 376 PROCEEDINGS IN AID OP GENERAL CREDITORS. 673 usually held applicable to receivers designated in these supplementary proceedings statutes unless expressly made so.^ § 287. Conditions for Appointment of Receiver. The supplementary proceedings, we are discussing, are usually designed to assist judgment creditors to obtain satisfaction of their claims out of property that can not be reached by execution either because (1) it is not by law subject to execution, (2) or is hidden and has not been discovered by the creditor, or (3) it has been fraudulently transferred or subjected to encumbrance by the debtor. Accordingly it is usual to ask the judgment creditor demanding a receiver to show that he has ex- hausted his legal remedy through execution. If the statute requires such a showing it must, of course, bo made.^ The appointment usually follows the examination made for the discovery of property and depends upon the outcome of the examination; and, unless otherwise provided in the statute, is undoubtedly subject to the dis- cretion of the court or judge by whom, under the statute, the appointment is to be made.^ In New York, when the Hennesaw Mills Co. v. Walker, 19 condition such as to make it cer- S. C. 104; Graham v. La Crosse & tain that a receiver can not be of M. R. Co., 10 Wis. 459; Smith v. any assistance to the creditor. Weeks, 6o' Wis. 94, 18 N. W. 778. Tomlinson, etc., Mfg. Co. v. Shatto, •1 Stephens v. Meriden Britania 34 Fed. 380; Hall v. Senior, 54 Co., 160 N. Y. 178, 73 Am. St. Rep. Misc. Rep. 463, 106 N. Y. Supp. 29. 678 54 N. E. 781. A receiver will not be appointed I'peck V. Dicken, 41 Misc. Rep. for the purpose of collecting costs 473, 84 N. Y. Supp. 1094; DeVivier in supplementary proceedings V. Smyth, 6 N. Y. Civ. Proc. Rep. which have not been awarded or 394, 1 How. Pr. (N. S.) 48. allowed, where the judgment cred- When the right to a receiver has itor has without the knowledge of once attached it can not be de- his attorney settled the matter in stroyed by any act other than the full. Peterson Bros. v. Goorley, 14 payment of the judgment, or by its Misc. Rep. 56, 35 N. Y. Supp. 297. becoming barred through lapse of 2 Bean v. Heron, 65 Minn. 64, 67 time under the statute, or by the N. W. 805; Flint v. Zimmerman, arising of some circumstance or 70 Minn. 346, 73 N. W. 175. I Rec— 43 574 LAW OF RECEIVERS. return of an execution nulla bona was not expressly re- quired by the statute, most of the judges required such a sliowing.^ Probably the established rule is, in the absence of statutory provision covering this point, to follow the analogy of the equity suit. If the property sought to be impounded is such that it is not subject to levy and sale on execution or other process the creditor will be required to show that he has exhausted his legal remedy. If the property is subject to levy the creditor will ordinarily be required to proceed by execution, thus preserving to the debtor any right that he might have to redeem from the sale.^ If the property has been fraudulently transferred the creditor will not be com- pelled to run the risk of such levy, but may have a receiver appointed to test the fraud in a proper action.^^ § 288. Necessity for Showing Existence of Property Subject to Receivership. The question as to what property of the debtor may be brought under the receivership is, like every other point involved in the proceedings, dependent upon the provisions of the statute under which the proceedings are brought. Decisions in the different states and, for that matter, in any state at different dates, must be read in the light of the statutes existing at the times the deci- sions were made. The statutes, however, are all alike as 3 Hanson v. Tripler, 3 Sandf. v. Turner, 22 Hun (N. Y.) 226; (N. Y.) 733, 1 Code R. (N. S.) 154; Tinkey v. Langdon, 60 How. Pr. Holbrook v. Orgler, 40 N. Y. Sup. (N. Y.) 180. Ct. 33, 49 How. Pr. 289; Andrews 5 Todd v. Crooke, 4 Sandf. (N. V. Glenville Woolen Co., 11 Abb. Y.) 694; Heroy v. Gibson, 10 Bosw. Pr. N. S. (N. Y.) 78; Darrow v. (X. Y.) 591. If the appointment is Lee, 16 Abb. Pr. (N, Y.) 215; not absolutely void because of Contra Union Bank v. Sargeant, some violation of the statute and 53 Barb. (N. Y.) 422, 35 How. Pr. is simply improvident it can not 87. be collaterally attacked in an ac tion brought by Stiefel V. Berlin, 2 Daly, 24 Hun (N. Y.) 526; Ashley 51 N. Y. Supp. 147 4 Mover v. Moyer, 7 App. Div. tion brought by the receiver. 523, 40 N. Y. Supp. 258; Bunn v. Stiefel v. Berlin, 28 App. Div. 103, PROCEEDINGS IN AID OF GENERAL CREDITORS. 675 to their purpose and very similar in the general char- acter of the provisions made for accomplishing this pur- pose. Certain statements may be made as of practically universal application. The appointment of a receiver is largely within the discretion of the court. The court will not perform an idle act and will not appoint a receiver unless it appears that the appointment is likely to be of some advantage to the creditor.! The court is given ample power to dis- cover property through the examination of the debtor himself and any other parties whom the creditor may call as witnesses.2 The denial of the debtor that he owns property or the assertion of ownership by third parties in whose possession property that possibly belongs to the debtor or in which he possibly has some interest is found will not, however, avail to bar the appointment.^ All that is necessary is a showing to the effect that the debtor probably owns property^ which should be sub- jected to the statute. If the statute does not permit a certain kind of prop- erty, as is the case, for instance, in some states, with reference to real property, the creditor can not reach it and must resort to an action in equity.^ It may be stated, as of practically universal application, that: 1 Flint V. Webb, 25 Minn. 263; 3 Collins v. Angell, 72 Cal. 513, Knight V. Nash, 22 Minn. 152; 14 Pac 135; Kimbrough v. J. K. Adler V. Turnbull, 57 N. J. L. 62, 30 Orr Shoe Co., 98 Ga^ 537, 25 S. K ^ ,^ -r,- 1 ^1 576; Dickinson v. Onderdonk, 18 Atl. 319; Colton v. B.gelow, 41 ^^^ ^^ ^^ ^^^^ ^^^^^^ ^ N- J- ^- ^^^- Henry, 17 N. Y. 482. 2 Bradley v. Burk, 81 Minn. 368, 4 punt y webb, 25 Minn. 263. 84 N. W. 123; People v. Hanbury, 5 Skinnerv. Terhune (Terhune v. 162 App. Div. 337, 147 N. Y. Supp. Skinner), 45 N. J. Eq. 565, 19 Atl. 851; Price v. Creme de Mohr Co., 377; In re Stoddard, 128 App. Biv. 78 Misc. Rep. 42, 137 N. Y. Supp. 759, 113 N. Y. Supp. 157; Hall v. 732; Feinberg v. Kutcosky, 147 Senior, 54 Misc. Rep. 463, 106 N. Y. App. Div. 393, 132 N. Y. Supp. 9; Supp. 29; Maples v. O'Brien, 116 Becher v. Gerllch, 72 Misc. Rep. N. Y. Supp. 175; Darners v. Stern- 157, 129 N. Y. Supp. 614. berger, 52 Misc. Rep. 532, 102 N. Y. 676 LAW OF RECEIVERS. (1) Property exempt from execution can not be brought under the receivership f (2) Property subsequently acquired by the debtor can not be reached unless the proceeding is extended to cover it;^ (3) The proceeding is for the benefit only of the cred- itor who institutes it and the property seized may be lim- ited in amount to what is sufficient to satisfy his de- mands f (4) So far as permitted by the statute every species of property which the debtor owns or in which he has an interest may be administered in some appropriate way;^ Supp. 740; Bartkowaik v. Samp- son, 73 Misc. Rep. 446, 133 N. Y. Supp. 401. 6 Finnin v. Malloy, 33 N. Y. Super. Ct. 382; Cooney v. Cooney, 65 Barb. (N. Y.) 524; Andrews v. Rowan, 28 How. Pr. (N. Y.) 126; Tillotson V. Wolcott, 48 N. Y. 188. V Guild V. Meyer, 56 N. J. Eq. 183, 38 Atl. 959; Howell v. Mc- Dowell, 47 N. J. L. 359, 1 Atl. 474; Willson V. Salmon, 45 N. J. Eq. 257, 17 Atl. 815; Graff v. Bonnett, 25 How. Pr. (N. Y.) 470; Campbell v. Foster, 16 How. Pr. (N. Y.) 275; Du Bois V. Cassidy, 75 N. Y. 298; Murphy v. Cram, 157 App. Div. 609, 142 N. Y. Supp. 972; People ex rel. Duvall V. Cocks, 162 App. Div. 453, 147 N. Y. Supp. 829; Gibney v. Reilly, 26 Misc. Rep. 275, 56 N. Y. Supp. 1055. On this theory it has been held that if exempt property is destroyed by fire after the ap- pointment of the receiver, he Will not be entitled to insurance col- lected thereon. Sands v. Roberts, 8 Abb. Pr. (N. Y.) 343. 8 John Mulstein Co. v. City of New York, 213 N. Y. 308, 107 N. E. 651, aflSrming judgment John Mul- stein Co. V. Banzhaf, 160 App. Div. 890, 144 N. Y. Supp. 1122; Boucker Contracting Co. v. W. H. Callahan Contracting Co., 218 N. Y. 321, 113 N. E. 257; Hubbard v. J. P. Lewis Co., 128 App. Div. 416, 112 N. Y. Supp. 1050. 9 Moak V. Coats, 33 Barb. (N. Y.) 498; Chautauqua County Bank v, Risley, 19 N. Y. 369, 75 Am. Dec. 347; Barnes v. Morgan, 3 Hun (N. Y.) 703, 705. Reversionary legacy: Macnicoll V. Parnell, 36 W. R. 773. Money deposited as bail, when debtor is entitled to return there- of: Elite Distributing Co. v. Schrul, 69 Misc. Rep. 206, 126 N. Y. Supp. 607. Money due on a public contract: John Mulstein Co. v. City of New York, 213 N. Y. 308, 107 N. E. 651. Money loaned to debtor and de- posited with third party may bo claimed as against the lender: Building & Loan Assoc. Harmonia PROCEEDINGS IN AID OF GENERAL CREDITORS. 677 (5) Whatever projDerty is taken is taken subject to all valid prior claims; the receiver has no better title than the debtor had.^^ § 289. Lien Acquired by Creditor. By the proceedings the creditor acquires a lien upon such property of the debtor as may be properly affected by them. The rights of the creditor may be protected so much of the surrender value of this insurance policy as has ac- crued to the judgment debtor as of the year 1912 [the year preceding the first year for which the wife had paid the premium] and apply the same on account of the judg- ment in the present proceeding." Clark V. Shaw, 91 Misc. Rep. 245, 154 N. Y. Supp. 1101. The receiver may be given pos- session of pledged property for the purpose of determining whether or not it could be sold for sufficient to pay the pledgee's claim and leave a balance for the creditor; the re- sult of his investigation to deter- mine whether he should sell the property or redeliver it to the pledgee. Briggs v. Walker, 21 N. H. 72. 10 Dann Mfg. Co. v. Parkhurst, 125 Ind. 317, 25 N. E. 347; Willson V. Salmon, 45 N. J. Eq. 257, 17 Atl. 815. If the debtor has a right to rents and profits pending redemption from an execution sale, the right to redeem both of these rights may pass to the receiver. Farn- ham V. Campbell, 10 Paige (N. Y.) 598. The receiver may redeem pledged property. Armstrong v. McLean, 153 N. Y. 490, 47 N. E. 912; In re Flynn, 157 App. Div. 241, 141 N. Y. Supp. 807. V. Wolfskeil, 85 N. J. Eq. 218, 96 Atl. 89. An equitable interest in real es- tate may be sold by the receiver, if such course can be followed without conflict with the legal title: Kiser v. Sawyer, 4 Kan. 503. A seat in the stock exchange: Habenicht v. Lissak, 78 Cal. 351, 12 Am. St. Rep. 63, 5 L. R. A. 713, 20 Pac. 874. Patent right: Pacific Bank v. Robinson, 57 Cal. 520, 40 Am. Rep. 120. Rents due to a tenant by court- esy: Beamish v. Hoyt, 2 Robt. (N. Y.) 307; Ellsworth v. Cook, 8 Paige (N. Y.) 643. Or a widow entitled to dower: Payne v. Becker, 87 N. Y. 153; Stewart v. McMartin, 5 Barb. (N. Y.) 438. A promissory note in hands of third party; and receiver may be ordered to collect the note: Hath- away V. Brady, 26 Cal. 581. Where a policy of insurance on the life of the debtor named the debtor's wife as a beneficiary, but contained a clause permitting the insured to change the beneficiary, and it was claimed that the wire had paid certain of the latest an- nual premiums, it was ordered that the "debtor turn over to the re- ceiver the policy . . . and apply 678 LAW OF RECEIVERS. by an injunction nntil such time as possession may be acquired by the receiver.^ The lien attaches as of the time provided in the statute; and if it attaches prior to the receiver's possession, it will relate back to the ap- pointed time upon his acquiring possession.^ The lien will not be displaced by rights accruing after it has once 1 Tomlinson & Webster Mfg. Co. V. Shatto, 34 Fed. 380; Sullivan v. United States, etc., Co., 134 App. Dlv. 658, 119 N. Y. Supp. 532; Smith V. Weed, 75 Wash. 452, 134 Pac. 1070. 2 Tomlinson & Webster Mfg. Co. V. Shatto, 34 Fed. 380; Rose v. Baker, 99 N. C. 323, 5 S. E. 919; Becker v. Torrance, 31 N. Y. 631; Stewart v. Foster, 1 Hilt. (N. Y.) 505; Campbell v. Genet, 2 Hilt. (N. Y.) 290, 295; Fillmore v. Hor- ton, 31 How. Pr. (N. Y.) 424; Rog- ers V. Corning, 44 Barb. (N. Y.) 229; Conger v. Sands, 19 How. Pr, (N. Y.) 8; Moyer v. Moyer, 7 App Div. 523, 40 N. Y. Supp. 258; Fitz Patrick v. Moses, 34 App. Div. 242 54 N. Y. Supp. 426; Murphy v Cram, 157 App. Div. 609, 142 N. Y Supp. 972; Frieder v. Adlermaa 95 Misc. Rep. 259, 59 N. Y. Supp 120. In the absence of a showing as to the dates of preceding steps in the proceeding, the date of the receiver's appointment will be taken as the commencement of the receiver's claim to the judg- ment debtor's property. Steinert V. Van Aken, 165 App. Div. 206, 150 N. Y. Supp. 525. The receiver's title, or claim, may date from the filing of a certi- fied copy of the order appointing with the county clerk. Murphy v. Cram, 157 App. Div. 609, 142 N. Y. Supp. 972; Manning v. Evans, 19 Hun (N. Y.) 500; Smith v. Tozer, 11 N. Y. Civil Proc. Rep. 349, 3 N. Y. St. Rep. 164; Harrison v. Maxwell, 44 N. J. L. 316. As against the receiver, claims to the property are to be deter- mined as of the date when his claim, or title attached. Steinert V. Van Aken, 165 App. Div. 206, 150 N. Y. Supp. 525. In regard to property that has been fraudulently conveyed by the debtor it may be that a lien is not acquired, at least as far as the rights of the transferee are con- cerned, until the receiver com- mences an action for the recovery of the property. Field v. Sands, 8 Bosw. (N. Y.) 685; Ward v. Petrie, 92 Hun (N. Y.) 605, 36 N. Y. Supp. 940; Mandeville v. Avery, 124 N. Y. 376, 21 Am. St. Rep. 678, 26 N. E. 951; Stephens v. Perrine, 143 N. Y. 476, 39 N. E. 11. Where a deed was intended only as a mortgage and between an as- signment by the debtor to the re- ceiver and the beginning of an action by the receiver against the mortgagee, the latter sold the property to an innocent purchaser, the receiver could not pursue the land and could have only a judg- ment against the mortgagee for the difference between the mort- gagee's claims against the debtor and the proceeds of the sale. Maples V. O'Brien, 116 N, Y. Supp. 175. PROCEEDINGS IN AID OF GENERAL CREDITORS. 679 attached,^ altliougli subsequent rights, subject to the lien, may be acquired.^ Several creditors, pursuing the same property, have priorities in the order in which their respective liens attach. The lien may be perfected by an assignment from the debtor to the receiver. Such an assignment will .be ordered if necessary ;5 but if, under the statute, the title of the receiver is sufficient for all the purposes of the proceeding without an assignment, and an assignment might pass such rights as the debtor still retains in the property, an order directing an assign- ment would be erroneous.^ The lien may lapse, under the 3 The title of a qualified receiver in supplementary proceedings starts from the time of the com- mencement of the proceedings and is superior to subsequent liens. John Mulstein Co. v. City of New York, 213 N. Y. 308, 107 N. E. 651, affirming judgment John Mulstein Co. V. Banzhaf, 160 App. Div. 890, 144 N. Y. Supp. 1122; McCorkle v. Herrman, 117 N. Y. 297, 22 N. E. 948. The receiver w^as entitled to re- cover from bank, a bank deposit belonging to the debtor, the title to which was vested in the re- ceiver, and which was paid by the bank to the debtor's wife without regard to the true ownership of the fund. O'Reilly v. Adams, 163 App. Div. 60, 148 N. Y. Supp. 441. After notice of the appointment of a receiver over the assets of a l)artner, a partner deals with the interest of the judgment debtor at his own risk. Guild v. Meyer, 56 N. J. Eq. 183, 38 Atl. 959. 4 St. Louis & S. Coal, etc.. Co. v. Sandoval Coal, etc, Co., Ill 111. 32; Scott V. Elmore, 10 Hun (N. Y.) 68; Wilson v. Wilson, 1 Barb. Ch. (N. Y.) 592; Chautauqua County Bank v. Risley, 19 N. Y. 369, 375, 75 Am. Dec. 347. See Porter v. Williams, 9 N. Y. 142, 59 Am. Dec. 519; Faneuil Hall Nat. Bank v. Bussing, 147 N. Y. 665, 42 N. E. 345. Any part of the debtor's prop- erty which is not, by the order of the court included in the receiver- ship, remains at the disposal of the debtor. Commercial Nat. Bank of Salt Lake City v. Page & Brin- ton, 45 Utah 14, 142 Pac. 709. 5 Newton v. Buck, 72 Fed. 777, Pacific Bank v. Robinson, 59 Cal. 520, 40 Am. Rep. 120; Habenicht V. Lissak, 78 Cal. 351, 12 Am. St. Rep. 63, 5 L. R. A. 713, 20 Pac. 874; Scott V. Elmore, 10 Hun (N. Y.) 68; Moak v. Coats, 33 Barb. (N. Y.) 498; Chautauqua County Bank v. Risley, 19 N. Y. 369, 75 Am. Dec. 347; Fenner v. Sanborn, 37 Barb. (N. Y.) 610. 6 Graham v. Lawyers' T. I. Co., 20 App. Div. 440, 46 N. Y. Supp. 1055; Ball v. Goodenough, 37 How. Pr. (N. Y.) 479; Ten Broeck v. Sloo, 13 How. Pr. (N. Y.) 28, 2 Abb. Pr. 234. 680 LAW OF RECEIVERS. laws relating to tlie estates of decedents if the debtor dies before a receiver is appointed/ § 280. Powers of Receiver in Supplementary Proceedings. In consonance with the general purposes of supple- mentary proceedings, the statutes clothe the court with authority to give the receiver a \\dde range of power to make the proceedings effective. The receiver is, how- ever, an officer of the court ; he is not the representative of any of the parties ; in all of his acts he is under tlie direction of the court and is limited to such authority as is expressed in the court orders specifying his duties and powers or as is necessarily implied in these orders. We have already seen some of the ways in which the receiver, as a practical proposition, will be authorized to proceed.^ Generally speaking, the court will adopt, or authorize the receiver to adopt, any course that gives promise of being effectual. A few of the restrictions placed upon the court and the receiver are to be noticed. In the proceedings themselves — that is, the examina- tions conducted for the purpose of discovering prop- erty — the court is not authorized to try the title to property, except in a very limited number of circum- stances.^ The court can not disturb the possession of 7 Rankin v. Minor, 72 N. C. 424. icy, having a covenant permitting 1 See § 289, note 9, supra. the debtor to change the name of 2 In some states the court may the beneficiary to be placed at the determine whether or not, as be- disposal of the receiver, even tween husband and wife, property though the debtor's wife has been is the separate property of the named as beneficiary, the court be- husband. Smith v. Weed, 75 Wash. lieving that "the examination of 452, 134 Pac. 1070. the judgment debtor shows the When it appears that the debtor usual history of assignments to has kept his funds in his wife's the wife of property formerly name, he may be ordered to de- owned by the judgment debtor in liver them to the receiver. Matter an effort to divest himself of of Weld (Weld v. Sage), 34 App. property subject to the rights of Div. 471, 54 N. Y. Supp. 253. creditors. Clark v. Shaw, 91 Misc. The court willorder the surren- Rep. 245, 154 X. Y. Supp. 1101. der value of a life insurance pol- The evidence supporting the PROCEEDINGS IN AID OF GENERAL CREDITORS. 681 any tliird party rightly in possession of the property and having a valid claim against it; the court may, however, authorize the receiver to satisfy the claim, if possible, and take possession, or to sell whatever interest the debtor may have in the property.^ In case of a dispute as to the ownership of property, or as to the existence of a debt claimed to be due the judgment debtor from a third party, or as to whether or not a transfer of prop- erty by the debtor was fraudulent, the court can only authorize the receiver to seek a determination of the dis- puted issue by a proper suit.^ The court may refuse claim of a third person to prop- erty in his possession may be so unsubstantial as to warrant the court in ordering it turned over to the receiver. Murphy v. Cram, 157 App. Div. 609, 142 N. Y. Supp. 972. The court can not order the re- ceiver to sell land held by the wife as being the property of the husband and apply the proceeds to the payment of the judgment. McDowell V. Bell, 86 Cal. 615, 25 Pac. 128. 3 Voorhees v Seymour, 26 Barb. (N. Y.) 569, 585; Gardner v. Smith, 29 Barb. (N. Y.) 68; Campbell v. Fish, 8 Daly (N. Y.) 162. Where a receivership has been established in a suit to dissolve a partnership, and there is no claim of intent to hinder and delay cred- its through this proceeding, the re- ceiver will not be ordered to turn over the property to a supple- mentary proceeding receiver of the partnership subsequently ap- pointed; but the latter will be protected by an order directing that the dissolution proceeding shall not be discontinued nor the receiver discharged without due notice to the second receiver. Price V. Price, 21 App. Div. 597, 47 N. Y. Supp. 772. 4 Olney v. Tanner, 10 Fed. 101; McDowell V. Bell, 86 Cal. 615, 25 Pac. 128; Union Collection Co. v. Snell, 5 Cal. App. 130, 89 Pac. 859; Thomas v. Van Meter, 164 111. 304, 45 N. E. 405; Knight v. Nash, 22 Minn. 452; Ward v. Petrie, 157 N. Y. 301, 68 Am. St. Rep. 790, 51 N. E. 1002; Mandeville v. Avery, 124 N. Y. 376, 21 Am. St. Rep. 678, 26 N. E. 951; Thompson v. Sage, 47 Misc. Rep. 357, 94 N. Y. Supp. 31; In re Becker, 36 Misc. Rep. 322, 73 N. Y. Supp. 577; Under- wood V. Sutcliffe, 77 N. Y. 58; Stiefel V. Berlin, 20 Misc. Rep. 194, 45 N. Y. Supp. 746; Bostwick V. Menck, 40 N. Y. 383; Kennedy V. Thorp, 3 Abb. Pr., N. S. (N. Y.), 131, 2 Daly 258; Porter v. Williams, 9 N. Y. 142, 59 Am. Dec. 519 ; Wright V. Nostrand, 94 N. Y. 31;- Teller v. Randall, 40 Barb. (N. Y.) 242, 26 How. Pr. 155; Thompson, etc., Mfg. Co. v. Guenthner, 5 S. D. 504, 59 N. W. 727; Smith v. Weed, 75 Wash. 452, 134 Pac. 1070; Hamlin V. Wright, 23 Wis. 491; First Nat. 682 LAW OF RECEIVERS. permission for the receiver to sue if it is not sufficiently convinced that there is a probability that the suit will be successful, or if, without the suit, sufficient property may be obtained to satisfy the claims which he represents and for the satisfaction of which alone he is entitled to take property.^ If the court acts, or threatens to act, without jurisdiction in any of these matters, a writ of prohibition will lie.^ The receiver acquires no right from the creditor except the right to enforce satisfaction of the judgment upon which the proceedings were founded.'^ If he sues to set Bank v. Cook, 12 Wyo. 492, 2 L. R. A. (N. S.) 1012, 76 Pac. 674, 78 Pac. 1083. A receiver, in proceedings sup- plementary to execution, can not maintain an action at law for the conversion of property claimed to have been fraudulently trans- ferred, or mortgaged by the debtor. His remedy is only by a suit in equity to have the transfer or incumbrance set aside. Ber- liner V. Kuttner, 85 Misc. Rep. 461, 147 N. Y. Supp. 308; Stephens v. Meriden Brittania Co., 160 N. Y. 178, 73 Am. St. Rep. 678, 54 N. E. 781. A debtor's claim against the ad- ministratrix of his deceased wife for a distributive share of the es- tate may be the subject of a suit by his receiver in supplementary proceedings against the sureties on the administratrix's bond, sub- ject to such defenses as they might have against the debtor. Steinert v. Van Aken, 165 App. Div. 206, 150 N. Y. Supp. 525. An order in supplemental pro- ceedings authorizing the payment of the receiver's compensation and expenses in suits to set aside fraudulent transfers out of prop- erty received from other sources, is erroneous. Smith v. Weed, 75 Wash. 452, 134 Pac. 1070. 5 Gifford V. Rising, 59 Hun 42, 12 N. Y. Supp. 428; Bostwick v. Menck, 40 N. Y. 383. For a set of facts that will thor- oughly warrant an order author- izing a suit to set aside a trans- fer, so far as a showing of fraud is concerned, see McMahon v. Shary, 62 Misc. Rep. 236, 114 N. Y. Supp. 852. 6 McDowell v. Bell, 86 Cal. 615, 25 Pac. 128. 7 If creditors, at whose instance he has been appointed, have waived the frauds by an affirm- ance of the contracts, as in the case of a suit thereon, the receiver can not attack the transactions as fraudulent. Kennedy v. Thorp, 51 N. Y. 174 (reversing 2 Daly [N. Y.] 258) ; cf. Parish v. Murphree, 54 U. S. 92, 99, 14 L. Ed. 65, 67; Sav- age V. Murphy, 34 N. Y, 508, 90 Am. Dec. 733. The receiver can not maintain a suit based on a cause of action for damages that the creditor may have against the debtor and others PROCEEDINGS IN AID OF GENERAL CREDITORS. 6S3 aside a fraudulent conveyance lie must show in his com- plaint that he has a cause of action.^ Since the judgment is still the property of the creditor he can not levy execu- tion upon property claimed to have been fraudulently transferred, but must proceed by suit.^ As far as prop- erty that might be used to satisfy the judginent is con- cerned the receiver succeeds to any cause of action tliat the debtor had.^^' The receiver may be sued by any third party claiming a superior right to any property of which he acquires possession.^^ The receiver is virtually a trustee for all of the inter- ested parties^2 ^•^^\ \^q can not take any step that will caused by a conspiracy to hinder and delay the collection of his claim. Ward v. Petrie, 157 N. Y. 301, 68 Am. St. Rep. 790, 51 N. E. 1002. 8 Tvedt V. Mackel, 67 Minn. 24, 69 N. W. 475. But see also Saw- yer V. Harrison, 43 Minn. 297, 45 N. W. 434; Pendleton v. Friedman, 135 App. Div. 420, 119 N. Y. Supp. 994. 9 Mich-Prescott v. Pfeiffer, 57 Mich. 21, 23 N. W. 477; Minn Dunham v. Byrnes, 36 Minn. 106, 30 N. W. 402; Bostwick v. Menck, 40 N. Y. 383, 384; Metcalf v. Del Valle, 64 Hun 245, 19 N. Y. Supp. 16; Ward v. Petrie, 157 N. Y. 301, 68 Am. St. Rep. 790, 51 N. E. 1002. If, without an order directing him to do so, the receiver takes property, claimed to have been fraudulently transferred, from the transferee, against the. will of the latter, he does so at his own risk. Tapscott V. Lyon, 103 Cal. 297, 37 Pac. 225. It might be that the right to sue to avoid a fraudulent transfer would belong to an assignee in bankruptcy rather than to the re- ceiver. This question would de- pend upon the provisions of the bankruptcy act and the time when the lien of the receiver's creditor attached to the property as com- pared to the time when the as- signee was appointed. Olney v. Tanner, 18 Fed. 636, 21 Blatchf. 540; Glenny v. Langdon, 98 U. S. 20, 25 L. Ed. 43; Trimble v. Wood- head, 102 U. S. 647, 26 L. Ed. 290; Moyer v. Dewey, 103 U. S. 301, 26 L. Ed. 394; Judd v. Bankers', etc., Tel. Co., 31 Fed. 182, 24 Blatchf. 420; Skip v. Harwood, 3 Atk. 564. 10 Prescott v. Pfeiffer, 57 Mich. 21, 23 N. W. 477; Masten v. Amer- man, 20 Abb. N. C. 443; Weill v. Wilmington First Nat. Bank, 106 N. C. 1, 11 S. E. 277; Ward v. Petrie, 157 N. Y. 301, 68 Am. St. Rep. 790, 51 N. E. 1002; Armstrong V. McLean, 153 N. Y. 490, 47 N. E. 912. 11 Frieder v. Adlerman, 95 Misc. Rep. 259, 159 N. Y. Supp. 120. 12 Gumming v. Egerton, 9 Bosw. 684; Bostwick v. Beizer, 10 Abb. Pr. (N. Y.) 197; Porter v. Wil- liams, 9 N. Y. 142, 59 Am. Dec. 519. 684: LAW OF RECEIVERS. injure the beneficiaries of the trust. He can not waive the creditor's right to attack a fraudulent conveyance.^^ He can distribute money or property only on an order of court; and if he does make distribution without such order he will be held personally accountable unless he can show that his action was proper.^* In all matters relating to the procedure under statutes of this char- acter resort must be had to the statute and the decisions interpreting its provisions. ^^ 13 Mumford v. Crouch, 8 App. Div. 529, 40 N. Y. Supp. 878. 14 In re Hone, 153 N. Y. 522, 47 N. E. 798. If a receiver has notice of an appeal from an order of court directing him to pay money to the judgment creditor and he makes the payment pending the appeal, he will, on a final reversal of the order, have to look to the judg- ment creditor for reimbursement. Johnson v. Joslyn, 47 Wash. 531, 92 Pac. 413. 15 Proceedings supplementary to execution are entirely statutory and decisions concerning them must be read in the light of the statutes under which they were had. A few citations are here added to illustrate some of the miscellaneous questions that may arise in connection with such pro- ceedings: Appointment of Receiver — A re- ceiver should be appointed by the same judge who issued the order for the examination of the debtor. Ball V. Goodenough, 37 How. Pr. (N. Y.) 479; Smith v. Johnson, 7 How. Pr. (N. Y.) 39; Corbin v. Berry, 83 N. C. 27; Clark v. Berg- enthal, 52 Wis. 103, 8 N. W. 865. Proceedings by Several Credi- tors — When separate proceedings are instituted by several creditors against the same debtor, the same person should be appointed re- ceiver in all the cases. Myrick v. Selden, 36 Barb. (N. Y.) 15; Bost- wick V. Menck, 40 N. Y. 383; An- drews V. Glenville Woolen Co., 11 Abb. Pr. (N. S.) (N. Y.) 78; Sparks v. Davis, 25 S. C. 381. Opposition to Appointment- Lien creditors of the debtor, who were not parties to the main ac- tion, are not entitled to object to the appointment. Their interests can not be affected by any action brought by the receiver to which they are not parties. First Nat. Bank v. Cook, 12 Wyo. 492, 2 L. R. A. (N. S.) 1012, 76 Pac. 674, 78 Pac. 1083. Notice — If the debtor was exam- ined before a referee and he is not without the state, he should be given notice of the application for a receiver. Wilhelm v. Hay- man, 126 N. Y. Supp. 374. When the statute was silent on the question of giving notice of the application for a receiver, the courts have ruled differently as to the necessity for notice. Ashley V. Turner, 22 Hun (N. Y.) 226; Morgan v. Von Kohnstamm, 9 Daly (N. Y.) 355; Terry v. Banges, PROCEEDINGS IN AID OF GENERAL CREDITORS. 685 § 291. Property in a Foreign Jurisdiction. It is generally held that a court of equity has not au- thority to appoint a receiver in a judgment creditor's action, brought under the general equity jurisdiction, to sue for property in a foreign jurisdiction, or to take a conveyance thereof from the debtor.^ This would cer- 9 N. Y. Supp. 311; Whitney v. Welch, 2 Abb. (N. C.) (N. Y.) 442. When the appointment is liable to be erroneous for want of notice, the creditor may himself have the order vacated and the receiver's bond cancelled, at least prior to the time that the receiver takes possession of any property. Wil- helm v. Hayman, 126 N. Y. Supp. 374. It was held that a corporation had actual notice of a motion for leave to sue when it appeared that the corporation to which the debtor had fraudulently, it was claimed, transferred his property, had been organized by the debtor, that it consisted solely of the debtor, his wife, and his attorney, and that the debtor and the attor- ney, both of whom were officers of the corporation; and it was held that no other notice to the corporation was necessary. Mc- Mahon v. Shary, 62 Misc. Rep. 236, 114 N. Y. Supp. 852. Bond of Receiver — A receiver who has not filed his bond in the particular office expressly desig- nated by the statute is not "the duly qualified" receiver required by the statute and does not take title to the debtor's property. Mul- stein Co. v. City of N. Y., 213 N. Y. 308, 107 N. E. 651. Attorney for Receiver — The re- ceiver may employ as his attorney the attorney of the creditor at whose instance the proceedings were instituted. McMahon v. Shary, 62 Misc. Rep. 236, 114 N. Y. Supp. 852. Attorney's Fees— A judgment creditor can himself institute a suit to set aside a fraudulent con- veyance; therefore, if a receiver is appointed at the instance of a single creditor and this receiver institutes such an action, he is not entitled to an attorney's fee to be taxed as costs. In this case the attorney is in a different position from the attorney of a receiver of an insolvent concern, which re- ceiver represents all the creditors. Small V. Anderson, 139 Minn. 292, 166 N. W. 340. Receiver's Sales — One who buys property at a receiver's sale is bound to know whether or not the court had jurisdiction to order the sale. Boswell v. First Nat. Bank, 16 Wyo. 161, 92 Pac. 624, 93 Pac. 661. A receiver's sale may be ap- proved or rejected in the discre- tion of the court. Hall v. Knott, 69 Misc. Rep. 543, 125 N. Y. Supp. 299. For a somewhat clear and full statement of the practice in these proceedings, see Coates v. Wilkes, 92 N. C. 376; cf. Spencer v. Cuyler, 9 Abb. Pr. (N. Y.) 382; People ex rel. Fitch v. Mead, 29 How. Pr. (N. Y.) 360. 1 Amy v. Manning, 149 Mass. 686 LAW OF RECEIVERS. tainly be true if the property was of such a character or so conditioned that, if located in the home jurisdiction, the creditor would not be entitled to a receiver because he could reach it by legal process.- However, in pro- ceedings supplementary to execution, if the statutes, as they frequently do, so provide, an assignment to the receiver of property situated in a foreign jurisdiction may be directed and he may pursue said property by suit or otherwise, although the court would refuse this author- ity in the case of property over w^hich it would not appoint a receiver if it were located at home.^ 5. Receiverships in Respect to Bulk Sales. § 292. General Discussion of Subject. Another statutory aid that has been devised to protect creditors against fraud on the part of their debtors and to give them the assistance of receivers in attaining satis- faction of their claims is the law commonly known as the ''Bulk Sales Law." Such statutes have been enacted in most of the states. They are practically similar and have been given similar force and effect by the interpretation placed upon them by the courts. In general they provide that sales of merchandise stock by a merchant, in bulk and in a manner different from the ordinary course of trade, shall .be deemed fraudulent as to creditors, unless certain requirements, designed to give notice of the proposed sale to creditors, are complied with; that, if such presumptively fraudulent sales are made, the purchaser shall upon application of any of the creditors of the seller become a receiver and be held accountable to such creditors for all the merchandise that came into his possession as a result of the sale. 487, 21 N. E. 943; Filkins v. Nun- 3 Toune v. Campbell, 35 Minn, nemacher, 81 Wis. 91, 51 N. W. 79. 231, 28 N. W. 254; Harris v. Hib- 2 Heyl V. Taylor, 137 App. Div. bard (N. J.), 71 Atl. 737; Smith v. 641, 122 N. Y. Supp. 279. Tozer, 42 Hun (N. Y.) 22. PROCEEDINGS IX AID OF GENERAL CREDITORS. G87 The purpose of these statutes has been stated as fol- lows: "The object of the act was to suppress a wide- spread evil, well known to current history and condemned by repeated adjudications in this court and in all the leading courts of the state from time out of mmd. Tnat evil is the tendencv and practice of merchants who are heavily in debt to make secret sales of their merchandise in bulk for the purpose of defrauding creditors."^ It has been held that for the purpose of securing the benefits that follow to creditors from having a sale de- <3lared fraudulent the statute can be set in motion only by a plenary action brought by any creditor on behalf of himself and all other creditors.- The action is on behalf of all of the creditors and may be instituted by any creditor. Mere contract creditors may establish their claims in the action, and participate in its benefits; the "judgment creditor" rule does not apply. In this respect the suit differs from the equity suits heretofore in this chapter considered.^ The purpose of the suit is not to set aside the sale, but to impound the proceeds for the benefit of the creditors of the seller. The statute in declaring the purchaser a ''receiver" does not use that term in the ordinary sense. It simply indicates that the purchaser is a trustee for the benefit of the creditors of the seller. The sale is void 1 Wright V. Hart, 182 N. Y. 330, The statute does not apply to 3 Ann. Cas. 263, 2 L. R. A. (N. S.) sales of fixtures. Saqui v. Wir- 338, 75 N. E. 404. icks, 167 N. Y. Supp. 661. 2 In re Perman, 172 App. Div. Creditors may proceed notwith- 14, 157 N. Y. Supp. 971; Apex g^^nding the death of an insolvent Leasing Co. v. Litke, 93 Misc. Rep. ^^^^^^ ^^^^^^ ^ Vanderkoll<, 353, 158 N. Y. Supp. 21. ^^ ^^^ ^04, 149 N. W. 401. The act can not be set in opera- .„, ,.. ,, tion on the basis of testimony 3 Coffey v. McGahey, 181 Mich, alen in proceeding supplemen- 225. Ann. Cas. 1916C 923 148 tary to execution against the N. W. 356; Touns v. Karantzahs. debtor Kaphan v. Rogers, etc., 170 App. Div. 42, 156 N. Y. Supp. Co 169 App Div. 63, 154 N. Y. 526; Matter of P. Partene & Co., supp. 753. ■ 156 N. Y. Supp. 524. 688 LAW OF RECEIVERS. and tlie purchaser holds the property with the obligation of accounting for it and its proceeds. The creditors may have, at the institution of the action, an injunction for- bidding the purchaser from disposing of the goods or the proceeds thereof. On proving their case, a receiver, in the ordinary sense, may be appointed and the seller will be ordered to account to this receiver for the goods and their proceeds.^ 4 Coffey V. McGahey, 181 Mich. Supp. 21; Toiiris v. Karantzalis, 225, Ann. Cas. 1916C, 923, 148 170 App. Div. 42, 156 N. Y. Supp. N. W. 356; Apex Leasing Co. v. 526, 528; Matter of P. Pastene & Litke, 93 Misc. Rep. 353, 158 N. Y. Co., 156 N. Y. Supp. 524. CHAPTER XIII. PRIVATE CORPORATIONS. 1. General Rules Respecting Corporation Receiverships. § 293. General Nature of Receiverships of Corporations. It has appeared, from many of the authorities cited in preceding chapters, that some of the receiverships therein considered have been held to be applicable to the affairs of a corporation equally as well as to the affairs of an individual. A corporation may be a mortgagor or a mortgagee, a lessor or a lessee, a creditor or a debtor, or may assume any of the numerous relationships caused by business transactions between individuals. In these relationships a corporation has, of course, the same rights and liabilities as and is treated as an individual. Such receiverships as those created in mortgage fore- closure suits and in suits by judgment creditors to reach equitable assets, not accessible by execution, are allowed without reference to the character of the party or the nature of the property involved.^ In such cases the re- ceiver is appointed to impound property for a ''specific" purpose,^ and the property he seizes may be that of a corporation as well as that of an individual.^ 1 Decker v. Gardner, 124 N. Y. lating specially to receivers of 334 11 L R. A. 480, 26 N. E. 814. corporations. Decker v. Gardner, ^ 2'Equitable Trust Co. V. Great 124 N. Y. 334, 11 L. R. A. 480, 26 Shoshone, etc., Co., 245 Fed. 697, N. E. 814; United States Trust 158 C C A 99 ^o- ^- ^^^ York, etc., R. Co., 101 3 Where the defendant in a N. Y. 478, 5 N. E. 316. mortgage foreclosure action was a A judgment creditor of a corpo- corporation it was held that the ration, without levying execution, tees of the receiver were to be commenced suit in an Arkansas determined under the provisions state court, alleging among other of a statute relating to receivers things, that, because the com- gcnerally and not of a statute re- '^any's properties were heavily I Rec— 44 (689) 690 LAW OF RECEIVERS. It is not our purpose in this chapter to enlarge upon the consideration that has formerly been given to these mortgaged it would be useless to collect his judgment by execution and that the company was using its income for betterments, In- stead of paying its debts. A re- ceiver was appointed by the state court. The case was transferred to a federal court and the receiv- ership was vacated on the ground that the action was collusive. The case reached the U. S. Su- preme Court on a question con- nected with distribution. That court held that the state court had jurisdiction to appoint a receiver because the action was in the na- ture of a creditor's suit to reach equitable assets; that the company had waived the defense that there had not been a return of execution nulla bona; that the fact that the receivership was due to fraudu- lent collusion between the plaintiff and the company did not defeat the former's rights on distribution; and that he was entitled, as far as the earnings of the property in the receiver's hands were con- cerned, to priority over the mort- gagee on the ground that, al- though the mortgage expressly covered earnings, the mortgagee was not entitled to them until he had secured a lien upon them by the appointment of a receiver, at his instance. Sage v. Memphis, etc., R. Co., 125 U. S. 361, 31 L. Ed. 694, 8 Sup. Ct. 887. A stockholder of a corporation commenced a suit against another company to collect money due the former. A receiver was appointed, "in aid of a judgment" in favor of the plaintiff, to receive the money and pay it over to the corporation, the real party in interest. Fox v. Hale & Norcross, etc., Min. Co. 108 Cal. 475, 41 Pac. 328. In a mortgage foreclosure suit against a corporation creditors in- tervened. In a suit by the re- ceiver over a disputed claim as to the ownership of certain stock, the question of jurisdiction on the ground of diversity of citizenship being raised, the action was held to be ancillary to the receivership proceedings, on the ground that the receivership was "general," for the benefit of creditors, and not simply "special," for the bene- fit of bondholders. Vallery v. Den- ver & R. G. R. Co., 236 Fed. 176, 177, 149 C. C. A. 366. Upon the favorable outcome of an action to recover stock in a corporation, a receiver, "in aid of the judgment," was appointed to see that the stock was issued, and a referee appointed to conduct an election of directors. King v. Barnes, 113 N. Y. 655, 21 N. E. 184, affirming 51 Hun 550, 4 N. Y. Supp. 247. Although it was held that a cer- tain creditor's suit based upon liability for unpaid stock subscrip- tions of stockholders in a foreign corporation could not be main- tained under a certain state stat- ute, it was suggested that, by proper amendment as to parties, it could be maintained as an ac- tion to reach equitable assets. Randall Printing Co. v. Sanitas Mineral Water Co., 120 Minn. 268, 43 L. R. A. (N. S.) 706, 139 N. W. 606. In an action to foreclose a cor- poration mortgage, on the inter- PRIVATE CORPORATIONS. 691 special receiverships. We are liere to be concerned witli strictly corporation receiverships. These receiverships are created to protect rights and interests that develop because the business engagements concerned are con- ducted by and the properties are owned by an organiza- tion cast in corporate form. They grow out of the rela- tion between the corporation and its officers, on the one hand, and either its stockholders or its creditors on the other. It is the peculiar characteristic of these receiver- ships that the receiver assumes control of all of the prop- erty and the business of the corporation, ''for the pro- tection and preservation of all rights and interests therein vention of creditors, the court properly extended the foreclosure receivership into a "general" re- ceivership and attained jurisdic- tion to order the receiver to seize and sell all of the corporate prop- erty. Pilliod V. Angola Ry. & Power Co., 46 Ind. App. 719, 91 N. E. 829. Two corporations, engaged in publishing newspapers, entered into an agreement under which they combined their properties and published a single paper. Dis- sensions arose between the two in- terests and an action was com- menced in which a receiver was prayed for. It was held that the agreement created a partnership between the two corporations and that a receiver could be appointed under principles governing such a relationship. News-Register Co. V. Rockingham Pub. Co., 118 Va. 140, 86 S. E. 874. In Bouker Contracting Co. v. W. H. Callahan Contracting Co., 218 N. Y. 321, 113 N. E. 257, it was held that the statute concern- ing "supplementary proceedings" was not applicable to a corpora- tion debtor because of the exist- ence of a statute specially con- cerning receivers of corporations. In other words a receiver ap- pointed for a corporation under the General Corporation Law acts for the benefit of all creditors, whereas a receiver in supplemen- tary proceedings represents only the creditor who procured his ap- pointment together with such other creditors who have had the receivership extended to cover their claims. In Murray v. Keeley Institute, etc., 190 Mich. 295, 157 N. W. 87, a corporation receiver was prayed for. The court viewed the action as a contest between part- ners. A receiver was appointed to take possession of and sell the stock that was counted to be the assets of the partnership, and to protect the value of the stock pen- dente lite the corporation was en- joined from disposing of, seques- tering, or encumbering its assets. In many opinions we find courts justifying the appointing of a re- ceiver over the affairs of an ordi- 692 LAW OF RECEIVERS. existing at tlie time of the appointment. ' '^ In connection with these corporation receiverships certain peculiar points arise with reference to the powers and duties of the receiver and these matters will be presented in this chapter. Certain corporations, such. as railroads, banks, and the various public utilities, have a sort of public char- acter and, in connection with receiverships of such cor- porations, special points arise, growing out of the fact that the general public has a certain interest in the con- duct and continuance of their business. These special points will be considered in separate chapters, although cases involving such corporations are here used as authority, where the points involved are applicable to corporation receivers in general. Certain matters of application to all classes of corporation receiverships are presented in this opening division of the chapter. § 294. Receiverships at the Instance of a Corporation or With Its Consent. It has appeared in connection vnth the special receiver- ships heretofore discussed that a corporation may be the successful applicant for the appointment of a receiver. It mil also appear that a corporation may be the success- ful applicant for the appointment of a corporation re- ceiver of another corporation. Either for practical rea- sons,^ or from the nature of the matter, it does not nary business corporation on the Shoshone, etc., Co., 245 Fed. 697, ground of an analogy between 158 C. C. A. 99. such corporations and partner- i Creditor's or stockholder's re- ships and on the ground of the ceiver actions against corporations well recognized jurisdiction of are frequently brought by pre- courts to appoint receivers over arrangement with the corporation partnership affairs. Benedict v. and, unless actual fraud is in- Columbus Construction Co., 49 volved, such an arrangement is N. J. Eq. 23, 23 Atl. 485; Booth v. considered legitimate. The ar- Summit Coal Min. Co., 55 Wash. rangement is frequently made for 167, 19 Ann. Cas. 1255, 104 Pac. the purpose of bringing the action 207. within the jurisdiction of a federal 4 Equitable Trust Co. v. Great court on the grounds of diversity PRIVATE CORPORATIONS. G93 frequently appear that a corporation has applied for the appointment of a corporation receiver of its own affairs. It has, however, been held that, when its affairs were in such shape that a receiver might properly be appointed at the instance of a creditor or a stockholder, the corpo- ration might itself present its condition to a court and have a receiver appointed to handle its own affairs. - Doubtless in many instances a corporation which is in failing financial circumstances has sought the instrumen- tality of a creditor in instituting proceedings against it, which will result in the appointment of a receiver over its affairs, for the purpose of preserving them for the benefit of all creditors. In such circumstances the cor- poration generally admits the receivership facts. It is the duty of the court where such a procedure takes place to be astute in its examination of the facts to ascertain of citizenship. In re Reisenberg (Receivership of Metropolitan St. Ry. Co.), 208 U. S. 90, 52 L. Ed. 403, 28 Sup. Ct. 219. For an interesting comment on this practice from the point of view of the amount of worlt it has thrown on federal courts, see Quincy, etc., R. Co. v. Humphreys, 145 U. S. 82, 36 L. Ed. 632, 12 Sup. Ct. 787. 2 In an action against a street railway company, which was the lessee of another company as to most of the lines which it was operating, and in which a receiver of the lessee company was ap- pointed, the lessor company inter- vened and, on the ground of the complete merging of its affairs with those of its lessee, had the receivership extended to its own affairs. In re Reisenberg (Receiv- ership of Metropolitan St. Ry. Co.), 208 U. S. 90, 52 L, Ed. 403, 28 Sup. Ct. 219. A corporation, making a bond- holder a defendant, having asked lor a receiver, the bondholder on cross-complaint for foreclosure, asked for a receiver and the ap- pointment was made regardless of the propriety of the corporation's application. Lewis' Administrator V. Bowling Green Ry. Co., 155 Ky. 681, 160 S. W. 242. It has, however, been held that, in the absence of special statutory authority, a corporation can not with propriety appeal to a court of equity for a receiver to wind up its affairs. White v. Davis, 134 Ga. 274, 67 S. E. 716. A statute that denies to a cor- poration the right to apply for a receiver over its own affairs pro- hibits its directors from making such an application. Floore v. Morgan (Tex. Civ. App.), 175 S. W. 737. A corporation suing to recover property of its own on the claim 694 LAW OP RECEIVERS, Avhetlier tlie appointment of the receiver will operate as a hardship upon other creditors of the corporation.^^ The practice, however, of a corporation which, though not insolvent in a bankrupt sense but temporarily em- barrassed financially, admitting receivership facts set forth in a petition asking for a receiver is quite universal and is looked upon by the courts as proper and com- mendable, where no improper collusion exists and where it is obvious that the receivership will operate as a pro- tection to not only the creditors but also the stockholders of the corporation in preserving its assets from loss or waste in litigation or the payment of judgments obtained by some creditors at the expense of other creditors w^iose claims have not yet matured.^ that it had been wrongfully dis- posed of by its officers may have a receiver of the property ap- pointed. American & British Mfg. Co. V. Hoadley, 97 Misc. Rep. 200, 162 N. Y. Supp. 836; Leigh v. National Hollow, etc., Co,, 224 111. 76, 79 N. E. 318. 3 "Where the rights of others would be interfered with by the appointment of a receiver, and an insufficient showing for a receiver is made the court will refuse to make the appointment even though the litigants are willing to consent to the court making it. Whelpley v. Erie Ry. Co., 6 Blatchf. 271, Fed. Cas. No. 17,504. Inasmuch as the application for a receiver always calls for the ex- ercise of judicial discretion, the chancellor should so mold his or- der that while favoring one cred- itor, injustice is not done to another. If this can not be done the application should ordinarily be denied. Fosdick v. Schall, 99 U. S. 235, 253, 25 L. Ed. 339, 343. See, also, New England R. Co. v. Carnegie Steel Co., 75 Fed. 54, 21 C. C. A. 219. Even though the directors con- sent to the appointment of a re- ceiver on an application made by a stockholder under statutory pro- visions, other stockholders may in- tervene and show fraud in the ap- pointment. Thayer v. Kinder, 45 Ind. App. Ill, 89 N. E. 408, 90 N. E. 323. ■i In the case of Durand & Co. v. Howard & Co., 216 Fed. 585, L. R. A. 1915B, 998, 132 C. C. A. 589, a receiver was appointed upon the defendant corporation's answer admitting the truth of plaintiffs allegations and in its prayer joining with plaintiff for the appointment. It was alleged that the corporation had about $140,000 of debts owing to a large number of creditors and without sufficient funds to meet its obliga- tions or the necessary credit with which to borrow money and that unless a receiver were appointed its stock of merchandise would be sold at the instance of other cred- PRIVATE CORPORATIONS, 695 We see no objection to a corporation, in circumstances as above stated, setting forth its condition by way of answer in a suit by a hostile creditor and asking for the itors at judicial sales at a great loss. The case was one illustra- tive of the losses in assets which result from a scramble of various creditors for a preference pay- ment of claims and the action of the corporation in admitting the facts was for the purpose of pre- serving its assets for the benefit of all of its creditors without go- ing into bankruptcy. A receiver was appointed upon the answer of the defendant cor- poration admitting the allegations of the bill in the case of Graselli Chemical Co. v. Aetna Explosives Co., 252 Fed. 456, 164 C. C. A. 380. The defendant was engaged in manufacturing explosives. Its property at a fair valuation was more than sufficient to pay all of its debts, but it had a large amount of bonded indebtedness and also a large indebtedness for supplies. Its credit, however, was impaired and it was unable to ob- tain money with which to meet its obligations as they matured in the ordinary course or to conduct its business in an efficient man- ner. It was alleged that an at- tempt by the complainant to en- force its claim at law as a general creditor would precipitate some action by other creditors which would lead to wasteful strife and controversy which could be avoided by a receivership. The petition for a receiver was granted. It may also be noted that the receivers so conducted the affairs of the company that it became not only free from its gen- eral debts but produced dividends and was in a position to soon re- tire its bonded indebtedness. The case of Wood v. Todd, 251 Fed. 530, is another instance where a receivership was success- fully employed in making a profit- able business out of one which was insolvent at the time of being placed under a receivership. In American Can Co. v. Erie Preserving Co., 171 Fed. 540 (af- firmed in 183 Fed. 96, 105 C. C. A. 388), the jurisdiction of the court was alleged as arising from a diversity of citizenship of the par- ties, the insolvency of the defen- dant corporation and the fact that unless a receiver was appointed for the corporation its property would be sacrificed, and asked for a dissolution of the corporation. The corporation answered admit- ting the allegations and, consent- ing that a receiver be appointed, a receiver was appointed. The complainants were contract cred- itors. The court said: "Ordinar- ily a receiver can not be ap- pointed for a corporation at the instance of a creditor who has not recovered judgment upon his claim and exhausted his legal remedy. Yet where a defendant who is confessedly insolvent has waived the objection that a com- ])lainant is not a judgment cred- itor, there is no longer room for doubting the jurisdiction of a fed- eral court of equity to appoint a receiver. In re Reisenberg (Met- ropolitan Railroad Receivership), 208 U. S. 90, 52 L. Ed. 403, 28 Sup. 696 LAW OP RECEIVERS. appointment of a receiver for the purpose of protecting all of its creditors and preventing an improper prefer- ence of some of its creditors. It seems to ns that such is Ct. 219, Cook on Corporations (6th ed.), §863; Tompkins Co. v. Ca- tawba Mills (C. C), 82 Fed. 780. The allegations in the bill that the defendant could not pay its current obligations as they ma- tured, and that it was unable in the ordinary course of its business to pay its existing and enforce- able liabilities, was a proper and sufficient allegation of insolvency. Brouwer v. Harbeck, 9 N. Y. 589, 593, 16 Am. & Eng. Ency. of Law 636; Buchanan v. Smith, 16 Wall. 277, 21 L. Ed. 280; Herrick v. Borst, 4 Hill (N. Y.) 650, 652. Insolvency as the term is used in equity, is clearly differentiated from the meaning which is given to it in the bankruptcy act." In Dickerman v. Northern Trust Co., 176 U. S. 181, 44 L. Ed. 423, 20 Sup. Ct. 311, a receiver was ap- pointed with the consent of the defendant in a suit to foreclose a mortgage securing a bond issue. The question of collusion arose in the case. In Brown v. Lake Superior Iron Co., 134 U. S. 530, 33 L. Ed. 1021, 10 Sup. Ct., 604, the bill was by several creditors for the appoint- ment of a receiver to take charge of the property of defendant. The defendant corporation on the same day accepted service of the mo- tion and entered its appearance. An order pro confesso was subse- quently entered. One of the com- plainants held claims not yet due and the other a judgment. The bill showed that vexatious litiga- tion had been commenced against defendant and accompanied by at- tachments and that other similar litigations were threatened and that such attachments and seiz- ures will give to those creditors an unfair advantage and priority over the complainants whose claims are not yet due and cause them irreparable injury and dam- age and that the property of the defendant will be to a great ex- tent destroyed and their long es- tablished business destroyed to the detriment of complainant and other creditors unless protected by a receiver. The defendant cor- poration raised no objection to the appointment of a receiver until a considerable time had elapsed. The equity of the bill was insisted on the ground that upon the in- solvency of a corporation its prop- erties become a trust fund for the benefit of its creditors which can be seized and disposed of by a re- ceiver in equitable proceedings and that the vast interests and properties of the corporation were threatened with disintegration by the attachment suits. In support of these propositions counsel cited Terry v. Anderson, 95 U. S. 628, 24 L. Ed. 365; Union Trust Co. v. Illinois Midland Ry. Co., 117 U. S. 434, 29 L. Ed. 963, 6 Sup. Ct. 809; Sage V. Memphis, etc., R. R. Co., 125 U. S. 361, 31 L. Ed. 694, 8 Sup. Ct. 887; Mellen v. Moline M. Iron Works, 131 U. S. 352, 33 L. Ed. 178, 9 Sup. Ct. 781; Barbour v. National Exchange Bank, 45 Ohio St. 133, 12 N. E. 5, and Rouse v. Merchants Nat. Bank, 46 Ohio St. PRIVATE CORPORATIONS. G9' the spirit of tlie decisions in wliicli receivers were ap- pointed with the consent of the corporation. In so far as very large corporations are concerned and particularly those engaged in a public service or those 493, 15 Am. St. Rep. 644, 5 L. R. A. 378, 22 N. E. 293. The court, while not conceding that the bill was defective, held that objection came too late after such a long acquiescence in pro- ceedings which obviously had been taken with its consent. In justifying the appointment of the receiver, the court, speaking through Mr. Justice Brewer, said: "The corporation was insolvent. Its extensive and scattered prop- erties had been brought into sin- gle ownership, and so operated to- gether that large benefits resulted in preserving the unity of owner- ship and operation. Disintegra- tion was threatened through sep- arate attacks, by different cred- itors, on scattered properties. The preservation of this unity, with its consequent value, and the appropriation of the properties for the benefit of all the creditors equally, were matters deserving large consideration in any proper suit. Certain creditors, acting for all, initiated proceedings looking towards this end. In such pro- ceedings the corporation acqui- esced. Substantially all of the creditors came into the proceed- ings. After months had passed, much business had been trans- acted and large responsibilities assumed, the corporation, for the benefit of a few creditors and to destroy the equality between all, comes in with the technical objec- tion that the creditors initiating the proceedings should have taken one more step at law before com- ing into equity. But the maxim, "He who seeks equity must do equity," is as appropriate to the conduct of the defendant as to that of the complainant; and it would be strange if a debtor, to destroy equality and accomplish partiality, could ignore its long acquiescence and plead an unsub- stantial technicality to overthrow protracted, extensive and costly proceedings carried on in reliance upon its consent. Surely no such imperfection attends the adminis- tration of a court of equity. Good faith and early assertion of rights are as essential on the part of the defendant as of the complainant. In New England R. Co. v. Car- negie Steel Co.. 75 Fed. 54, 21 C. C. A. 219, the complainant was the holder of a few first mortgage bonds and a few shares of the capital stock of the defendant railroad company. The bill al- leged that defendant was insol- vent and that its system was in danger of being broken up, and asked no final relief and no relief except the appointment of receiv- ers to hold the system intact and to protect it against its creditors. The receiver was appointed and the Circuit Court of Appeals, in commenting upon the appoint- ment, said: "It was one of those anomalous proceedings, so com- mon in such cases, which the Su- preme Court has never formally approved or disapproved, and which has been tolerated on ac- 698 LAW OF RECEIVERS. involving rights and liabilities of many persons it is admitted by the courts that the practical effect of a count of the public and general interests involved, for which legis- latures have given no protection under such emergencies. Occa- sional criticism has been ex- pressed against the courts for re- taining proceedings of this class; yet, as is usual under such cir- cumstances, no formal objections appear to have been brought to the attention of the court in this case. While, therefore, we can justly presume that the appoint- ment of receivers was found to have been for the common inter- est, yet we must refer to the state of the record in these particulars for the purpose of explaining that the receivers, at that stage, stood practically for the corporation it- self, with all of its rights and powers, subject to such limitations' and directions as might be given by the court." In this connection see, also, Scott V. Farmers' Loan etc. Co., 69 Fed. 17, 16 C. C. A. 358. In Burton v. R. G. Peters Salt etc. Co., 190 Fed. 262, a receiver was appointed over an insolvent corporation which had consented to the appointment. See, also, Moe v. Thomas Mc- Nally Co., 138 App. Div. 480, 123 N. Y. Supp. 71; Union Trust Co. V. Southern etc. Lumber Co., 166 Fed. 193, 92 C. C. A. 101; Horn v. Pere Marquette R. Co., 151 Fed. 626; Ex parte Equitable Trust Co., 231 Fed. 571, 145 C. C. A. 457; In re Reisenbarg (Metropolitan Railroad Receivership), 208 U. S. 90, 52 L. Ed. 403, 28 Sup. Ct. 219. In this connection see, also, sec- tion 20, supra. As to whether the president of the corporation may consent to the appointment of a receiver. See Nesbit v. North Georgia etc. Co., 156 Fed. 979. But it has been held that a re- ceivership will not be continued for the mere purpose of giving a corporation an opportunity to finance itself in order to pay its debts. Duncan v. George C. Tread- well Co., 82 Hun 376, 31 N. Y. Supp. 340. And where it is not claimed that the corporation is insolvent or mismanaged, a receiver will not be appointed merely because suits against it are threatened and its assets for that reason liable to be depreciated and wasted. Nowell V. International Trust Co., 169 Fed. 497, 94 C. C. A. 589. Upon a showing that the re- ceiver was appointed at the in- stance of the corporation to tide it over difficulties, he may be dis- charged and a new one appointed. Phinizy v. Augusta etc. R. Co., 56 Fed. 273. And other creditors may inter- vene where the corporation has fostered a collusive suit for its dissolution and the appointment of a receiver. Taber v. Royal Ins. Co., 124 Ala. 681, 26 So. 252. Where the corporation is sol- vent and a going concern a re- ceiver should not be appointed over it where it is obvious that the only purpose of the appoint- ment is to prevent creditors from enforcing their claim through the ordinary processes of the law. The object of a receivership should be to preserve the assets for the ben- PRIVATE CORPORATIONS. G99 receiversliip in sncli cases is in most cases an instrument for consummating plans of reorganization.^ The basic principle underlying the action of the courts in cases of this kind is the preservation of the assets of the corporation for the benefit of all interested parties in the face of a threatened loss by preferential and wasteful litigation. Such a situation very frequently arises in respect to large business concerns during critical finan- cial times. The elastic powers of a court of equity in such circumstances was very aptly expressed by Judge Man- ton of the Circuit Court of Appeals in a well considered case*^ in which he said: "A court of equity's modes of relief are not fixed and rigid. It can mold its remedies to meet the conditions with wdiicli it has to deal. The juris- diction of equity is the whole domain of conscience, lim- ited only by legislative enactment. The faculty of equity nmst be energetic, productive, and progressive. But to exercise this right of the court of equity there must be some show of an injustice attempted or about to be per- petrated upon the petitioners. ... In the absence of power created by legislation in this country, the federal judges, sitting in courts of equity, have endeavored to secure the rights of those interested, including the stock- holders at the time of readjustment of large corporations, a protection to meet the needs of the occasion. Changing times, with change in economic needs, require the courts of equity to mold remedies to meet the conditions with which they have to deal." § 295. Discretion of Court in Making the Appointment. The general rule, that the appointment of a receiver is not a matter of right, but is a matter to be decided by the efits of creditors. Cronan v. Dis- ingly on this point In Graselli trict Court, 15 Idaho 184, 96 Pac. Chemical Co. v. Aetna Explosives 768. Co., 252 Fed. 456, 164 C. C. A. 380. 'o Guaranty Trust Co. v. Missouri f> Graselli Chemical Co. v. Aetna Pac. Ry. Co., 238 Fed. 812. The Explosives Co., 252 Fed. 456, 164 above case was also cited approv- C. C. A. 380. 700 LAW OF RECEIVERS. court in the exercise of a non-arbitrary, judicial discre- tion, applies to the appointment of a corporation receiver as well as to the appointment of other classes of receiv- ers.^ Indeed, it is probably true that in corporation cases, even though the propriety of an appointment might go unquestioned, the necessity for the appointment requires greater scrutiny than in other cases. It is to be remem- bered that a corporation receiver generally assumes con- trol of all of the property and of the business of the corporation, and that his appointment has a drastic effect upon the right of creditors to collect their debts. From a purely technical point of view it is to be consid- ered that by law this control is placed in certain corporate officers and it is a drastic measure to deprive them of their legal authority.- The appointment, when without the consent of the corporation itself, is likely to impair seriously the credit of the corporation. It imposes a heavy burden upon the court, an institution not well equipped nor disposed to carry on a business.^ The re- ceiver represents not the applicant alone but all inter- ested parties ; and the desire of the applicant deserves no greater consideration, perhaps, than that of others in the same relation to the corporate affairs.'* In the case of a corporation supplying a widely used commodity or ser- vice the interests of the public may be properly consid- 1 Baltimore Bargain House v. "The doctrine which justifies St. Clair, 58 W. Va. 565, 52 S. E. the drastic intervention of equity 660. courts in corporate affairs . . . 2 Laurel Springs Land Co. v. is grounded on the theory that the Fougeray, 50 N. J. Eq. 756, 26 Atl. valuable rights of minority stock- 886. Fougeray v. Cord, 50 N. J. holders can be rescued, along with Eq. 185, 24 Atl. 499. those of a recalcitrant majority, 3 Shera v. Carbon Steel Co., 245 from a common ruin. It does not Fed. 589. contemplate the infliction of any 4 Heitkamp v. American Pig- loss or injury upon the majority ment & Chemical Co., 158 111. App. stockholders in order that the 587; Frost v. Puget Sound Realty minority may be benefited. To Associates, 57 Wash. 629, 107 Pac. help the one class by hurting the 1029. other would be an indefensible PRIVATE CORPORATIONS. 701 eretl.-^ In tlie case of stockholders it is to be considered that they have contracted to abide by the decision of the majority and, for the most part, if they are dissatisfied or disappointed they are privileged to sell their stock and retire.^ Even where there is a statute authorizing the appoint- ment under certain conditions, the appointment is held to be discretionary and dependent as much upon its neces- sity as upon its propriety;' except in the case of a statute wrong." Phinizy v. Anniston City Land Co., 195 Ala. 656, 71 So. 469. In Aldrich v. Union Bag etc. Co., 81 N. J. Eq. 244, 87 Atl. 65, a receiver was sought by minority stockholders on the ground that the board of directors were fraud- lilently mismanaging the business by means of commissions and agency contracts, all of which acts extended over a period of years. The court refused to make the appointment pending the suit on the ground that no irreparable in- jury would result the awaiting of the few months which would elapse until the final hearing on the complaint. 5 A receiver was refused over the property of a large corpora- tion controlling the tobacco in- dustry on the ground of not only injury to the general public but of widespread loss to innocent persons. United States v. Amer- ican Tobacco Co., 221 U. S. 106, 55 L. Ed. 663, 31 Sup. Ct. 632 (re- versing decree in 164 Fed. 700). The court will not appoint a receiver upon the dissolution of a combination in violation of the Anti-Trust Act where it is not necessary to accomplish this pur- pose. United States v. Great Lakes Towing Co., 217 Fed. 656. G Metropolitan Fire Ins. Co. v. Middendorf, 171 Ky. 771, 188 S. W. 790; Inscho v. Mid-Continent De- velopment Co., 94 Kan. 370, Ann. Cas. 1917B, 546, 146 Pac. 1014. "The Independent Brewing Assoc, was a prosperous, solvent, going concern, and the evidence does not show that it was neces- sary for the preservation of the rights of appellants (minority stockholders) that it should be taken from control of its officers who had managed it successfully for many years notwithstanding their wrongful conduct in the pur- chase of certain property." Klein V. Independent Brewing Assn., 231 111. 594, 83 N. E. 434. 7 Thoroughgood v. Georgetown Water Co., 9 Del. Ch. 84, 77 Atl. 720; McMullin v. McArthur Elec- tric Mfg. Co., 73 N. J. Eq. 527, 68 Atl. 97; In re People's Surety Co. of New York, 82 Misc. Rep. 518, 144 N. Y. Supp. 131. If there be doubt as to the proof of the insolvency under a statute allowing receivers upon a showing of insolvency the court should re- fuse to make the appointment. Whitmer v. William Whitmer & Sons, Inc., (Del. Ch.), 99 Atl. 428. Where a corporation is in a prosperous condition and its offi- 702 LAW OF RECEIVERS. providing for tlie dissolution of a corporation and leav- ing a receivership as tlie only means of winding up its affairs and distributing its assets.^ The appointment will not be made if the applicant has been guilty of laches, or of acquiescence in the wrong- complained of ;^ when the expense, or other disadvantage, mil outweigh the advantage ;^*^ when some other remedial relief is open to plaintiff ;^^ or when preventive relief will cers in a position to respond in damages, the court should refuse to appoint a receiver at the in- stance of minority stockholders who claim that the officers are vio- lating their duties. Metzger v. Knox, 77 Misc. Rep. 271, 136 N. Y. Supp. 681 (affirmed in 153 App. Div. 911, 137 N. Y. Supp. 1129). 8 Conlan v. Oudin, 49 Wash. 240, 94 Pac. 1074. 9 Brookshire v. Farmers' Alli- ance Exchange, 73 S. C. 131, 52 S. E. 867; Baltimore Trust Co. v. George's Creek Coal & Iron Co., 119 Md. 21, 85 Atl. 949; Ridpath V. Sans Foil etc. Transportation Co., 26 V^ash. 427, 67 Pac. 229; Eggleston v. Pantages, 93 Wash. 221, 160 Pac. 425; Grant v. Monte- rey Gold Mining Co., 93 Wash. 1, 159 Pac. 895. Thus where there has been no change in the affairs since the plaintiff was president of a cor- poration, a receiver will not be appointed over it at the instance of such former president upon his allegations of conspiracy on the part of certain stockholders to sell its property at less than its value and especially after the lapse of six years. Bergman Clay Mfg. Co. V. Bergman, 73 Wash. 144, 131 Pac. 485. 10 Feess v. Mechanics' State Bank, 84 Kan. 828, L. R. A. 1915A, 606, 115 Pac. 563. Nor will a receiver be appointed over a corporation if relief from the alleged mismanagement can be had by injunction. United Elec- tric etc. Co. V. Louisiana Electric Light Co., 68 Fed. 673; Common- wealth Title Ins. etc. Co. v. Selt zer, 227 Pa. 410, 136 Am. St. Rep. 896, 76 Atl. 77. 11 Chilton V. Bell County Coke & Improvement Co., 153 Ky. 775, 156 S. W. 889; Hartnett v. St Louis Min. & Mill. Co., 51 Mont. S95, 153 Pac. 437. A lienholder must resort to his lien, rather than to receivership. Galvin v. McConnell, 53 Tex. Civ. 486, 117 S. W. 211. Where relief other than by re- ceivership could be had for dissi- pation cf its assets, the appoint- ment of a receiver will be refused. Smith v. Chase & Baker Piano Mfg. Co., 197 Fed. 466. The fact that majority stock- holders of an insolvent corpora- tion increased the salary of one of its officers at a time when busi- ness was run at a loss is not ground for the appointment of a receiver since if the increase of salary is illegal, upon a proper showing the plaintiff may cause an action to be instituted for the pur- PRIVATE CORPORATIONS. 703 be effective.i2 Altlioiigh an attempt is made to bring a case within some well recognized ground of appointment, a receiver will, of course, be denied if the facts stated are pose of restraining its future pay- ment, and for the purpose of re- covering to the corporation any illegal salary which may have been previously paid. Curtiss v. Dean & Curtiss, 85 Wash. 435, 148 Pac. 581. See, also, Alabama Coal & Coke Co. V. Schackelford, 137 Ala. 224, 34 South. 833, 97 Am. St. Rep. 23; Schaffhauser v. Arnholt & S. Brewing Co., 218 Pa. 298, 67 Atl. 417, 11 Ann. Cas. 772. Where the offending directors have retired from office, the ap- pointment of a receiver based upon their mismanagement should be refused. Halpin v. Mutual Brewing Co., 91 Hun 220, 36 N. Y. Supp. 151. A receiver should not be ap- pointed because of irregularities or misconduct of the officers of the corporation where there is a way to correct them through the board of directors or through injunc- tional orders. Feess v. Mechanics' State Bank, 84 Kan. 828, L. R. A. 1915A, 606, 115 Pac. 563. The fact that the officers refuse to allow the stockholders access to its corporate books and papers and refuse to disclose facts con- cerning its business affairs, is not ground for the appointment of a receiver. Alabama Coal etc. Co. v. Shackelford, 137 Ala. 224, 97 Am. St. Rep. 23, 34 So. 833. Mere failure of the secretary of a corporation to keep its min- utes properly is no ground for the ajipointment of a receiver, espe- cially whei-e it has not been shown that any harm resulted from his actions. Semple v. Frisco Land Co., 124 La. 663, 50 So. 619. Insolvency would be insufficient ground for the appointment of a receiver where the remedy under the statute is the liquidation of the corporate affairs by commis- sioners. Hero V. Consumers' Lum- ber Mfg. & Export Co., 123 La. 359, 48 So. 989. Nor is a receiver needed where the creditor may enforce his de- mands by means of attachment proceedings. Gabbert v. Union Gas & Traction Co., 140 Mo. App. 6, 123 S. W. 1024. In a suit to enforce stockhold- ers' liability to creditors, it is not necessary to appoint a receiver to wind up its affairs. American Spirits Mfg. Co. v. Eldridge, 209 Mass. 590, 95 N. E. 942. See, also, Forsell v. Pittsburg etc. Copper Co., 42 Mont. 412, 113 Pac. 479. Thus where the claim of the plaintiff was less than $2500 and defendant corporation's property was worth about $40,000, against which liens were filed to the amount of about $30,000 more than a year before the commencement of plaintiff's action, and no suits had been brought to enforce such liens, a receiver was improperly appointed since the plaintiff could have enforced his claim by legal process. Prudential Securities Co. V. Three Forks, etc. Ry. Co., 49 Mont. 567, 144 Pac. 158. 12 Parrish v. Reese, 165 Ala. 638, 51 So. 824; Laurel Springs 104: LAW OF RECEIVERS. insufficient to warrant the appointment or if tlie stated facts are not proved. ^^ The appointment may be denied Land Co. v. Fongeray, 50 N. J. Eq. 756, 26 Atl. 886; Fougeray v. Cord, 50 N. J. Eq. 185, 24 Atl. 499. Although under some statutes it has been held a receiver could be appointed for a corporation when- ever it found sufficient cause for injunction. Van Oss v. Premier Petroleum Co., 113 Me. 180, 93 Atl. 72. 13 Baker v. Backus' Adm'r, 32 111. 79; First Nat. Bank v. Gage, 79 111. 207; Chicago Mut. Life In- demnity Ass'n v. Hunt, 127 111. 257, 274, 2 L. R. A. 549, 20 N. E. 55; Heitkamp v. American Pig- ment & Chemical Co., 158 111. App. 587; Manufacturers' Land & I. Co. v. Cleary, 121 Ky. 403, 89 S. W. 248; Felix v. Kenner Canning & Packing Co., 123 La. 188, 48 So. 884; Semple v. Frisco Land Co., 124 La. 663, 50 So. 619; Trahan v. Broussard Cotton Oil Co., 125 La. 785, 51 So. 898; Fuller v. McCor- mick, 156 Mich. 518, 121 N. W. 280; Nevada Consol. Min. & Mill Co. V. Lewis, 34 Nev. 500, 126 Pac. 105; Einstein v. Rosenfeld, 38 N. J. Eq. 309; Kean v. Colt, 5 N. J. Eq. 365; Blake v.Blake&Knowles Steam Pipe Works, 84 N. J. Eq. 363, 94 Atl. 419; Forest Oil Co. v. Wilson, (Tex. Civ. App.) 178 S. W. 626; Secord v. Wheeler Gold etc. Co., 53 Wash. 620, 17 Ann. Cas. 914, 102 Pac. 654; Curtiss v. Dean & Curtiss, 85 Wash. 435, 148 Pac. 581; Carson v. Allegany Window Glass Co., 189 Fed. 791. Where a cemetery was as well maintained as others in the vicin- ity and the officers of the ceme- tery associations were performing their duties in a suitable manner, a receiver will not be appointed to take charge of the cemetery in a suit against the corporation for an accounting and disclosure of the names of its officers. Youn- gers v. Exeter Cemetery Ass'n, 85 Neb. 314, 123 N. W. 95. Irregular acts of officers in the absence of fraud will not justify the appointment. Hardee v. Sun- set Oil Co., 56 Fed. 51. Where it is not shown. that the proceeds from the sale of goods by the president of a corporation in the name of another corpora- tion were fraudulently diverted from the corporation, it will not be sufficient ground for the ap- pointment of a receiver. Howeth V. Colbourne Bros. Co., 115 Md, 107, 80 Atl. 916. Where the directors of a cor- poration repudiated the unlawful acts of another director when dis- covered, compelled a partial res- toration by him, undertook to in- stitute criminal proceedings against him, and removed him from his position as treasurer and general manager, and no further waste was threatened, and the stockholders appointed a commit- tee, not composed of any of the directors, to preserve the assets, the court, in a representative ac- tion by a stockholder, a receiver should be denied and especially when the good faith of the plain- tiff is in doubt. Sedgwick v. Sew- ard Development Co., 144 App. Div. 455, 129 N. Y. Supp. 209 (re- hearing denied, 144 App. Div. 935, 129 N. Y. Supp. 1145). The mere fact that some of its stockholders are also stockholders PRIVATE CORPORATIONS. 705 on condition^^ or without prejudice to a later applica- tion.^^ 2. Inherent Jurisdiction of Courts of Equity to Appoint Corporation Receivers. § 296. Ground of Equity Jurisdiction. There are numerous cases in which it has been held, both by courts of England and by federal courts of the United States and state courts in many of the states of the United States, that courts of equity have jurisdiction in the exercise of their inherent powers, and without the aid of statutes, to appoint receivers to take charge of the affairs and the assets of corporations. In reviewing a case from a United States Circuit Court, in which the decree expressly stated that the appointment of the re- ceiver w^as made pursuant to the provisions of a New Jersey statute the Circuit Court of Appeals struck from the decree this express reason for making the appoint- ment.^ In another case, a federal court said: ''It can in another corporation is not suf- ficient ground for a receiver upon a theory that a sale of property from one corporation to the other would be in fraud of the stock- holders. Bergman Clay Mfg. Co. V. Bergman, 73 Wash. 144, 131 Pac. 485. Where a corporation was in the possession of large assets and during the past year its income had exceeded its expenses, it will not be dissolved on the ground that its business could not be con- ducted with profit. Phinizy v. An- niston City Land Co., 195 Ala. 656, 71 So. 469. In an action against a corpora- tion and its officers based upon fraudulent representations of such officers to purchasers of stock, in the absence of any allegations of I Rec. — 45 insolvency or that the plaintiffs are likely to be harmed, it is im- proper to appoint a receiver for the corporation. Georgia Portland Cement etc. Co. v. Jackson, 139 Ga. 668, 77 S. E. 1055. 14 Shera v. Carbon Steel Co., 245 Fed. 589. Where a corporation has large interests which may be jeopar- dized by the appointment of a re- ceiver, it is proper for the court to allow it, on an application for a receiver by a judgment creditor, to furnish a bond or other security in lieu of having a receiver ap- pointed. Barclay v. Quicksilver Min. Co., 9 Ab. Pr. N. S. 283. 15 Hunnewell v. New York Cent. & H. R. R. Co., 196 Fed. 543. 1 United States Shipbuilding Co. V. Conklin, 126 Fed. 132, 60 706 LAW OF RECEIVERS. not be doubted that the federal court in the exercise of its general equity jurisdiction has power to appoint a receiver on a stockholder's bill, determine a corporation's solvency, and distribute its assets, and that no state stat- ute can impair or destroy that power."- The general jurisdiction of the courts to entertain the cases is referred to the jurisdiction of equity when the wrong complained of is due to fraud, mistake, accident, or some other sim- ilar equitable consideration; or to a violation of some trust obligation, the corporate directors or majority stockholders being considered trustees for stockholders and creditors. Fundamentally, the ground upon which the special jurisdiction to appoint the receiver is based is the broad one of the necessity of preserving and pro- tecting, pending the litigation, and for the benefit of all interests, property that is liable to be lost, removed, or materially injured.^ C. C. A. 680. The court said: "Upon the whole we are of opin- ion that the bill presented a case of which the circuit court sitting in equity had jurisdiction and that the appointment of a receiver was within the authority of the court." For the reference to the statute, the court of appeals substituted: "The receiver to be subject at all times to the orders and directions of this court." The higher court also added the provision: "The foregoing order to stand until the further order of the court." 2 O'Neil V. Welch, 245 Fed. 261, 157 C. C. A. 453; Davis v. Gray, 16 Wall. (U. S.) 203, 21 L. Ed. 447; Miltenberger v. Logansport etc. Ry. Co., 106 U. S. 286, 27 L. Ed. 117, 1 Sup. Ct. 140; Sage v. Mem- phis etc. Ry. Co., 125 U. S. 361, 31 L. Ed. 694, 8 Sup. Ct. 887; Rol- lins v. Brierfield etc. Iron Co., 150 U. S. 371, 382, 37 U Ed. 1113, 14 Sup. Ct. 127; Pilliod v. Angola Ry. etc. Co., 46 Ind. App. 719, 91 N. E. 829; Thompson v. Greeley, 107 Mo. 577, 589, 17 S. W. 962. 3 A receiver may be appointed for the purpose of preserving its assets. Mitchell Min. Co. v. Emig, 35 App. Cas. (D. C.) 527; John H. McGowan Co. v. Ingalls, 60 Fla. 116, 53 So. 932; Van Vleet v. Evan- geline Oil Co., 129 La. 406, 56 So. 343; Summit Silk Co. v. Kinston Spinning Co., 154 N. C. 421, Ann. Cas. 1912A, 897, 70 S. E. 820. "The property must be pre- served pending this litigation and the conduct of the president and his associates in the direction has been such that they can not be permitted to retain control of the affairs of the company." Avery v. Blees Mfg. Co., 27 N. J. Eq. 412. "In my judgment the objections that have been urged against this application at the existing stage of PRIVATE CORPORATIONS. 707 § 297. Recognition of Equity Powers by Statutory Provisions. The appointment has sometimes been based upon a statutory provision authorizing a receivership in cases in the cause might be urged with as much force if this were an appli- cation to restrain the felling of timber or the destruction of a house. It is a case of waste partly accomplished and i m m i n e n t." Evans v. Coventry, 5 De Gux, M., & G., 911. The receiver is appointed "for the sole and exclusive purpose of having the assets and property of the defendant company preserved for the best interests of all of its creditors and stockholders." Welch v. Union Casualty Ins. Co., 238 Fed. 968. The threatened conduct of the defendant "would practi- cally destroy the business of the company and greatly depreciate the value of Its property; and under such circumstances the court was authorized to appoint a receiver. Guthrie v. Arents, 109 Fed. 1058, 48 C. C. A. 765. A re- ceiver will be appointed to pre- serve the corporate property in danger of being lost. Pride v. Pride Lumber Co., 109 Me. 452, 84 Atl. 989. "The power of equity (to ap- point a receiver) is within its power to grant relief to prevent injuries to property rights." Thor- oughgood v. Georgetown Water Co., 9 Del. 84, 77 Atl. 720. The power of a court of equity to appoint a receiver over a cor- poration under the exercise of its equitable jurisdiction in receiver- ship facts does not rest upon the character of the parties but upon the existence of the equitable facts necessary for its exercise. United States Trust Co. v. New York etc. R. Co., 101 N. Y. 478, 482, 5 N. E. 316; Decker v. Gard- ner, 124 N. Y. 334, 11 L. R. A. 480, 26 N. E. 814. In the absence of statutory au- thority enlarging the jurisdiction of a court of equity, a receiver will not be appointed by a court of equity over a corporation ex- cept in the same circumstances which would authorize one for an individual. Barber v. International Co., 73 Conn. 587, 48 Atl. 758; Vila V. Grand Island etc. Co., 68 Neb. 222, 110 Am. St. Rep. 400, 4 Ann. Cas. 59, 63 L. R. A. 791, 797, 94 N. W. 136, 97 N. W. 613. In Union State Bank v. Mueller, (Okla.) 172 Pac. 650, the court said : "A court of equity has the in- herent power to appoint a receiver for the property of a corporation, and to require the officers to make an accounting therefor upon the petition of minority stockholders. The officers of a corporation in the management and control of its assets are the trustees of the stockholders, and are charged with the faithful management of the corporate property for the ac- complishment of the purposes for which the corporation was char- tered; and, under a state of cir- cumstances such as the evidence tends to establish, it would amount to a denial of justice if courts of equity were unable to afford a remedy where no ade- quate remedy could be had at law. If the foregoing facts are established upon final trial, there 70S LAW OF RECEIVERS. which such an appointment would be in accordance with the usag-e and practice of equity,^ or when in the discre- tion of the court the appointment was necessary to secure complete justice to the parties.^ A statute providing for the appointment of a receiver under certain specific cir- will be shown a gross mismanage- ment of the affairs of the corpora- tion, which has resulted in wreck- ing its business and wresting from the stockholders its prop- erty, and the court was justified in reaching out its arm and taking charge of the property and plac- ing it in the hands of a receiver until these matters could be in- vestigated upon final trial and the rights of the minority stockhold- ers could be determined and an accounting had." Exchange Bank of Wewoka et al. v. Bailey, 29 Okla. 246, 116 Pac. 812, 39 L. R. A. (N. S.) 1032. In Kahle v. Industrial Loan etc. Co., 103 Wash. 273, 174 Pac. 23, the court said: "It is apparent upon the face of the complaint and upon the face of the showing made that these trustees have so mismanaged the company since it has been formed that, if it is not now insolvent, there is no ques- tion that it will necessarily short- ly become so, and that the stock- holders who have purchased stock and paid money therefor will re- ceive nothing from the corpora- tion unless a receiver is appointed and immediately takes charge of the few assets remaining belong- ing to the company. The statute, at section 741, Rem. Code, pro- vides: " 'A receiver may be appointed by the court: . . . " '2. In an action between part- ners, or other persons jointly in- terested in any property or fund. " '5. When a corporation has been dissolved or is insolvent, or is in imminent danger of insol- vency, or has forfeited its corpo- rate rights. . . .' "We think there can be no ques- tion in this case, especially under the showing made at the hearing, that this corporation is in immi- nent danger of insolvency if it is not so at this time. In the case of Cameron v. Groveland Imp. Co., 20 Wash. 169, 54 Pac. 1128, 72 Am. St. Rep. 26, we held, under the statute above quoted, that where the property of a corporation is being mismanaged, and is in dan- ger of being lost to the stockhold- ers and creditors through the col- lusion and fraud of its officers and directors, or mismanagement and waste, courts of equity have in- herent power to appoint receivers See, also. Van Horn v. New West ern Shingle Co., 54 Wash. 117 103 Pac. 42; Kennedy Drug Co. v Keyes, 60 Wash. 337, 111 Pac. 175 "We are satisfied, therefore that the trial court properly ap pointed a receiver." 1 Boyle V. Superior Court, 176 Cal. 671, L. R. A. 1918D, 226, 170 Pac. 1140. 2 Boothe V. Summit Coal Mining Co., 55 Wash. 167, 19 Ann. Cas. 1255, 104 Pac. 207. PRIVATE CORPORATIONS. 709 cumstances "is not to be construed to mean tliat the ordi- nary jurisdiction to apjDoint a receiver has thereby been withdraAvn. "2 3. Appointments hy Equity Court at the Instance of Stockholders. § 298. Circumstances and Conditions Essential to Proceeding. In order that a plaintitf may maintain an action as a shareholder of a corporation it is essential that he shall be a bona fide shareholder and acting in good faith. ^ A stockholder's suit, however, is a representative one. The stockholder sues on behalf of himself and all other stock- holders. The corporation is usually a defendant and the wrongs complained of are such that the corporation itself could maintain an action to have them remedied. The action is, therefore, necessarily in equity and the equi- table rule is that one who commences a representative action must establish his capacity to sue by sliowing why his principal, the party really in interest, is not the com- plainant. This rule would apply whether the share- holder asked for a receiver or not. '* There may be a great many wrongs committed in a company, there may 3 Merrifleld v. Burrows, 153 111. Van Horn v. New Western Shingle App. 523; Northwestern Nat. Bank Co., 54 Wash. 117, 103 Pac. 42. V. Mickelson-Shapiro Co., 134 One having the equitable, Minn. 422, 159 N. W. 948. See though not the legal title, to stock, contra, People v. District Court, may be permitted to maintain the 33 Colo. 293, 80 Pac. 908. action, especially if defendant In this connection see, also, does not raise the question until a Morse v. Metropolitan S. S. Co., 88 late stage in the proceedings. N. J. Eq. 325, 102 Atl. 524. Ashton v. Penfield, 233 Mo. 391, 1 One who has the legal title to 135 s. W. 938. stock simply to qualify him to act See Mitchell v. Anlander Realty as a director but has no beneficial Co., 1C9 N. C. 516, 86 S. E. 358. interest in the stock is not entitled One who receives stock simply to sue. Hoopes v. Basic Co., 72 tor the purpose of qualifying him- N. J. Eq. 426; 65 Atl. 1118. self as a litigant may be held not The answer may be construed entitled to sue. Von Schlemmer as leaving undenied the allegation v. Keystone, etc., Ins. Co., 121 La. that plaintiff is a stockholder. 987, 46 So. 991. 710 LAW OF RECEIVERS. > be claims against directors, there may be claims against officers, there may be claims against debtors, there may be a variety of things which a company may well be en- titled to complain of, but which, as a matter of good sense, they do not think it right to make the subject of litigation; and it is the company, as a company, which has to take steps to prevent the wrong from being- done."^ Accordingly, if the stockholder, in the absence of corporate action, attempts, himself, to act, he must show that he has first made every effort to obtain relief within the company by appealing to the directors and, if time, to the stockholders as well ; \pr he must show that such attempts would be useless or that for some other sufficient cause it would not be reasonable to re- quire them.^ It is an objection to his capacity to sue. Although it has also been held that the fact that the obligations, such as stocks or bonds of the corporation, were transferred to the plaintiff for the purpose of the receivership suit, is immaterial. Cole V. Philadelphia, etc., Ry. Co., 140 Fed. 944. 2 MacDougall v. Gardiner, 1 Ch. D. 22. 3 Hawes v. City of Oakland, et al., 104 U. S. 450, 26 L. Ed. 827. This was an action by a stock- holder to enjoin the defendant cotapany from delivering water free to the City of Oakland. In addition to setting forth the rule as above stated, the court pointed out four sets of circumstances under which a stockholder's rep- resentative suit might be main- tained, assuming that the stock- holder first qualified himself to sue. These circumstances are as follows: (1) Some action, or threatened action, on the part of the directors beyond the author- ity conferred by the charter or other source of organization; (2) Such fraudulent transaction, or threatened transaction, by the managers, in connection with some other party, or among them- selves, or with other shareholders, as will result in serious injury to the corporation or to the interests of the other stockholders; (3) Where the directors or the majoi'- ity stockholders are acting for their own interests, in a manner destructive of the corporation it- self or of the rights of the other shareholders; (4) Where the ma- jority stockholders themselves are oppressively and illegally pursuing a course in the name of the cor- poration which is in violation of the rights of other stockholders and which can only be restrained by the aid of a court of equity. Where the corporation is under the control of the wrongdoing de- fendants, no demand on them is necessary. Sage v. Culver, 147 PRIVATE CORPORATIONS. ''^H based upon this rule, that has most frequently been raised against a stockholder's right to maintain an action for a receiver.^ Since a corporation receiver is appointed to preserve the property for the benefit of all stockholders and creditors, either stockholders or creditors may intervene in a stockholder's representative suit.^ §299. Necessity for Existence of an Independent Cause of Action. It has been pointed out in our earlier chapters that strictly speaking there is no such thing as an action simply and solely for the appointment of a receiver. A receivership is merely an ancillary remedy created in aid of the main remedy sought by the action itself. Some- times it happens that a stockholder, suing in his repre- sentative capacity, has a special grievance of his own, such as a claim for stock which the directors or officers refuse to issue ; occasionally the action seeks the redress N Y 246 41 N E 514; Loftus v. 4 Brewer v. Boston Theater Farmers',' etc., Assn.. 8 S. D. 206, Proprietors, 104 Mass. 378; Miner 65 N W 1078- Wenzel v. Palmetto v. Belle Isle Ice Co., 93 Mich. 97, Brewing Co., 48 S. C. 83, 26 S. E. 2; 112. 17 L. R. A. 412, 53 N. W. 218. Boyd V Sims, 87 Tenn. 777, 11 See Exchange Bank v. Bailey. S W 949- Saunders v. Bank of 29 Okla. 246, 39 L. R. A. (N. S.) Meckienberg, 113 Va. 661, 75 S. E. 1032, 116 Pac. 812. ng The U. S. equity court rule A demand for redress from the which specifies the manner in corporation as a preliminary to a which a stockholder must justify suit is not necessary where it has his representative action is not no governing body upon whom applicable to an action brought such a request could be made. to obtain the appointment of an Sheridan etc., Works v. Marion ancillary receiver to assist a pn- Fruit Co., 157 Ind. 292, 61 N. E. mary receiver by bringing suit m ggg ' the ancillary jurisdiction. Blue- Where by collusion suits direc- fields S. S. Co. v. Steele, 192 Fed. tors are seeking to wreck the cor- 23, 112 C. C. A. 411. poration. application by stock- 5 Thayer v. Kinder, 45 Ind. App. holders to the corporation is un- lU. 89 N. E. 408, 90 N. E. 323; necessary. Excelsior Pebble Phos- State ex rel. Connors v. Shelton. phate V. Brown, 74 Fed. 323. 238 Mo. 281, 142 S. W. 417. 712 LAW OF RECEIVERS. of a corporate wrong, the return, for instance, to the corporation of money wrongfully received by an officer ; and redress may be adjudged in the decree by which the receiver is appointed. ^ For the most part, however, the wrongs complained of are wrongs to the corporation itself ; the remedies sought are on behalf of the corpora- tion itself; the complete remedy requires action, either by litigation or otherwise, on the part of a receiver ; redress can not be granted in the decree appointing the receiver. For the most part then the receiver has only a sort of indirect interest in the ultimate purpose for which the action is brought and is not in a position to pray for any direct relief for himself. It is recognized, how^ever, that this indirect interest of the stockholder is sufficient to satisfy the requirements of the rule concern- ing an independent cause of action. § 300. General Rule Respecting Circumstances Under Which the Appointment is Made. In a well considered case^ from New Jersey in which a receiver was appointed Vice-Chancellor Lane observed : ''I do not find all the circumstances under which the court may intervene have ever been definitely deter- mined. In the nature of things they could not be. ' ' His statement is undoubtedly correct. The particular cir- cumstances which form the basis for an application for a receiver are naturally varied since wdth the increasing complexity of business transaction the opportunities and 1 Bates V. Werries, 198 Mo. App. wherever, because of gross abuse 209 199 S. W. 758. of trust, because of dissensions 1 Morse v. Metropolitan S. S. ^^^^^^^ the members of the board Co.. 87 N. J. Eq. 217, 100 Atl. 219. ^' ^^^^^^°/^ °^ *^^ stockholders, because there is no properly con- The Vice-chancellor further stituted board, or because the said: "I do not find that the company has failed of its purpose, courts of this state have in any there is necessity for judicial in- wise limited the general doctrine tervention, a court of equity may which prevails in England and intervene under its general juris- throughout this country that, diction and appoint a receiver." PRIVATE CORPORATIONS. 713 devices of fraud are correspondingly more varied. It is the duty, however, of the courts of equity to keep abreast of the needs of society in the way of furnishing appro- priate remedies for all character of injuries. This elastic function of courts of equity was well expressed by Lord Cottenham, as follows:- "I think it is the duty of this court to adapt its practice and course of proceeding to the existing state of society, and not, by too strict au adherence to rules and forms established under differ- ent circumstances, to decline to administer justice, and to enforce rights for which there is no other remedy." Inasmuch as the decisions of the United States Su-^ preme Court on the subject of receivers have always been rendered with a view to formulating a harmonious body of jurisprudence upon the subject, its decisions on the subject are given great consideration. Resort is fre- quently had to the federal courts in receiversliips of great magnitude in respect to corporations on account of the ease with which a suit based on diversity of citizen- ship may properly be brought in that forum. The gen- eral principles upon which receiverships may be sought in corporation cases, together with the preliminary pro- cedure, have in no case, which we have observed, been set forth with greater clearness than in the leading case of Hawes v. City of Oakland.^ In that case the court said : "We understand that doctrine to be that to enable a stockholder in a corporation to sustain in a court of equity in his own name, a suit founded on a right of action existing in the corporation itself, and in which the corporation itself is the appropriate plaintiff, there must exist as the foundation of the suit — 2 Wallwortli V. Holt, 4 Mylne & See Wathen v. Jackson Oil, etc., Q 635 Co., 235 U. S. 635, 639, 59 L. Ed. 3 104 U. S. 450, 26 L. Ed. 827. 395, 397, 35 Sup. Ct. 225; Hyams The principles laid down in the v. Calumet, etc., Min. Co., 221 above case have been frequently Fed. 529, 542, 137 C. 0. A. 239. reaffirmed by the federal courts. 714 LAW OP RECEIVERS. ''Some action or threatened action of the managing board of directors or trustees of the corporation which is beyond the authority conferred on them by their char- ter or other source of organization; ''Or such a fraudulent transaction completed or con- templated by the acting managers, in connection with some other party, or among themselves, or with other shareholders as will result in serious injury to the cor- poration, or to the interests of the other shareholders; "Or where the board of directors, or a majority of them, are acting for their own interest, in a manner de- structive of the corporation itself, or of the rights of the other shareholders ; "Or where the majority of shareholders themselves are oppressively and illegally pursuing a course in the name of the corporation, which is in violation of the rights of the other shareholders, and which can only be restrained by the aid of a court of equity. "Possibly other cases may arise in which, to prevent irremedial injury, or a total failure of justice, the court would be justified in exercising its powers, but the fore- going may be regarded as an outline of the principles which govern this class of cases. "But, in addition to the existence of grievances which call for this kind of relief, it is equally important that before the shareholder is permitted in his own name to institute and conduct a litigation which usually belongs to the corporation, he should show to the satisfaction of the court that he has exhausted all the means within his reach to obtain, within the corporation itself, the redress of his grievances, or action in conformity to his wishes. He must make an earnest, not a simulated effort, with the managing body of the corporation, to induce remedial action on their part, and this must be made apparent to the court. If time permits or has permitted, he must show, if he fails with the directors, that he has made an PRIVATE CORPORATIONS. 715 honest effort to obtain action by tlie stockliolders as a body, in the matter of which he complains. And he mnst show a case, if this is not done, where it coukl not be done, or it was not reasonable to require it. ''The efforts to induce such action as compUiinant desires on the part of the directors, and of the share- holders when that is necessary, and the cause of failure in these efforts should be sv^ated with particularity, and an allegation that complainant was a shareholder at the time of the transactions of which he complains, or that his shares have devolved on him since by operation of law, and that the suit is not a collusive one to confer on a court of the United States jurisdiction in a case of which it could otherwise have no cognizance, should be in the bill, which should be verified by affidavit." As is usual in matters in which action is based upon variant facts founded upon their effect upon the com- plainant, the courts frequently express themselves to the effect that the decision as to granting or denying the prayer for a receiver must be determined "with refer- ence to the special circumstances of each case as it arises."-^ But it will generally be found that whatever the facts may be found to be, the decision of the court in each case will be founded upon the idea^ whether those facts are considered sufficient or insufficient to constitute what may be well described as receivership facts and which are of a nature to come within those general equi- table principles which form the basis of receivership law.^ Aside from setting forth the principles which will jus- tify a court of equity to appoint a receiver to protect and preserve property pending some litigation, it is, of course, impossible to set forth the particular circum- 4 Sage V. Memphis, etc., R. R. Coal Min. Co., 55 Wash. 167, 19 Co., 125 U. S. 361, 31 L. Ed. 694, Ann. Cas. 1255, 104 Pac. 207. 8 Sup. Ct. 887; Boothe v. Summit = See §296 supra. 716 LAW OP RECEIVERS. stances in complete detail which would be deemed suffi- cient for the appointment of a receiver. All that we can do is to set forth some of the sets of circumstances that will lead to the appointment of a receiver as developed from some of the decided cases. It may be remarked that it seldom happens that all of the matters comj^lained of in any case will fall under one of these sets of cases; and it frequently happens that they will belong to several sets. In discussing the cases we have placed them according to our judgment as to what particular circumstances seemed to have had the most weight in making the appointment. We mil group the circumstances that create an eifective situation to make a receivership necessary in the sections immedi- ately following: §301. Cessation of Corporate Business or Failure to Main- tain Active Officers. The cessation of all corporate business for a sufficient length of time and under such circumstances as to show- that it will probably not be resumed will authorize the appointment of a receiver.^ This situation is usually 1 Zeckendorf v. Steinfeld, 12 power to wind up a corporation Ariz. 245, 100 Pac. 784. in the absence of a statutory au- Where the corporation is in- thority, still where the corpora- solvent and without assets, and tion has utterly failed to attain the officers have ceased to act. the purposes of its creation, one Ford V. Kansas City & I. Short of which is the pecuniary gain of Line R. Co., 52 Mo. App. 439. its stockholders, a court of equity Where one of the only two will intervene where such failure stocldiolders of a corporation dies is the result of the fraudulent acts and his administrator takes pos- of the majority stockholders, session of the assets of the cor- Miner v. Belle Isle Ice Co., 93 poration as if it belonged to the Mich. 97, 17 L. R. A. 412, 53 N. W. estate of the decedent, the other 218. stockholder may have a receiver If it has become impossible for appointed. Re Belton, 47 La. even a solvent corporation to per- Ann. 1614, 30 L. R. A. 648, 18 So. form the purposes of its creation 642. and it, thus fails of its purposes, a Although the general rule is court of equity under its general that courts of equity have no powers aside from any statutory PRIVATE CORPORATIONS. 717 accompanied by the fact that the officers have abandoned the business or that there are no officers with authority to conduct it. Temporary cessation of business, adopted for business reasons and in accordance with the best judgment of those in authority, will not warrant the appointment on the demand of a minority having a dif- ferent opinion as to the wisdom of the policy.^ The fact that the officers of the company have aban- doned its business and property or that the majority of stockholders refuse or neglect to elect officers so that there are no officers to care for the property may create a situation that wdll justify the appointment of a re- ceiver.^ The abandonment may consist in the fact that the officers place themselves entirely under the control of outsiders who develop a policy exceedingly injurious to provisions in that respect would be authorized to wind up its busi- ness and affairs for the benefit of its creditors and stockholders, al- though not dissolving or terminat- ing its corporate franchise. Car- son V. Allegany Window Glass Co., 189 Fed. 791. A receiver was appointed in a case where the corporation had ceased doing business for 25 years, maintained no organization and had no offices. Greenleaf v. Land & Lumber Co., 146 N. C. 505, 60 S. E. 424. 2 Bartow Lumber Co. v. En- wright, 131 Ga. 329, 62 S. E. 233. Failure to elect officers, or want of sufficient officers occasioned by death, or the destruction of the corporate property by fire will not of themselves work a dissolution. But where there is a refusal or neglect to replace the necessary officers, and the administrator of a deceased officer takes posses- sion of the corporate property, a receiver may be appointed. Re Belton, 47 La. Ann. 1614, 30' L. R. A. 648, 18 So. 642. Merely ceasing to do business is not sufficient. Murray v. Superior Court, 129 Cal. 628, 62 Pac. 191. 3 Central Land Co. v. Sullivan, 152 Ala. 360; 15 Ann. Cas. 420, 44 So. 644; Baker v. Louisiana Port- able R. Co., 34 La. Ann. 754, 755; Pride v. Pride Lumber Co., 109 Me. 452, 84 Atl. 989; Lawrence v. Greenwich Fire Ins. Co., 1 Paige (N. Y.) 587; Williams v. United Wireless Telegraph Co., 131 N. Y. Supp. 41; Dobson v. Simon ton, 78 N. C. 63; Tennessee Mt. P. & Min. Co. V. Ayers (Tenn.) 43 S. W. 744; Finney v. Bennett, 27 Graft, (Va.) 365; Cramer v. Bird, L. R. 6 Eq. 143. 718 LAW OF RECEIVERS. the corporation.* The fact that the directors are non- residents does not, however, constitute a lack of officeis.^ § 302. Inability to Attain the Business Purposes of the Cor- poration. The failure of the corporation to attain its purpose or the impossibility of its attaining its purpose presents a situation warranting the appointment of a receiver. This situation may be brought about by the company's reaching such a financial condition that continuance of a profitable business is impossible^ or by the fact that it will be impossible for the company to acquire from the state permission to conduct the kind of business for which it was organized.- In commenting on the rule in this particular when stated to be: "If it is clear that the business can not be profitably continued the petition of a minority for a dissolution will be granted," Judge Somerville of the Alabama Supreme Court said: "The chief trouble with this test is that its terms require fur- 4 Ames V. Goldfield Merger The mere fact that the business Mines Co., 227 Fed. 292. of a corporation has not been 5 Hunnewell v. New York Cent. prosperous during its first year of & H. R. R. Co., 196 Fed. 543. business is not ground for the ap- 1 Winona Portland Cement Co. p^intment of a receiver and espe- V Reese, 167 Ala. 485, 52 So. 523; ... , ^, V. x.,cco , , cially where the petitioner Decatur Land Co. v. Robinson, 184 Ala. 322, 63 So. 522; Ross v. American Banana Cb., 150 Ala. 268, 43 So. 817; Sellman v. Ger- stone Life Ins. Co., 121 La. 987, 4S man Union, etc., Ins. Co., 184 Fed. So. 991. 977. Where the insolvency of a cor- Where the purposes for which poration is alleged as ground for a corporation was formed can not a receiver, the appointment should be attained, it is the duty of the jjg refused in case of doubt of the company to wind up its affairs. insolvency. Whitmer v. William The ultimate aim of every ordi- ^^^^^^^^ ^ g^^^^ ^^^^ ^^^ ^^ nary trading corporation is pe- cuniary gain to its stockholders. Miner v. Belle Isle Ice Co., 93 2 Metropolitan Fire Ins. Co. v. Mich. 97, 17 L. R. A. 412, 53 N. W. Middendorf, 171 Ky. 771, 188 218. S W. 790. IS partially responsible for its con- dition. Von Schlemmer v. Kev- PRIVATE CORPORATIONS. 719 tlier clefinition since even the wisest men may differ as to what is a 'profitable' business, and future results that may appear 'questionable' to one man may seem uiKjues- tionable to another. . . . AVhile it is proper enough to observe the past history of the respondent corporation as indicative to some extent of its future tendencies, it nmst be remembered that our real inquiry is as to the impossi- bility of its future success, not the certainty of its past failure. . . . The respondent is a 'going concern' with unincumbered assets worth $300,000 and with no liabili- ties other than its capital stock, ... Its future success or failure is a simple speculation, just as it was twenty- five years ago, and we can not justify the substitution of our judgment on that question for the judgment of its directors and majority stockholders by a judicial affir- mance of the impossibility of a comparatively jirofitable issue of this business."^ It is apparent that where the impossibility of conduct- ing its business in a profitable manner is alleged as a ground for the appointment of a receiver to preserve its assets pending a dissolution, a very strong showing on that point is required in view of the large amount of dis- cretion allowed to the directors in the conduct of tlie business and the wide powers given to the majority in 3 Phinizy v. Anniston City Land might be adopted, and the busi- Co., 195 Ala. 656, 71 So. 469. ness be more successful if other "Every one purchasing or sub- methods wei-e pursued. The ma- sci'ibing for stock in a corporation jority of shares of its stock, or impliedly agrees that he will be the agents by the holders thereof bound by the acts and proceed- lawfully chosen, must be permit- ings done or sanctioned by a ma- ted to control the business of the jority of the shareholders, or by corporation in their discretion, the agents of the corporation duly when not in violation of its char- chosen by such majority, within ter, or some public law, or cor- the scope of the powers conferred ruptly and fraudulently subversive Tjy the charter. And courts of of the rights and intent of the equity will not undertake to con- corporation or of a shareholder." trol the policy or business meth- Wheeler v. Pullman Iron, etc., Co., ods of a corporation, although it 143 111. 197, 207, 17 L. R. A. 818, may be seen that a wiser policy 32 N. E. 420. 720 LAW OF RECEIVERS. interest in determining by their choice of directors the policy of the corporation. §303. Disastrous Dissensions or Deadlock Among Officers * or Stockholders. Dissensions among the stockholders or the members of the board of directors may lead to the appointment of a receiver. Such a situation can exist usually only when there is an equal or nearly equal division of the stock between the contending parties and the courts in appoint- ing receivers in this situation of affairs have frequently relied upon what they characterize to be an analogy be- tween business corporations and partnerships. To war- rant the appointment of a receiver the dissensions must have been of such a serious character as to have led to a practical deadlock in the management of the business, the cessation of the business, and consequent loss and injury to the property and good will of the corporation ; and it must appear that the wrongful situation will continue unless the court intervenes to straighten out the muddle.^ 1 Merrifield v. Burrows, 153 111. of directors consisting of an even App. 523; Schmidt v. Mitchell, 101 number are at a deadlock result- Ky. 570, 72 Am. St. Rep. 427, 41 ing in an inability to do business. S. W. 929; Miner v. Belle Isle Ice Boyle v. Superior Court, 176 Co., 93 Mich. 97, 17 L. R. A. 412, Cal. 671, L. R. A. 1918D, 226, 170 53 N. W. 218; Sternberg v. Wolff, Pac. 1140. 56 N. J. Eq. 389, 67 Am. St. Rep. A receiver in the case of dissen- 494, 39 L. R. A. 762, 39 Atl. 397; sions amongst the governing Featherstone v. Cooke, L. R. 16 board should be appointed only as Eq. 298. far as necessary to preserve the Where the dissensions among corporate property or protect the the officers of the corporation are rights of stockholders. Howze v. of such a nature that it is appar- Harrison, 165 Ala. 150, 51 So. 614. ent that they can not be removed. Where two persons each own a receiver may be appointed even one-half of the capital stock of a though the corporation is not in- corporation, but one has control solvent. Tompkins Co. v. Cataw- of the board of directors and at ba Mills, 82 Fed. 780. the annual stockholders' meeting Under the statute (Code Civ. a deadlock occurs resulting in the Proc, § 564, subd. 6) a receiver old officers holding over, and they may be appointed where a board thereupon, in violation of an agree- PRIVATE CORPORATIONS. 721 It tas been, however, held that a deadlock in the affairs ol' a corporation will not warrant a receivership unless ment of the controlling stock- holder, increase salaries, and there is no likelihood of a reconciliation between the two stockholders, a receiver is properly appointed. Boothe V. Summit Coal Mining Co., 55 Wash. 167, 104 Pac. 207, 19 Ann. Cas. 1255. In Gibbs v. Morgan, 9 Idaho 100, 72 Pac. 733, the business of the corporation was at a standstill owing to an equal holding of stock by contending factions who were unable to elect a new board of directors and the court ap_ioointed a receiver, under the authority of the statutory clause allowing ap- pointments of receivers in cases "where receivers have heretofore been appointed by the usages of courts of equity." The receiver was directed to collect the insur- ance upon the mill property of the company which had been burned, and hold it until further order of the court. In Powers v. Blue Grass Bldg., etc., Co., 86 Fed. 705, Judge Lurton, then Circuit Judge, held that where there was a board of di- rectors and another board irregu- larly and illegally elected by the stockholders before the term of the old board had expired, and the old board had done acts which for- feited the confidence of the stock- holders, it was proper that the corporate assets should go into the hands of a receiver until there can be elected a directorate which will lawfully represent those in- terested In the corporation. So also where deen rooted dis- sensions existed between the few I Rec. — 46 stockholders who owned the stock of the corporation, and the busi- ness was in no condition to be con- ducted on account of deadlock conditions, it was held proper to dissolve the cori)oration, under statutory provisions, and appoint a receiver for that purpose. Wey- mouth v. Oudln, 56 Wash. 315, 105 Pac. 1027; State v. Oudin, etc., Mfg. Co., 48 Wash. 196, 93 Pac. 219. Under some statutes it is held that it is ground for the dissolution of a solvent. corporation that there was a condition of deadlock among the stockholders as to election of officers, which resulted in an im- possiblity to transact business, and there was as a consequence a finan- cial loss, and especially where one of the stockholders was organizing a competing business which would materially interfere with the busi- ness of the corporation. State v. Oudin, etc., Mfg. Co., 48 Wash. 196, 93 Pac. 219. In Archer v. Am. Water Works Co., 50 N. J. Eq. 33, 24 Atl. 508, the court stated that it would ap- point a receiver if the state of affairs was not remedied by the contending parties. The dissen- sions were over the ownership of certain large holdings of stock which governed the selection of the directorate. But even where the court feels that it should interfere it will do so for only a limited time and to as small an extent as possible. Trade Auxiliary Co. v. Vickers, L. R. 16 Eq. 303. And in Jasper Land Co. v. 722 LAW OF RECEIVERS. complainants are able to show some fraud or wrong- doing in the conduct of their opponents. - Wallis, 123 Ala. 652, 26 So. 659, the court was of the opinion that where such a deadlock condition exists a receivership should be created until there is a recognized board of directors elected which is competent to faithfully and effi- ciently conserve the interests of all of the stockholders. In Edison v. Edison United Phonograph Co., 52 N. J. Eq. 620, 29 Atl. 195, the court though re- fusing the appointment recognized the power to do so but stated that the power should be exercised with great caution and only for such time and extent as was necessary for preservation pur- poses. In this there was a law- fully constituted governing body in peaceable possession of the cor- porate property. 2 Birmingham Disinfectant Co. v. Smith (Smith v. Birmingham Disinfectant Co.), 174 Ala. 374, 56 So. 721; Wallace v. Pierce-Wallace Pub. Co., 101 Iowa 313, 63 Am. St. Rep. 389, 38 L. R. A. 122, 70 N. W. 216; Sternberg v. Wolff, 56 N. J. Eq. 389, 67 Am. St. Rep. 494; 39 L. R. A. 762, 39 Atl. 397. Where the board of directors consisted of three members, and upon the death of one, the other two were unable to agree upon his successor or upon the election of any one to be president of the corporation and as a consequence the business of the corporation was being seriously injured, it is proper to appoint a receiver pend ing the settlement of the affair by the courts. Sheridan Brick Works V. Marion Trust Co., 157 a Ind. 292, 87 Am. St. Rep. 207, 61 N. E. 666. See Boyle v. Superior Court 176 Cal. 671, L. R. A. 1918D, 226, 170 Pac. 1140, which, however, was a case arising under statu- tory provisions where a receiver was appointed because of a dead- lock among the board of directors. In Little Warrior Coal Co. v. Hooper, 105 Ala. 665, 17 So. 118. the stock of the corporation was owned by three persons, one of whom owned one half of it. It was solvent and owed but a small amount. No fraud was alleged but it was alleged that its affairs were mismanaged. The evident purpose of the bill was to stave off credi- tors. The court refused to appoint a receiver. It was also alleged that the other two stockholders between whom one-half of the stock was equally divided would not agree with complainant in selecting directors. In Alabama Coal, etc., Co. v. Shackelford, 137 Ala. 224, 97 Am. St. Rep. 23, 34 So. 833, the court refused to appoint a receiver on the ground of a deadlock in its affairs because the board of di- rectors which held over were in undisputed possession of the prop- erty of the corporation, but the court stated that if the corpora- tion had no directors and none could be elected, or if there were such dissensions among them that no business could be transacted, a receiver should be appointed. In Einstein v. Rosenfeld, 38 N. J. Eq. 209, the court refused to ap- point a receiver, but was largely PRIVATE CORPORATIONS. 723 §304. Mismanagement on Part of Majority Stockholders. The circumstance most commonly relied upon by minority stockholders as a basis for an application for a receiver is mismanagement of the corporate affairs. Under the law and the implied contract of an individual influenced in its refusal by tlie fact that notwithstanding the dead- lock condition as to the election of officers the business of the cor- poration was still continued in operation. In Katz V. De Wolf, 151 Wis. 337, Ann. Cas. 1914B, 237, 138 N. W. 1013, there was a deadlock in the affairs of the corporation because of an equal division of the stock- holdings. The court refused to ap- point a receiver but upon the ground that there was no immi- nent danger threatened. The court, speaking through Judge Timlin, said: "The development of cor- poration law began with a strict- ness of analogy between munici- pal and stock corporations which is no longer fully observed. The change from the ancient mode of creating corporations by special act to permit organizations by public declarations or contractual undertakings acknowledged and filed in a public office, and the great multiplication of corpora- tions thereunder, caused some fur- ther change. There is unques- tionably a broad power of equity applicable wherever wrong is shown of such a nature as to arouse the equitable jurisdiction. Whether in case of a mere dead- lock between two or more contend- ing groups of stockholders a court of equity would by final decree appoint a receiver and decree a sale of the corporate property and a distribution among the share- holders is not before us, and the disposition of this motion is not to be taken to affect that question. But where there is no imminent danger of loss of the corporate property or of any other injury to the moving which can not be fully compensated by the final decree, the courts will not, upon affidavits and in advance of a trial on the merits, by placing the property in the hands of a receiver, wrest the possession of the corporate prop- erty from the corporation and from those officers who are duly elected and who prima facie are entitled to administer the affairs of the corporation." The court in the above case laid considerable stress upon the fact that the complainant had not made any strenuous efforts to agree to the election of any controlling di- rector and that the defendant had offered, when it became apparent that his choice for directors could not be elected, to submit a list of competent and unbiased men for selection, but we think that neither faction to a deadlock need forfeit their rights by reason of failing to compromise the situa- tion at the instance of the other faction. The decision, however, was justified upon the ground of no imminent threatened danger to the property of the corporation. 724 LAW OF RECEIVERS. when he becomes the owner of shares of stock in a cor- poration, the majority shareholders are entitled to the control and management of the corporate affairs ; this implied contract is for the legal life of the organization. The right of the majority will not be lightly interfered with by judicial action. Mere differences of opinion on questions of policy will not lead to the displacement of majority control by that of an outsider. Mistakes, inad- vertence, or bad business policy, if honestly pursued, will not lead to ouster of this legal management; nor will mere irregularities, nor minor and comparatively trivial faults of commission or omission on the part of the legal managers; nor will the possibility of loss or injury that is not so imminent but that it may possibly be prevented pending other action by the court. ^ When all has been said that may be said along this line it still remains a fact, according to numerous deci- sions of many courts, that mismanagement of corporate affairs by the majority may justify a demand on the part of a minority that an officer of the court be placed in control. ^*A majority of the stockholders of a corpora- 1 Metcalfe v. Johnson, 151 Ky. receiver may be appointed. Thor- 823, 152 S. W. 951; Secord v. oughgood v. Georgetown Water Wheeler Gold Mining Co., 53 Co, 9 Del. Ch. 84, 77 Atl. 720; Wash. 620, 17 Ann. Cas. 914, 102 Brent v. B. E. Brister Sawmill Pac. 654; Katz v. De Wolf, 151 Co., 103 Miss. 876, Ann, Cas. Wis. 337, Ann. Cas. 1914B, 237, 1915B, 576, 43 L. R. A. (N. S.) 720, 138 N. W. 1013. 60 So. 1018; Cantwell v. Columbia The fact that the directors of a Lead Co., 199 Mo. 1, 97 S. W. 167; corporation disagree among them- Vila v. Grand. Island, etc., Co., 68 selves as to whether the business Neb. 222, 232, 110 Am. St. Rep. should be conducted on a cash 400, 4 Ann. Cas. 59, 63 L. R. A. basis or not is not sufficient to 791, 94 N. W. 136, 97 N. W. 613; warrant the appointment of a re- Fougeray v. Cord, 50 N. J. Eq. ceiver at the suit of a dissenting 185, 24 Atl. 499. stockholder. Jacobs v. Jacobs A receiver will bo appointed at Mercantile Co., 37 Mont. 321, 96 the instance of a minority stock- Pac. 723. holder, although the corporation In a suit based upon fraud or is not insolvent, where the major- mismanagement on the part of ity of the stockholders are at- the officers of a coi'poration, a tempting to divert its assets to PRIVATE CORPORATIONS. 725 tion, no matter how Large, lias no right to divert to them- selves assets of the company to the detriment of its creditors and stockholders. . . . Although the major- ity of the stock of a company may vote and vote as self-interest dictates and under ordinary circumstances the relation of trustee and cestui que trust does not exist and the ordinary rules in respect to trusts are not to be applied, yet such power is not unlimited."- The law requires of the majority the utmost good faith in the control and management of the corporation as to the minority. It is the essence of this trust that it shall be so managed as to produce for each stockholder the best possible return for his investment.^ To warrant the appointment of a receiver the misman- agement complained of must be of a gross or very serious themselves. Morse v. Metropoli- tan S. S. Co., 87 N. J. Eq. 217, 100 Atl. 219. A receiver will not be appointed at the instance of a minority stockholder where there is no alle- gation of mismanagement of funds and merely that the defen- dants induced plaintiff to purchase stock in the corporation while not paying for their own stock. Fuller V. McCormick, 156 Mich. 518, 521, 121 N. W. 280, 282. A mere difference of opinion among stockholders or directors as to the best business methods or policy of the corporation is not ground for the appointment of a receiver. Carson v. Allegany Window Glass Co., 189 Fed. 791. 2 Morse v. Metropolitan S. S. Co., 87 N. J. Eq. 217, 100 Atl. 219. 3 Miner v. Belle Isle Ice Co., 93 Mich. 97, 17 L. R. A. 412, 53 N. W. 218. In Ervin v. Oregon Ry., etc., Co., 27 Fed. 625, 23 Blatchf. 517, the court in answer to the conten- tion of the defendants that they as a majority in control of the corporation had a right to con- trol its affairs according to their discretion regardless of whether they secured personal profit to themselves, said: "They err if they suppose that a court of equity will tolerate a discretion which does not consult the interests of the minority. "Courts interfere seldom to control such discretion intra vires the corporation, except where the directors are guilty of misconduct equivalent to a breach of trust, or where they stand in a dual rela- tion which prevents an unpreju- diced exercise of judgment; and, as a rule, only after application to the stockholders, unless it ap- pears that there was no oppor- tunity for such application, that such application would be futile (as where the wrongdoers control the corporation), or that the delay involved would defeat recovery." 726 LAW OF RECEIVERS. character ; it must be due to fraud in law, if not actual fraud, or to extreme incompetence; it must have caused and threaten, if continued, to cause serious impairment of the stockholder's investment through loss of dividends or the destruction of the investment through insolvency.^ United Copper Securities Co. v. Amalgamated Copper Co., 244 U. S. 261, 61 L. Ed. 1119, 37 Sup. Ct. 509. 4 Van Vleet v. Evangeline Oil Co., 127 La. 919, 54 So. 286; Brock V. Automobile Livery & Sales Co., 130 La. 414, 58 So. 25; Sant v. Perronville Shingle Co., 179 Mich. 42, 146 N. W. 212; Brent v. B. E. Brister Sawmill Co., 103 Miss. 876, Ann. Cas. 1915B, 576, 43 L. R. A. (N. S.) 720, 60 So. 1018; State ex rel. Connors v. Shelton, 238 Mo. 281, 142 S. W. 417; Bates V. Werries, 198 Mo. App. 209, 199 S. W. 758; Exchange Bank V. Bailey, 29 Okla. 246, 39 L. R. A. (N. S.) 1032, 116 Pac. 812; Van Horn V. New Western Shingle Co., 54 Wash. 117, 103 Pac. 42; Powers V. Blue Grass B. & L. Assn., 86 Fed. 705, 707; Welch v. Union Casualty Ins. Co., 238 Fed. 968. Where the policy of the major- ity is alleged to constitute gross mismanagement and to result in insolvency, it is not necessary to prove that the corporation is al- ready insolvent. Mitchell v. Au- lander Realty Co., 169 N. C. 516, 86 S. E. 358. A receiver may be appointed over the property of a corporation to prevent it being wasted and misappropriated in pursuance of a fraudulent conspiracy. State v. Second Judicial District Court, 15 Mont. 324, 48 Am. St. Rep. 682, 27 L. R. A. 392, 39 Pac. 316. A receiver will not be appointed at the instance of a minority stockholder because of alleged misappi'opriation of funds where there is no showing that the cor- poration will not protect its funds or that it is insolvent. Howze v. Harrison, 165 Ala. 150, 155, 51 So. 614, 615. Where the officers of the cor- poration are prosperous and the officers who are alleged to be vio- lating their trust are financially able to respond in damages, a re- ceiver will not be appointed at the instance of a minority stockholder. Metzger v. Knox, 136 N. Y. Supp. 681, 77 Misc. Rep. 271; order af- firmed 137 N. Y. Supp. 1129, 153 App. Div. 911. In Kennedy Drug Co. v. Keyes, 60 Wash. 337, 111 Pac. 175, the de- fendant had without consideration appropriated to himself more than one-half of the stock of the cor- poration and thereby obtained control over it. A receiver was appointed over the company on the ground that the defendant was mismanaging it and that in- solvency was imminent. Where the directors allow the president to handle the funds of the corporation in a manner not authorized by the charter and without exacting a proper ac- counting of them, a receiver may be appointed. In re Receivership of Leidigh-Dalton Lumber Co., 13G La. 39, 66 So. 390. PRIVATE CORPORATIONS. 727 Directors whose conduct is complained of are neces- sary parties to the suit.^ The acts complained of must be set out \\dtli particularity, definitely, positively, and not in the form of conclusions; and must be strictly proved. '^ If the directors complained of are liable for damages or for return of property, or otherwise, and a recovery from them would furnish a substantial relief, it must be shown that they could not be made to respond to a judgment against them." A receiver will not be appointed at the instance of a stockholder who was a participant in the wrongdoing complained of.^ Incompetency to properly attend to the corporate affairs together with allegations of a conspiracy on their part to loot it of its profits and drive it into insolvency may be sufficient. Hall v. Nieukirk, 12 Idaho 33, 118 Am. St. Rep. 188, 85 Pac. 485. Where the officers of the cor- poration through fraud or collu- sion with third persons are sacri- ficing or about to sacrifice the in- terests of the corporation, a stockholder may intervene and bring the guilty parties to an ac- counting in a court of equity. Forbes v. Memphis, etc., Ry. Co., 2 Woods (U. S.) 323, Fed. Cas. No. 4926. Where the majority of the stockholders of a corporation, who are also the directors, are clearly violating the charter rights of the minority, as by diverting all the earnings of the company to them- selves, either directly or indi- rectly, a court of equity will ap- point a receiver at suit of a minor- ity stockholder, although the com- pany is solvent; there being no complete, prompt, and efficient remedy at law. Columbia Nat. Sand Dredging Co. v. Washed Bar Sand Dredging Co., 136 Fed. 710. An assignment of creditors made for the purpose of forcing certain stockholders to concur with a certain policy may be suffi- cient. Collins V. Williamson, 229 Fed. 59, 143 C. C. A. 653. A stockholder who is being in- jured by the fraud or collusion of the officers of the corporation with third persons may properly bring the guilty parties to account in a court of equity. Forbes v. Memphis, etc., Ry. Co., 2 Woods. 323, Fed. Case No. 4926. 5 Bliss V. Linden Cemetery Assn., 81 N. J. Eq. 394, 87 Atl. 224. 6 Carson v. Allegany Window Glass Co., 189 Fed. 791; Heitkamp V. American Pigment & Chemical C(t., 158 111. App. 587; Curtiss v. Dean & Curtiss, 85 Wash. 435, 148 Pac. 581. 7 Birmingham Disinfectant Co. V. Smith (Smith v. Birmingham Disinfectant Co.), 174 Ala. 374, 56 So. 721; Howeth v. Colbourne Bros. Co., 115 Md. 107, 80 Atl. 916. s Hyde Park Gas Co. v. Kerber, 5 111. App. 132; Alabama Coal, etc., Co. V. Shackelford, 137 Ala. 224, 97 Am. St. Rep. 23, 34 So. 833, 728 LAW OF RECEIVERS. § 305. Insolvency as a Ground for the Appointment. The appointment of a receiver at the instance of a stockholder is justified under the various circumstances above mentioned even though the corporation is solvent. .Insolvency is, however, often the controlling circum- stance that points to the propriety of a receivership. In such a situation there is usually a creditor ready or easily persuaded to take the initiative and there are but few instances in which stockholders have asked for a receiver on this ground. If a receiver's management is likely to be the most successful method of handling a corporation's assets, a stockholder is entitled to this rem- edy in case of an insolvent corporation both for the pur- pose of saving as much as possible of his investment or of reducing as much as possible his liability to creditors on unpaid stock subscriptions or under the pro\dsions of a double liability law.^ A. Appointments hy Equity Courts at the Instance of Creditors. §306. What Status of Creditor is a Necessary Condition. Corporation receivers may be appointed at the instance of creditors. It is a general rule in equity that a general creditor, not having a lien upon any specific property, can not successfully apply for the appointment of a receiver.! A defense on the ground that the plaintiff 1 Towle V. American Bldg., etc., states himself out of court by ask- Soc, 60 Fed. 131; United States ing for a receiver on the ground Shipbuilding Co. v. Conklin, 126 of insolvency. Rider v. John G. Fed. 132, 60 C. C. A. 680; State ex Delher & Sons Co., 145 Ky. 634. rel. Connors v. Shelton, 238 Mo. i Etowah Min. Co. v. Wills, etc., 281, 142 S. W. 417. Mfg. Co., 106 Ala. 492, 17 So.' 522*^ Since, on the distribution of the Hobson v. Pacific States, etc., Co., assets of a corporation by a re- 5 Cal. App. 94, 89 Pac. 866; Smith ceiver, creditors are preferred to v. Superior Court, 97 Cal. 348, 32 stockholders, a preferred stock Pac. 322; Atlanta & C. R. Co. v. holder, entitled to have his stock Carolina Portland Cement Co., 140 redeemed by the corporation, Ga. 650, 79 S. E. 555; Guilbert v. PRIVATE CORPORATIONS. 729 creditor is not a judgment nor a lien creditor may be waived by tlie corporation either by express consent or by failure to raise the point without constituting colhi- sion.- A consent given by an officer not duly authorized Kessinger, 173 Mo. App. 680, 160 S. W. 17; Leary v. Columbia River, etc., Nav. Co., 82 Fed. 775. The general rule is that before a receiver will be appointed for an insolvent corporation at the in- stance of a creditor, an unsatisfied execution issued on a judgment in favor of the creditor must be re- turned. Minkler v. United States Sheep Co., 4 N. D. 507, 33 L. R. A. 546, 62 N. W. 594. Where the corporation is sol- vent, a simple creditor is not in a position to ask for the appoint- ment of a receiver upon the ground of mismanagement of its affairs. Equitable Life Assur. Soc. V. Brown, 213 U. S. 25, 53 L. Ed. 682, 29 Sup. Ct. 404. The judgment may have been obtained in another state. Mer- chants Nat. Bank v. Chattanooga Const. Co., 53 Fed. 314. See also § 271 et seq., supra. 2 Where the corporation itself has not objected to the appoint- ment of a receiver at the instance of a judgment creditor on the ground that he did not have an execution returned unsatisfied, an- other creditor is not in a position to object. Enos v. New York, etc., R. Co., 103 Fed. 47. Where the corporation appears in the proceeding and admits the debt of plaintiff and its own in- solvency, the objection that only a judgment creditor has a right to institute proceedings resulting in a receivership can not be urged by other creditors in the absence of fraud or collusion. Citizens Bank & Trust Co. v. Union Min- ing, etc., Co., 106 Fed. 97; Union Trust Co. V, Southern Sawmills & Lumber Co., 166 Fed. 193, 92 C. C. A. 101; American Can Co. v. Erie Preserving Co., 171 Fed. 540; Burton v. R. G. Peters Salt & Lumber Co., 190 Fed. 262; Equi- table Trust Co. V. Great Shoshone, etc., Power Co., 245 Fed. 697, 158 C. C. A. 99; In re Reisenberg (Metropolitan Railway Receiver- E,hip), 208 U. S. SO, 52 L. Ed. 403, 28 Sup. Ct. 219; Northwestern Nat. Bank of Minneapolis v. Mick- elson-Shapiro Co., 134 Minn. 422, 159 N. W. 948. A corporation having waived this defense in one district can not successfully raise it in a suit in another district when the sec- ond receivership is really de- signed to be ancillary to the first. Walker v. United States Light, etc., Co., 220 Fed. 393. The appointment of a receiver for a corporation was not subject to collateral attack, even if er- roneous, because no judgment in favor of plaintiff had been ren- dered against the corporation and execution returned unsatisfied. Guilbert v. Kessinger, 173 Mo. App. 680, 160 S. W. 17. Consent of the corporation will not give jurisdiction to a court that is otherwise without jurisdic- tion. Elliott v. Superior Court, 168 Cal. 727, 145 Pac. 101. Where the defendant corporr.- tion was insolvent at the time of 730 LAW OF RECEIVERS. to give it is voicl.^ The right to proffer this defense may, however, be lost by laches.^ A creditor's action may be maintained even though the debt is not due.^ Stock- hoklers may intervene,*^ but the right to intervene may be lost by lachesJ § 307. Circumstances Necessary to Warrant the Appointment. Creditors, generally speaking, have as much right to have their interests protected by a receiver as have stock- holders.^ Since, however, it usually happens that minor- ity stockholders are ready to protect their interests by commencing suits under most of the other circumstances that, as above shown, will warrant the appointment of receivers, and since the rights of all creditors must be protected in such suits, we find that creditors' actions are usually based upon the fact that the corporation is insolvent. Frequently, however, the corporation's in- solvency is due to mismanagement on the part of its officers, or to the abandonment of its affairs by the the filing of the bill in which the 5 Lively v. Picton, 218 Fed. 401, receiver was asked and the cred- 134 C. C. A. 189. itor bringing the suit was selected « Jones v. Ezell, 134 Ga. 553, 68 by one of the officers of the cor- S- ^- ^0^- A stockholder held not entitled to prevent a dismissal of credi- tor's suit based on insolvency and restoration of the property on an that the corporation admitted the agreement between the creditors allegations of the bill, consented ^^^^ ^^^ corporation. Shaffer v. to the appointment of the re- McCulloch, 192 Fed. 801, 113 ceiver and agreed as to the person c C A 535 to be appointed was held not to \ Hutchilson v. Philadelphia & show collusion. Burton v. R. G. (. g g ^^^ 2I6 Fed 795 Peters Salt, etc., Co., 190 Fed. 262. , ^^^^^ ^ Farmers' Nat. Bank, 3 Pearson v. Levy Carpet Co., i67 Ky. 506, 180 S. W. 807; Dal- 137 La. 223, 68 So. 421; Nesbit v. gheimer v. Graphic Arts Co., 86 North Georgia Electric Co., 156 n j. Eq. 49, 97 Atl. 497; Kelso v. Fed. 979; Bassettv. Bickford Bros. American Inv. & Imp. Co., 50 Co., 232 Fed. 895. Wash. 381, 97 Pac. 294; Rowland 4 American Can Co. v. Erie, etc., v. Corn, 232 Fed. 35, 146 C. C. A. Co., 171 Fed. 540. 227. poratlon with a view to showing a diversity of citizenship in order to confer federal jurisdiction the fact PRIVATE CORPORATIONS. 731 officers, or to some other similar cause, and allegations concerning such matters are embodied in the complaints even though insolvency may be the controlling circum- stance relied upon as the basis for the request for a receiver. §308. Insolvency as a Controlling Circumstance, In this connection it is usually held that insolvency is shown by the inability of the corporation to pay its current obligations as they mature in the ordinary course of its business ; and it is not necessary to show an actual deficit of assets as compared with liabilities.^ The in- solvency must, however, be serious in extent to warrant a receivership. Mere failure or inability to pay a few matured claims will not be sufficient.- It is to be remem- 1 Equipment Co. v. Deguan, 1S4 Fed. 834, 107 C. C. A. 158. The federal courts at an early date took the theory that a re- ceiver appointed in equity could settle the affairs of insolvent cor- porations in the same manner as was contemplated by certain state statutes which made provision for the appointment of receivers in such circumstances. Davis v. Gray, 16 Wall 203, 21 L. Ed. 447. In cases of insolvency the ob- taining of a judgment at law and return of an unsatisfied execution are regarded as an idle ceremony and one sometimes dispensed with as a preliminary to the ap- pointment of a receiver. Chicago, etc., Ry. Co. v. Kenney, 159 Ind. 72, 62 N. E. 26. 2 Cassels Mills v. First Nat. Bank of Gadsden, 187 Ala. 325, 65 So. 820; Banta v. Hubbell, 167 Mo. App. 38, 150 S. W. 1089. Mere insolvency not sufficient where no fraud alleged, Galvin V. McConnell 53 Tex. Civ. 486, 117 S. W. 211; Pond v. Framingham, etc., R. Co., 130 Mass. 194; Law- rence Iron Works Co. v. Rock- bridge Co., 47 Fed. 755. Insolvency of a corporation combined with gross mismanage- ment and breach of trust on the part of the officers of the cor- poration will constitute sufficient ground for the appointment. United States Shipbuilding Co. v. Conklin, 126 Fed. 132, 60 C. C. A. 680. Where the assets of an insol- vent corporation are scattered in different states and its affairs are mismanaged, a receiver will be appointed. Towle v. American Bldg., etc., Soc, 60 Fed. 131. Where the concern is not only insolvent but conducting an ille- gal business, such as running a bucket shop, a receiver may be appointed at the instance of a simple creditor to wind up its affairs. Weiss v. Haight, etc., Co., 148 Fed. 399. 732 LAW OF RECEIVERS. bered in tliis connection that a creditor's suit for a strictly corporation receiver is a representative action. The creditor sues on behalf of himself and all other cred- itors.^ Other creditors are not necessarily expressly made parties because they are represented by the plain- tiff; and, if they are opposed to the creation of a receiver- ship, they may intervene and in that way voice their opposition f and, since the receiver acquires full charge of the affairs of the corporation, all creditors will be given notice and an opportunity to present their claims. Accordingly the insolvency that furnishes sufficient ground for the appointment of a receiver is a very serious embarrassment that has already caused or threatens to cause at an early date a practically complete cessation of its business and a wiping out of its assets. If the com- plaint shows the existence of numerous and pressing de- mands for unpaid claims and the probability of harassing litigation and forced sale of assets, to the disadvantage of most, if not all, of the creditors, coupled with the prob- ability that an impartial management by an ofiQcer of the court wdll produce a distribution more just to all con- cerned, a receiver will be appointed ; and if such a show- 3 It was held to be an action on the selling company refused to behalf of all creditors based upon enforce. The assignee of a for- an equitable claim which the de- eign judgment creditor brought fendant company ought to enforce g^jj^ f^j. ^ receiver of the selling company in a Connecticut state court. The action was held not to be a strictly creditor's bill and which it refused to enforce. A receiver was appointed with power to sue the English corpora- tion, either in his own name or that of the defendant company, seeking non-executionable assets in England or anywhere else foi' the reason that, under a stat- where assets could be found. ute such an action could he based Barber v. International Co., 73 only on a domestic judgment; nor Conn. 587, 48 Atl. 758. was it a "winding-up" action be- A Connecticut corporation sold cause such an action was within all of its assets to an English the exclusive jurisdiction of a corporation for a consideration bankruptcy court, which was not paid and pay- -i See Carrington v. Thomas C. luent of which the officers of Bassbor Co., 121 Md. 71, 88 Atl. 52. PRIVATE 'corporations. 733 ing is accompanied also by proof that the embarrassed condition of the company is due to mismanagement, amounting to fraud or gross incompetency, on the part of those in control of its affairs, or an abandonment of their duties and obligations by such persons, and tlie probable enhancement of the assets by recovery of mis- appropriated property or damages for negligence, the appointment of a receiver will be regarded as an abso- lute necessity.^ 5. Duration and Extent of Equity Corporation Receiverships. §309. General Rule Respecting the Matter. It has been remarked several times in the preceding sections that the distinctive characteristic of corporation receiverships is that the receiver is appointed to preserve the property involved for the benefit of all interests existing at the time of the appointment and that for this purpose the receiver is empowered to control all of the assets of the corporation and to conduct its business. 5 Excelsior White Lime Co. v. give the latter an illegal prefer- Rieff, 107 Ark. 554, 155 S. W. 921; ence over other creditors, a re- American Lumber Co. v. Day Brick ceiver of the corporation is proper. & Lumber Co., 138 La. 1, 69 So. ^^"^^ ^- Plankinton Bank, 87 Wis. 853; Barnard Mfg. Co. v. Ralston ^^^' ^^ ^- ^- '^^^• Milling Co., 71 Wash. 659, 129 Pac. ^^^' ^^"°' ^^'^' ^^*^^ ""^^^' P^^" ceding section and following sec- tion. Where a decree adjudged a cor- v. Erie Preserving Co., 171 Fed. poration actually insolvent, and ap- 540; Equitable Trust Co. v. Great pointed a receiver, it can not be Shoshone, etc.. Power Co.. 245 Fed. n,odified on motion so as to place eg":", 158 C. C. a. 99; Evans v. ^^g appointment of the receiver Coventry, 5 De Gux M. & G. 911. on another ground, particularly Where property is sequestered where the affidavits in support of by the sheriff upon an execution the motion disclosed that the cor- against an insolvent corporation as poration's liabilities exceeded its part of a conspiracy between the assets. Karst v. Black Diamond directors of the corporation and Range Co., 82 N. J. Eq. 231, 88 Atl. tbe execution creditor in order to C92. 389; Weiss v. Haight & Freese Co., 148 Fed. 399; American Can Co. 734 LAW OF RECEIVERS. There may, however, be instances where existing circum- stances make it unnecessary to give such an extensive scope to the remedy. It may be that the purpose of the receivership will be simply to recover, for the corpora- tion and the consequent benefit of its creditors and stock- holders, property that has been illegally disposed of or the purchase price that has not been paid, or damages for misconduct or negligence on the part of officers, or money from shareholders on liability for stock subscriptions, or some other purpose not requiring the usual extensive powers.^ The receiver will not operate the business of the cor- poration, or any particular part of it, as, for instance, the carrying out of any executory contract of the com- pany, if to do so will entail loss.^ It may happen that, pending the proceedings, a foreclosure receivership will be created that will terminate the general receivership 1 Barber v. International Co., 73 Conn. 587. 48 Atl. 758; Tatum v. Leigh, 136 Ga. 791, Ann. Gas. 1912D, 216, 72 S. E. 236. Under proper circumstances, the court may appoint a receiver for the purpose of instituting suits to enforce the stocldiolders liability. Way V. Barney, 116 Minn. 285, Ann. Cas. 1913A, 719, 38 L. R. A. (X. S.) 648, 133 N. W. 801. The receiver may be appointed to seek a restitution of property improperly appropriated by the directors where the corporation itself has practically gone out of business. Hammar v. St. Louis Motor Carriage Co., 155 Mo. App. 441, 134 S. W. 1060; Latta v. Catawba Electric Co., 146 N. C. 285, 59 S. E. 1028. The remedy of receivership is appropriate where the corporation has transferred its assets to an- other corporation without protect- ing its creditors. Dalsheimer v. Graphic Arts Co., 86 N. J. Eq. 49, 97 Atl. 497. Where suit has been commenced on a note and mortgage claimed by certain shareholders to have been illegally issued by the corporation and the corporation refuses to de- fend the action, shareholders may have a receiver appointed for the purpose. Avery v. Blees Mfg. Co., 27 N. J. Eq. 412. Since shareholders are liable to creditors on their subscriptions only in case of a deficiency of assets a receiver will not be ap- pointed to collect unpaid subscrip- tions until such a deficit is made to appear. Bergman Clay Mfg. Co. V. Bergman, 73 Wash. 144, 131 Pac. 485. 2 Pennsylvania Steel Co. v. New York City Ry. Co., 198 Fed. 721, 117 C. C. A. 503. PRIVATE CORPORATIONS. 735 as far as the property affected by the lien is concerned. Though circumstances may warrant the appointment of a receiver on a preliminary hearing, a sale of assets will not be ordered in advance of a hearing on the merits, unless the peculiar nature of the property necessitates an earlier sale.^ Just how long the receivership will be continued is a matter concerning which no definite general rule can be stated. It is recognized that a court is not an agency well adapted to conducting a business.^ The decree usually provides that it shall be effective until further order of the court and that the receiver shall at all times be subject to the control and orders of the court. The latter provision would exist even if not expressly set forth in the decree. The receivership may be vacated at any time by the court.^ Rules concerning the presenta- tion of claims have been adopted with reference to the necessity for expediting the closing up of the receiver- ship.'^ Just how long— that is to what point in the straightening out of the affairs of the corporation— it will be continued is usually a question that can not be answered by the court at the time of making the appoint- ment.' It may be stated that the receivership will be terminated whenever the court can feel that the affairs of the corporation can be restored to corporate manage- 3 California Fruit Growers' Assn. iana Const. Co., 120 La. 356, 363, V Superior Court, 8 Cal. App. 711, 45 So. 276, 278. 97 Pac 769; Carpenter v. Land- o Pennsylvania Steel Co. v. New ,n« A/r- 1, :,AA 1^0 M w '?99- York City Ry. Co. (Metropolitan man, 192 Mich. 544, 159 N. W. 611, \^ . u- ^ -lac tt^ a ' ^ , ,.. . Railway Receivership), 198 Fed. Boothe V. Summit Coal Mining ^^^ 117 c C A 503 Co., 63 Wash. 630, 116 Pac. 269. TMerrifield v." Burrows, 153 111. 4 In re Reisenberg (Metropolitan ^p^ 523. Morse v. Metropolitan Ry. Receivership), 208 U. S. 90, g_ s. Co., 87 N. J. Eq. 217, 100 Atl. Ill, 52 L. Ed. 403, 28 Sup. Ct. 219. 219. 5 If the receivership proves use- The general subject of revok- less for the purpose in mind or the ing the appointment and discharg- situation changes the appointment ing a receiver will be treated in a may be revoked. Krotz v. Louis- separate chapter. 736 LAW OF RECEIVERS. ment with due regard to the safety of all interests.^ Just what sort of a situation will justify such a confideiice on s In Featherstone v. Cooke, L. R. 16 Eq. 298, where the gravamen of the complaint was discussions among the directors, the receiver was appointed until a new govern- ing body could be elected. In a similar case. Trade Auxil- iary Co. V. Vickers, L. R. 16 Eq. 303, it was said: "In such a case the court will Interfere but only to as small an extent as possible." A receiver was appointed under a prayer "to continue the business until the assets could be applied in satisfaction of the company's debts," Wm. Filene's Sons Co. v. Weed, 245 U. S. 597, 62 L. Ed. 497, 38 Sup. Ct. 211. An action was brought, among other things, for the cancellation of an alleged fraudulent and void assignment for the benefit of creditors and for a receiver. On appeal the court said: "With the deed of assignment set aside and the proceedings thereunder en- joined, there seems no occasion, so far as appears from the record before us, for winding up the cor- poration or withholding from the directors the control of its assets, for it can not be presumed that the directors will mismanage the cor- porate business or act otherwise than in conformity with law. Should the retirement of the com- pany's bonds be still desired, no obstacle intervenes to prevent an appropriate action to accomplish that result. The differences be- tween the stockholders are not such as reasonable persons may not adjust. . . . But, two years have elapsed since this record was' made up, and it is possible that something may be presented to the court below justifying a temporary continuation of the receivership. However, we can not now do as appellants ask and make a per- emptory direction that it be ter- minated." Collins v. Williamson, 229 Fed. 59, 143 C. C. A. 653. In a discussion case, involving questions of the ownership of stock and of a claim against one of the defendant directors in favor of the corporation for the purchase price of stock, Justice Dibell of the Illinois Court of Ap- peal said: "Upon the present appeal it must be taken to be abso- lutely true that the Burrows broth- ers are indebted to Mrs. Merrifield and to the company in the amounts stated and it must be presumed that she and the com- pany will recover judgments there- for and, there being no other property available for the collec- tion of those judgments, it must be assumed that Mrs. Merrifield will take steps to cause her judg- ment to be made out of the stock pledged to her and that the com- pany will levy upon those shares of stock to make its judgment and that the Burrows brothers will either find other means to pay for their stock or will cease to be stockholders. In the latter case there will be no difficulty in dis- posing of this suit. If they find means to pay these debts and be- come possessed of their certifi- cates of stock and no change occurs in the feeling of the differ- ent parties toward each other a serious question will arise as to what shall be done with the re- PRIVATE CORPORATIONS. 737 the part of tlie court can be told only by a consideration of the circumstances of each case. The extent and duration of a corjjoration receivership, as distinguished from a mere receivership of corporate property, brings out phases of one of the questions which we have already discussed relating to the inherent right of ceivership; but meanwhile the property and business will have been preserved for the just and equal benefit of all. We do not thinli it necessary to solve un- certain problems now. We think it was the duty of the court below to preserve this valuable property and business from the destruction which was impending because of the equal ownership of its stock between two warring factions." Merrifield v. Burrows, 153 111. App. 523. Speaking of a dissensions re- ceivership, a New Jersey court said: "As soon as a lawfully con- stituted and competent governing body comes into existence, whether it is brought into existence by an adjustment of the dissensions or by the election of a new body and such body is ready to take pos- session of the prpperty of the cor- poration and proceed in the proper discharge of its duties, the court must lift its hands and retire." Edison v. Edison United Phono- graph Co., 52 N. J. Eq. 620, 29 Atl. 195. In creating a fraudulent man- agement receivership. Vice Chan- cellor Lane of New Jersey said: "I am willing to say that, if it were necessary to sustain the jurisdic- tion of this court upon the present bill. I would, as presently advised, hold that this court may, if circum- stances indicate that the corpora- I Rec. — 47 tion can not properly be conducted by reason of the fact that no com- petent, proper board of directors can ever be elected under its gen- eral equity power, actually wind up the corporation and divide its assets." Morse v. Metropolitan S. S. Co., 87 N. J. Eq. 217, 100 Atl. 219. A mismanagement receiver was appointed at the instance of minority stockholders. A ns.v board of directors was elected and plaintiffs moved for a vacation of the receivership. The motion was denied on a showing made bv creditors, who had intervened, to the effect that the reorganization was only colorable and that the new board was entirely under the control of the management that had been ousted by the receiver- ship. Adams v. Farmers' National Bank, 167 Ky. 506, 180 S. W. 807. After having decided upon the appointment (mismanagement) the court should move with due care and in full consideration of the in- terests of the persons concerned." Brent v. B. E. Brister Sawmill Co., 103 Miss. 876, Ann. Cas. 1915B, 576, 43 L. R. A. (N. S.) 720, 60 So. 1018. "We may venture to assume that it (the receivership) will not be continued any longer than necessary to enable the affairs and conditions of the corporation to be disentangled and understood and 738 LAW OF RECEIVERS. a court of equity to appoint a receiver over a corporation. As has been intimated before, there are courts which take the position that a court of eciuity has no such inherent powers and that appointments in which the effect has been the winding up of the affairs of the corporation are to be made only under the authority to be found in some statute.'* It is, of course, true that a corporation is cre- the conflicting claims of the differ- ent shareholders (as to ownership of stock) to be properly and im- partially adjusted, which the dis- ruption of the entente cordiale that should exist among them has heretofore rendered and now ren- ders wholly impossible except through the interposition of a court of equity." Bates v. Werries, 198 Mo. App. 209, 199 S. W. 758. 9 Chancellor Kent, in an early New York decision (Attorney General v. Utica Ins. Co., 2 Johns. Ch. [N. Y.] 371), raised, unwit- tingly perhaps, a lot of trouble for siate courts in the United States. Ihe federal courts seemingly were not affected by the trouble, or, it they were, shook it off at an early date. The case was one by w-hich the attorney general sought to have the defendant enjoined from con- tinuing to exercise certain bank- ing functions on the charge that it had no special franchise to do so and that it was violating a certain statute that forbade corporations to exercise such functions without a franchise and provided a penalty for its violation. The Chancellor ruled that "the whole question upon the merits is one of law and not of equity." The troublesome statement was made in answering plaintiff's contention that the mat- ter of the suit was within the equity court's visitorial powers over corporations, and was as fol- lows: "At the same time I admit that the persons who from, time to time exercise the corporate powers may in their character of trustees be accountable to this court for a fraudulent breach of« trust and to this plain and ordi- nary head of equity the jurisdic- tion of this court over corpora- tions ought to be confined." Two remarks may be made in passing. In the first place, courts that have relied upon this ruling as a precedent and used the quo- tation as a guide in refusing to create corporation receiverships, have not considered it proper to quote the very next sentence in the opinion: "Thus, for instance, if the directors of the Utica Ins. Co. were to appropriate the funds or capital of the company to their own private emolument, or if, dis- regarding the business of insur- ance, they were to divert the funds to the destruction of that object by making roads and canals or building theatres or churches, I have no doubt this court would have a right and would be bound to interfere and check the abuse." The Chancellor did not say just how equity might interfere nor did he fortify this statement by precedents from English decisions, as he might have done, and as he PRIVATE CORPORATIONS. 739 atecl by statute and that tlie corporate entity is also fixed did do in connection with other statements in his opinion. The statement was, however, hardly necessary for his decision; and perhaps that is the reason why our courts have not used the state- ment in considering the jurisdic- tion of an equity court to create a corporation receivership. In the second place it may be stated as a proposition of uni- versal acceptance that where the question at issue is simply and solely whether or not a corpora- tion has acted in such a way as to be deserving of a judgment de- creeing its dissolution or a for- feiture of its franchise the matter being one in which the authority that granted the charter is alone primarily interested, the action in which the matter can be properly settled is one at law and not in equity, unless jurisdiction to en- tertain it has by statute been bestowed upon a court of equity. But the same facts that raise the question may, as Chancellor Kent pointed out, in the second quota- tion, be looked at from an entirely different point of view. They may be considered as a violation of the rights of some individual and as giving that individual a cause of action based upon some injury caused him. Gay v. Hudson River Electric Power Co., 187 Fed. 12, 109 C. C. A. 66. Chancellor Kent returned to this distinction when he completed his argument by say- ing: "But when the question is, whether a corporation has for- feited its charter, or has usurped a franchise, or has broken a penal law, the case is widely different. extent of its existence as a by statute. But an exam- This court is not the proper tribunal to sustain the prosecu- tion or to inflict the punishment." However, it is certain that many of our state courts, following the Utica Insurance Co. case as a precedent, either directly or indi- rectly, through precedents that are descendants of that decision, have refused to exercise the jurisdiction to appoint corporation receivers unless they were able to base such action upon statutory authority. They have taken their position on the ground that equity courts have not authority to dissolve a cor- poration, or to decree a winding up of its affairs or a forfeiture of its franchise and that a receivership ' is tantamount to doing these things because a receiver displaces the corporate management. There is undoubtedly a conflict of opin- ion on this question. It is not simply that different courts have taken a different view of the weight of facts presented as the basis of a demand for a receiver, assuming that it would be possible to make a case sufllciently strong to warrant an appointment. With facts before it, that would prob- ably lead a court, recognizing the right to make an appointment on a proper showing, to deny the re- ceivership for the reason that the showing was not sufficient, another court has refused the request on the express ground that it had not jurisdiction. We find courts ex- pressly stating that there is a con- flict of opinion among the deci- sions and expressly basing their own conclusions on what they con- ceived to be the "weight of author- r40 LAW OF RECEIVERS. ination of the cases in wliicli courts of equity have ap- pointed receivers over corporations will always disclose ity." In many cases we find divided courts, with dissenting conclusions and opinions. An in- teresting instance of this situation is found in an important early case before the United States Supreme Court. Dodge v. Woolsey, 18 How. 331, 341, 15 L. Ed. 401, 405. The point at issue was whether or not the plaintiff, a stockholder in a corporation, was entitled to maintain the action in a repre- sentative capacity. The decision was by a four to three division of the court, the majority uphold- ing the plaintiff's right to sue. In a later case, Hawes v. City of Oakland, et al., 104 U. S. 450, 26 L. Ed. 827, the court unanimously decided that, under the facts of the case, the representative action could not be maintained. After a somewhat lengthy review of the opinion on tht Dodge case, it is stated that, "on principle," the majority decision there was not different from the decision to be reached in the case then before the court. It may be noted, how- ever, that many of the precedents employed in the Hawes case in support of the court's conclusion were used in the dissenting opin- ion in the earlier case to support the conclusion of the minority. These were not receivership cases but they illustrate a certain di- vergence of opinion that has arisen among courts as to the inherent power of equity courts to deal with corporate affairs, a divergence of opinion that has cropped out with reference to the question of ap- pointing corporation receivers, as well as with reference to other questions. It is not our purpose to attempt to solve this conflict; nor do we think that we know exactly how a balance is to be struck in order to determine what is the "weight of authority." Perhaps, as judges have been known to say unofficially, just how the judicial mind will lean is in some cases, a matter of "temperament." How- ever that may be, we have, in the text, attempted to "echo" (Have meyer v. Superior Court, 84 Cal. 327, 18 Am. St. Rep, 192, 10 L. R. A. 627, 24 Pac. 121) the decisions of courts that have exercised what they thought was the inherent power of courts of equity to ap- point corporation receivers and the circumstances under which they have made such appoint- ments, without reference to the fact that other courts have ex- pressly disclaimed jurisdiction so to act. It is of course necessary to call attention to the position that has been taken by these other courts and to the conflict of opin- ion. We do not think that it is correct to say that the entire con- flict of opinion on this question can be eliminated on the theory that, while there is a general rule adverse to the jurisdiction of equity to make the appointment, except on the basis of statutory authority to do so, there are "ex- ceptions" to the rule. On such a theory it would have to be ad- mitted that at least some of the exceptions are "as broad as the rule itself." We have thought it advisable, in order to avoid con- fusion, to set forth one side of the matter in the text, and the other PRIVATE CORPORATIONS. 741 some condition or circumstance which appeals to the equitable conscience of the court with the result that in a note. We proceed now to mention certain interesting facts concerning this conflict of opinion. We believe that it would be the unanimous opinion that Chancellor Kent's decision in the Utica In- surance Company case was cor- rect. However, we believe that there is not in the decision nor the opinion anything to show that the decisions in the cases cited as authority for what has been stated in our text were wrong. Certainly the courts that did not base their decisions expressly on the "exceptions" theory, did not think so. It may be remarked that the Utica Ins. Co. case was an in- junction case and not a receiver case. However, the latter is much the more drastic remedy, and, in fact, is usually accompanied by the former, so that, if the case is authority for the proposition that the remedy of injunction is never available as against corporate ac- tion, it is also authority to the effect that a corporation receiver- ship is never proper. We find some courts, holding that equity courts have not inherent power to appoint receivers over corpora- tions, admitting, however, that they may enjoin certain kinds of corporate action. People's Inv. Co. V. Crawford (Tex. Civ.), 45 S. W. 738. In some cases, particularly minority stockholders' actions on the ground of mismanagement, courts, disclaiming any power in equity to make the appointment, have also rested their decisions on the ground that the complaints presented simply a case for a re- ceiver and not an independent cause of action, with a receiver- ship necessary as auxiliary relief. Forest Oil Co. v. Wilson, (Tex. Civ. App.), 178 S. W. 626. In California there is quite a long line of cases in which a re- ceiver was denied on the express ground that equity has not in- herent power to appoint one. A very early case was Neall v. Hill, 16 Cal. 145, 76 Am. Dec. 508. The lower court appointed a receiver, using Evans v. Coventry, 5 De G. M. & G. 911, as a precedent. The matter was taken to the Supretae Court on certiorari and that court decided that the lower court was without jurisdiction to make the appointment. The action was a stockholder's suit on the ground of mismanagement. The decree appointed a receiver to hold the property and conduct the business until further orders of the court. Perhaiis the showing was not very strong but the Supreme Court based its ruling entirely on juris- dictional grounds, as of course it had to do in a certiorari proceed- ing. It held that to appoint a re- ceiver of a corporation was equivalent to granting a dissolu- tion and that the court had no power to do that. Some of the other cases in this line are: The French Bank Case, 53 Cal. 495: Elliott V. Superior Court, 168 Cal. 727, 145 Pac. 101; State Invest- ment, etc., Co. V. Superior Court, 101 Cal. 135, 35 Pac. 549. In some of these cases we think the showing was equally as strong as in many cases in which re- ceivers have been appointed by 742 LAW OF RECEIVERS. equity once having taken the matter in hand will finish the litigation with a view to doing justice to all concerned. courts holding that they had in- herent power to do so. In all of them it was held that a court of equity had no inherent power to decree dissolution, or "the wind- ing up of the affairs of a corpora- tion," and that to appoint a re- ceiver was equivalent to making such a decree because the receiver necessarily "supersedes the cor- porate power." However, in 1917, the Supreme Court of the state sustained the appointment of a receiver by a lower court, the ap- pointment having been made on the express ground that there "is now and ever since the commence- ment of this action has been a deadlock in the board of directors of said corporation, as a conse- quence of which the business of caid corporation is not carried on and the mine of such corpora- tion is not operated." Boyle v. Superior Court, etc., 176 Cal. 671, L. R. A. 191SD, 226, 170 Pac. 1140. Plaintiffs were stockholders. The court said. "It is declared that under the decisions of this court such an appointment, based upon the stated ground, is in excess of the jurisdiction of the court and therefore void. With this conten- tion, however, we can not agree. The Code of Civil Procedure de- clares that a receiver may be ap- pointed by the court 'in all cases where receivers have heretofore been appointed by the usages of courts of equity.' That courts of equity, both English and American, have appointed receivers under precisely the situation here pre- sented is beyond all controversy. These receivers are not appointed to close up the affairs of a corpora- tion, to work its dissolution, but to preserve its properties, and, where possible, continue its corporate functions. ... In California Fruit Growers' Assn. v. Superior Court, 8 Cal. App. 711, 97 Pac. 769. where a receiver was asked for on the ground of fraudulent misman- agement, the court declared that the trial court had jurisdiction to appoint a receiver under the alle- gations of the complaint, and pointed out that the proceeding was not directed toward the clos- ing of the affairs of the corpora- tion or toward an attempt to dis- solve it, but was designed merely to place the assets of the corpora- tion in safe hands. . . . They (California cases in the line above referred to) were cases where the receiver was appointed to wind up the affairs of the corporation — in effect to dissolve it and to dis- tribute its assets, a power which under our laws equity does not possess and a power which equity in the case at bar did not attempt to exercise." It may be noted that the code section referred to in this opinion was in force when all of the cases in the line adverse to the appoint- ment were decided, except the first. It may be noticed also that in this Boyle case, as well as in the Fruit Growers' Association case, referred to in the opinion, there was either pending or about to be begun litigation over the ownership of stock in the corpora- tion and the muddle in the cor- porate affairs might be straight- ened out as a result of this litiga- PRIVATE CORPORATIONS. 743 A winding up of its affairs with a view to preserving its assets for the satisfaction of some judgment to be ren- tion, on which event, if it occurred, the court could "lift its hand and retire." In this respect the Cali- fornia cases are similar to the Illinois case (Merrifield v. Bur- rows, 153 111. App. 523), from which we quoted in the section to which this note is appended. In Missouri there are a number of cases in which corporation re- ceivers were ap]5ointed. Two cases from that jurisdiction, however, are of interest. In a case entitled Watkins v. Donnell Mfg. Co., a re- ceiver was appointed at the in- stance of a stockholder on the ground of mismanagement. The lower court decreed the dissolution of the corporation and the re- ceiver was appointed to conduct the business and to liquidate. The matter was taken to the Supreme Court in prohibition proceedings entitled State v. Foster, 225 Mo. 171, 125 S. W. 184. A permanent writ of prohibition was ordered as to that portion of the decree which ordered dissolution and liquida- tion. The court said: "That the court, upon the facts as disclosed by tlie record in that proceeding, bad full power to appoint a re- ceiver to take charge of the assets of the corporation and that such receiver may recover if the facts so warrant it any sum of money which might have been wrong- fully appropriated by John W. Donnell as an officer or manager of such corporation is clear. . . . Our conclusions are by no means to be construed as in any way affecting the power of the courts in the exercise of their well recog- nized jurisdiction to control and regulate the official conduct of trustees, officers, and managers of corporations to the end that the minority stockholders, as well as the creditors, of such corpora- tions may be fully protected. One member. Justice Lamm, dis- sented, holding that the decree of the lower court was correct. Shortly afterwards a case reached the court on appeal from a simi- lar decree. Ashton v. Penfield, 233 Mo. 391, 135 S. W. 938. The decision was by four members of the court, with three dissenting. The complaint prayed for a disso- lution of the corporation. The majority opinion held that this part of the prayer could be re- garded as surplusage and that the action could be considered as one for a receiver. The opinion said: "The rule in this jurisdiction is that a court of equity is without jurisdiction in any extreme case put to dissolve a corporation and make distribution of its assets. . . . Accordingly, the decree should be reversed and the cause remanded with directions that the court enter a decree confirming the appointment of a receiver, overruling the motions to revoke the order appointing him; that the receiver should be kept in charge until such time in the future as the court may find full equity done and that it should then lift its hand and retire, otherwise pro- ceeding in accordance with this opinion, reserving the right to it- self in said decree to make such further and other orders and judg- 74-i LAW OF RECEIVERS. dered, if a winding up of its business is necessary for the purpose, is not necessarily a legal dissolution of the ments from time to time as equity and good practice call for." The minority opinion held that the complaint stated a cause of action simply for dissolution, and, be- cause of the want of power in the court to decree dissolution, the action should be dismissed. In a case earlier than either of the two cases above mentioned, Cantwell v. Columbia Lead Co., 199 Mo. 1, 97 S. W. 167, which decreed the dissolution and ap- pointed a receiver, and which reached the Supreme Court on appeal from an order denying a motion to revoke the order ap- pointing a receiver, the Supreme Court unanimously sustained the lower court. Two of the dissent- ing justices in the Ashton v. Pen- field case were members of the court at that time. In the dissent- ing opinion in the Ashton v. Pen- field case it was said, concerning the Cantwell case: "While it is true the petition for the appoint- ment of a receiver did pray for the dissolution of the corporation, it will be observed that that case reached this court by appeal from an order refusing to revoke the appointment of a receiver, and no conclusion was announced in the case except that the court had ju- risdiction to appoint a receiver. The proposition of the power of a court of equity to dissolve a corporation was not in judgment before the trial court in the Cant- well case." In a late Missouri case. Bates v. Werries, 198 Mo. App. 209, 199 S. W, 758, a decree, made after a full hearing, appointing a re- ceiver to take immediate charge of the properties of said mine of every kind and character, to take charge of all its records, books, moneys, and evidences of debt of every kind; to proceed immedi- ately to collect, sue for, and re- cover all moneys and property due said company; to continue said mine in operation; to employ such assistance as may be required; to borrow money on the credit of the defendant company to continue operations, if necessary; to ascer- tain as soon as may be the finan- cial condition of the defendant company and to report the same, together with a report of the ad- ministration of this trust, to the court at each regular term thereof until the further order of the court was held to create a receivership pendente lite, because it was nec- essary that the business of the corporation should go on during the litigation. In Illinois we find a number of cases in which a corporation re- ceiver was refused on the ground that equity had no jurisdiction to dissolve a corporation. Of these cases, Heitkamp v. American Pig- ment & Chemical Co., 158 111. App. 587, is an instance. However, we have the case of Merrifield v. Burrows, 153 111. App. 523, from which we quoted in the text. This was an action by hold- ers of one half of the stock against those holding the other half, on the ground of dissensions. Con- cerning an Illinois statute specify- ing certain circumstances under PRIVATE CORPORATIONS. 745 corporate entity. If, after the object of the litigation has been accomplished, it still has assets the court npon ap- which a corporation receiver might be appointed, tlie opinion says: "The statute is not to be construed to mean that the ordi- nary jurisdiction to appoint a re- ceiver has thereby been with- drawn." Also, "The object of the bill is to preserve the property and business and credit of the company for the benefit of every shareholder alike." In speaking of certain earlier cases, in which receivers had been denied, and in v/hich the court had not placed its decision on the express ground of lack of juris- diction, but on the ground that the complaints or proofs had not shown sufficient injury or threat- ened injury through fraud, mis- management, or otherwise to war- rant a receivership, the opinion speaks of them as implying that a receiver might be appointed un- der a sufficient showing. A later case to this same effect is Schmidt V. Johnson, 163 111. App. 622. In Baker v. Backus, Adm'r, 32 111. 79, where the decision refusing a re- ceiver was based on the ground, in part at least, of an insufficient showing, we think it might very well have been held, in line with the case of Attorney General v. Utica Insurance Co., that the mat- ters complained of were viola- tions of the company's duties to the State to be corrected only by the State or some one duly au- thorized by statute to do so. (See Alabama Coal, etc., Co. v. Shackel- ford, 137 Ala. 224, 97 Am. St. Rep. 23, 34 So. 833.) Other cases taking a position adverse to the jurisdiction to ap- • point are: Vila V. Grand Island, etc.. Stor- age Co., 68 Neb. 222, 110 Am. St. . Rep. 400, 4 Ann. Cas. 59, 63 L. R. A. 791, 94 N. W. 136, 97 N. W. 613; Wills V. Nehalem Coal Co., 52 Or. 70, 96 Pac. 528. A court has no power to appoint a receiver for corporate property upon the grounds which would not authorize such appointment if the defendant were a natural person. The jurisdiction of a court of equity does not extend to the dis- solution of a corporation and the appointment of a receiver to wind up its affairs. Town v. Duplex- Power Car Co., 172 Mich. 519, 138 N. W. 338; Stacy v. McNicholas, 76 Or. 167, 144 Pac. 96, 148 Pac. 67; Union Sav. & Invest. Co. v. District Court, 44 Utah 397, Ann. Cas. 1917A, 821, 140 Pac. 221. A court of equity is limited to preserving the property of a cor- poration and is not authorized to carry on a business as a going concern in order to pay off the creditors. Cronan v. District Court of Kootenai County, 15 Idaho 184, 96 Pac. 768. The process of receivership is an ancillary remedy in aid of the primary object of the litigation which must be one of an equitable character, and a bill can not be maintained for the appointment of a receiver apart from some dis- tinct ground of equitable jurisdic- tion. Cassells Mills v. First Nat. Bank of Gadsden, 187 Ala. 325, 65 So. 820. 746 LAW OF RECEIVERS. plication would undoubtedly discharge the receiver and restore the property to the corporation for such further It will thus be seen that although in some cases, where the com- plaint prayed for a dissolution, or something equivalent to a disso- lution, of the corporation, the de- nial of a receiver was placed on the ground that there was no cause of action shown to which the receivership could be made ancillary, the real ground of the jurisdictional objection to making an appointment has been that a receivership would necessarily lead to a dissolution or a wind- ing up of the corporate affairs; and that a court having no au- thority directly to decree such a result can not decree it indirectly through a receivership. The Ju- risdictional objection, then, has centered around the question of the "duration and extent of the receivership." Some courts, like the California and the Illinois courts, have made appointments only when they saw, in the cir- cumstances of the cases, a proba- bility that the receivership would be terminated short of a com- plete sale of the corporate assets. Others, like the Missouri courts, have made appointments expressly disavowing the intention to bring about dissolution, but not foresee- ing just how far the receivership would lead. Some courts have held that a managing receivership is always intended to lead to a sale of the assets as a whole (Gutterson, etc., v. Lebanon Iron, etc., Co., 151 Fed. 72), and it has been said that such a winding up of the corporate affairs does not involve a dissolution or a termina- tion of the corporate franchise. Sellman v. German Union Fire Ins. Co., 184 Fed. 977. From this point of view it has been held that a corporation receivership would not be created just to tide a corpora- tion over a period of financial stress. Burton v. R. G. Peters Salt, etc., Co., 190 Fed. 262; see Continental Trust Co. v. Brown (Tex. Civ.), 179 S. W. 939. It has been stated that the mere appointment of a receiver does not ipso facto work a dissolution of the corporation, because the mem- bers can still make transfers of stock among themselves or to strangers, and can meet to trans- act business that does not inter- fere with the operations of the receivership. Butler v. Beach, 82 Conn. 417, 49 Atl. 748; and that, while the appointment does not necessarily mean dissolution, the mere possibility that such might be the result should not be held as a reason for denying the re- ceivership in a proper case. Fal- furrias Immigration Co. v. Spiel- hagen, 61 Tex. Civ. Ill, 129 S. W. 164. In some cases it has been expressly held that the receiver- ship might, if necessary, extend to the dissolution of the corpora- tion or "of the trust relations." In Green v. National Advertising & Amusement Co., 137 Minn. 65, 162 N. W. 1056, it was said: "While it is clear that the court may, as a necessary step in the proceedings, appoint a receiver to take charge of the corporate business and affairs, to convert the property and effects into PRIVATE CORPORATIONS. 747 action as its stockholders may determine. If, after sucli objects have been accomplished, it has no assets left, it is money, the question whether there should be a final dissolution of the company should not be left to the receiver to determine, but should be definitely declared by the court, and a time set for the sale and disposal of the property and a distribution of the proceeds among the stockholders. There should be reasonably prompt ac- tion in a case of this kind, to the avoidance of a long-continued op- eration of the business of the com- pany under the guidance and su- pervision of the court. If within the time fixed by the court for a sale the parties come to some amicable arrangement which will obviate further judicial proceed- ings, matters can readily be ad- justed to that end." See also Miner v. Belle Isle Ice Co., 93 Mich. 97, 17 L. R. A. 412, 53 N. W. 218; Morse v. Metropoli- tan S. S. Co., 87 N. J. Eq. 217. 100 Atl. 219. In Stokes v. Williams, 226 Fed. 148, 141 C. C. A. 146, it was held, concerning the confirmation of a receiver's sale of the entire assets, upon objection by certain stock- holders on the ground that the sale would foreclose the possi- bility of recovering damages from directors for mismanagement, that the sale would be confirmed unless the objecting stockholders fur- nished a bond in an amount prac- tically equal to the proposed sell- ing price, to protect creditors and stockholders against a deficiency on any subsequent sale, and the fact that the opposing stock- holders were not financially able to furnish the bond was not evi- dence that the order was op- pressive or prohibitive. In many instances we find the appointment of a receiver justi- fied on the ground of "keeping up with the times"— that there has been such a vast development in the matter of casting large busi- ness enterprises into corporate form as to necessitate the release of courts of equity from the shackles of narrow and technical objections and to require an ex- tension of their methods to meet new situations to the end that jus- tice may be done. It is true we find such suggestions in cases that can hardly be called recent. Evans V. Coventry (1854), 5 De Gux, M. & G., 911; Wallworth v. Holt (1841), 4 Myl. & Cr. 635. Some- thing of the same sort is found in Davis v. Gray (1872), 16 Wall. 203, 21 L. Ed. 447, although what is said there about "progress" and "growth" is not in relation to the question of the jurisdiction of equity to appoint a receiver. The suit was one in foreclosure, in which a foreclosure receiver had been appointed. The question at issue was as to the power of a receiver to prosecute a certain ac- tion in his own name, instead of in the name of the corporation. The action was justified on the ground of development in the mat- ter of allowing power to receivers. In Pennsylvania Steel Co. v. New York City Ry. Co. (receivership of the Metropolitan St. Ry.) (1912), 198 Fed. 721, 117 C. C. A. 503, we find some- 748 LAW OP RECEIVERS. apparent that a mere corporate shell only remains, which may, however, be given new vitality by the stockholders levying an assessment upon its stock if they desire to re- thing about the development of the jurisdiction, although it was said, as a foundation for laying down a rule for the presentation of claims: "Apart from statutes, moreover, the law of receivers has gone through a curious course of development with respect to cor- porations. The rule has been uni- formly stated in the books and is still insisted upon that in the absence of statutory authority a court of equity has no power to appoint a receiver, even of an in- solvent corporation. It is said that such a court has no inherent lower to wind up a corporation and that it can not accomplish by indirection that which it can not do directly. • And it is perfectly true that the administration of the affairs of a corporation by a re- ceiver and the distribution of its assets, while not destroying its corporate existence, does leave it a mere shell. Nevertheless, ex- ceptions to the rule have been evolved which are in some as- pects as broad as the rule it- self. One of these exceptions is in the case of creditors' bills. In these suits no distinc- tions were drawn between corpo- rations and individuals, and out of them the practice has grown up and become established of per- mitting creditors having judg- ments to apply to courts of equity to take possession of the assets of corporations and undertake through receivers their general administration. And now that which was formerly regarded as the essential thing — the judgment — is unnecessary unless the cor- poration objects. Thus is illus- trated anew the vainness of say- ing what courts of equity can not do." In a note to the above state- ment it is said: "Whatever doubts may have existed as to the broad authority of courts of equity stated in the text must now be regarded as settled by the action of the Su- preme Court in this very case." In re Reisenberg (Receivership of the Metropolitan Ry. Co.), 208 U. S. 90, 52 L. Ed. 403, 28 Sup. Ct. 219. Other cases in which we find references to this development theory, "later decisions," etc., are: Green v. National, etc., Co., 137 Minn. 65, 162 N. W. 1056; Miner V. Belle Isle Ice Co., 93 Mich. 97, 17 L. R. A. 412, 53 N. W. 218; Brent v. B. E. Brister Sawmill Co., 103 Miss. 876, Ann. Cas. 1915B, 576, 43 L. R. A. (N. S.) 720, 60 South. 1018, and Morse v. Metro- politan S. S. Co., 87 N. J. Eq. 217, 100 Atl. 219. Occasionally we find criticism of this tendency. Rob- erts V. Washington Nat. Bank, 9 Wash. 12, 37 Pac. 26; and see dis- senting opinion in Ashton v. Pen- field, 233 Mo. 391, 135 S. W. 938. In view of what some courts have said about the lack of au- thority in equity to dissolve or wind up the affairs of a corpora- tion indirectly through a receiver- ship, we think it proper to refer to what frequently happens in foreclosure suits. Courts of equity have never doubted their power PRIVATE CORPORATIONS. 749 engfige in business. In other words, it is not necessary for a court of equity to interfere with the legal fetich raised by the rule against the dissolution of a corporate to appoint foreclosure receivers of the property affected by the mort- gage, on a proper showing, even though the mortgagor is a corpo- ration. Large corporation mort- gages frequently cover all of the assets of the company, and a fore- closure sale means a "winding up of its affairs." It is to be remem- bered that insolvency is a neces- sary condition for the appointment of a receiver in a foreclosure suit. It is also to be noticed that such a receivership necessitates the managing of the business pen- dente lite by the receiver, in or- der that the property may be sold as that of a "going concern." In other words, we have all the con- ditions present that would be found in a corporation receiver- ship. In Title Ins. & Trust Co. v. California Development Co., 171 Cal. 173, 152 Pac. 542, which was a foreclosure suit, the defendant company had created and was op- erating a very extensive irrigation proposition. The mortgage cov- ered practically all of the property of the company, both real and personal. A managing receiver was appointed and it might inci- dentally be remarked that re- ceiver's certificates to the amount of more than $300,000 were issued in the course of the proceedings. The property was sold as a whole and without right of redemption. "Where there is a mortgage cover- ing real and personal property comprising parts of a single work- ing plant or utility, in which each part is necessary to give value to the others and where a dis- memberment of the system would destroy or greatly impair the use- fulness or value of its component parts, the propriety of a decree like the one here made is well settled. The statute giving a right of redemption upon execution sales of real property is held to have no application to such cases." The Court cited authority to show that the principle of this quota- tion is as broad as stated in the quotation and is not confined in its application to a railroad or other public utility. Thus a se- cured creditor was able to bring about the winding up or practical, if not legal, dissolution of a cor- poration that had allowed itself to become insolvent and unable to pay the debt when it became due. A receiver was appointed without any question as to the power of equity to make the appointment, and through the re- ceivership something was saved for other creditors. In the case of the receivership of the Metropolitan Street Rail- way Company the proceedings were commenced by contract creditors (Pennsylvania Steel Co. V. New York City Ry. Co.). A showing of very heavy embarrass- ment was made; inability to pay maturing debts, numerous secured and unsecured creditors and tort claimants demanding their rights, etc. A managing receiver was appointed. It was a case of vari- ous large properties united under one management by leases. In 750 LAW OF RECEIVEES. entity by a court of equity. As is shown by the extended note attached to this section much of the conflict of au- thority on this subject lias arisen from a blind devotion the course of the proceedings va- rious of the properties were seg- regated and put under separate receiverships. Eventually the properties of the Metropolitan, by lar the greatest portion of those originally included in the case, were sold as a whole under a fore- closure decree. Concerning this receivership the United States Su- preme Court said (208 U. S. 90, 52 L. Ed. 403, 28 Sup. Ct. 219): "There are cases where, in or- der to preserve the property for all interests, it is a necessity to resort to such a remedy. A re- fusal to appoint a receiver would have led in this instance almost inevitably to a very large and use- less sacrifice in value of a great property operated as one system through the various streets of a populous city, and such a refusal would also have led to endless confusion among the various cred- itors in their efforts to enforce their claims, and to very great inconvenience to the many thou- sands of people who necessarily use the road every day of their lives. The orders appointing the receivers and giving them instruc- tions are most conservative and well calculated to bring about the earliest possible resumption of normal conditions, when those who may be the owners of the property shall be in possession of and operate it." "Who may be," not who are, the owners. The Court foresaw that a reorganiza- tion was the necessary purpose of the proceeding. As between these two cases is there much difference in regard to what equity under- took to do? As a unique instance of what a court of equity has done, we cite Arents v. Blackwell's Durham Tobacco Co., 101 Fed. 338; af- firmed in Guthrie v. Arents, 109 Fed. 1058, 48 C. C. A. 765. All of the stockholders except the owner of one share desired to accept an offer for the entire assets and good will of the corporation. The recalcitrant member threatened political action of a serious char- acter against the corporation. On the petition of the members desir- ing to sell, and on the ground that the threatened action of the non- assenting member, whether suc- cessful or not, would practically destroy the business of the com- pany, a receiver was appointed to sell the property of the corpora- tion for the benefit of its stock- holders. We think it proper here to call attention to this point. Many of the statutes authorizing the ap- pointment of corporation receivers are very meager as to the details that follow the appointment, while some are quite full. Manifestly it is practically impossible to cover every detail that may arise. When the statutes are silent as to details, resort is had to the practices of equity. A court that appoints a receiver under statu- tory power must go to equity lules to know what to do with him after the appointment, if the PRIVATE CORPORATIONS. 751 to precedent instead of an adherence to the ehistic and gro\ving powers of a court of equity to right whatever wrongs growing society may find to exist without the necessity of statutory authority to do so. It is apparent that under the practice followed by courts of equity a receivership is discontinued whenever the objects of the primary litigation are accomplished or the necessity for a continuance of the receivership has ceased. statute does not give instructions. (See § 311, infra.) We close tliis note witli words of Lord Chancellor Eldon found in a case that antedates the At- torney General v. Utica Insurance Co. case (Adley v. The Whitstable Co., 17 Vesey Jr. 315, 1810). Plain- tiff was a member of the defen- dant corporation. For violation of a by-law of the company he was deprived of his share of the divi- dends. He sought to bring the action in a court of equity for an accounting and for a judgment awarding him the amount of money he would have received as dividends, claiming that the by- law was illegal. After a full con- sideration of the nature of the case the Lord Chancellor ruled that, because of the necessity for an accounting, plaintiff's only rem- edy was in equity, if the by-law was illegal. Answering the objec- tion that equity would not take cognizance of the matter because it could not enforce against a cor- poration any decree that it might make, he said: "How can the de- cree be executed against the cor- poration? The course against a corporation is by sequestration or distringas. I do not conceive it to be impossible to lay hold of their property. . . . The Courto must deal with it as well as they can to prevent a failure of justice altogether, and if by resisting the demands of justice they expose their property to ruin, the mis- chievous consequence must be at- tributed to themselves . . . Tho effect might be that the Court would be under the necessity of carrying on the business; yet that difficulty would not prevent the decree, though it might induce the Court to modify it, so as to do as little injury as possible. ... If a court of law will inform me that this is not a good by-law ... I shall And the means of giving to plaintiff the benefit resulting from his title in this concern." 752 LAW OF RECEIVERS. 6. Appointment of Corporation Receivers Under Statutory Authority. § 310. General Discussion of the Subject, In many, if not all of the states of the United States, statutes have been enacted conferring upon courts the power to create corporation receiverships. While in many instances the statutes of one state have been copied from or patterned after those of another state, still they have been subjected to such frequent amendment that it may be said that in regard to their various terms the statutes are almost as varied as they are numerous. It may almost be said that there is not much greater simi- larity among them than is contained in the fact that they all have a similar purpose. That purpose is to give courts the power to appoint receivers who shall take pos- session of all of the assets of a corporation to protect and preserve them for the benefit of all interested par- ties, stockholders and creditors, and who, as incidental to this purpose, are, usually, granted authority to conduct the business of the corporation. Of course it is necessary that the statutes shall designate the parties at whose instance and the circumstances under which receiverships may be created and in regard to these matters there is a certain broad similarity among them. The right to apply for a receiver is usually given to botli stockholders and creditors. There are, however, statutes conferring upon courts the power to create receiverships, in actions that can not strictly be called quo warranto proceedings at the instance of the attorney-general of the state^ or, usually in regard to special classes of corporations, such as banks, insurance companies, and the like, at the instance of a commissioner or other state officer. In 1 People V. Hasbrouck, 57 Misc. N. Y. 478, 5 N. E. 316; McKinney, Rep. 130, 107 N. Y. Supp. 257. See et al. v. Landon et al., 209 Fed. United States Trust Co. v. New 300, 126 C. C. A. 226. York, W. S. & B. Ry. Co., 101 PRIVATE CORPORATIONS. '^^3 regard to tlie circumstances under wliicli statutes have provided for corporation receivers, it lias sometimes been said that the legislation on the subject has been prompted by the fact that some courts of equity have disclaimed power to act without statutory support and that legisla- tures, coming to the assistance of the courts, have received their inspiration from requests upon which courts have refused to act as being without statutory authority." However this may be, we think it may be said that there is no single circumstance provided by any statute as a reason for a receivership but that some court has, in the absence of statute, refused to consider it a proper basis for action, while some other court has con- cluded otherwise. The total number of circumstances established by all the statutes as proper reasons for this remedy is small. The differences among the statutes is due to the fact that not any one statute includes them all and the various statutes do not include the same ones. Because of the differences in the statutes themselves; because of the fact that it has generally been hekl tb^t, in regard to the jurisdiction, or power, to appoint, tlie statutes are held to be strictly construed f and because it 2 United States Trust Co. v. New plaint and service of papers saoi.l.' York, W. S. & B. Ry. Co., 101 N. Y. be strictly followed. Western 478, 5 N. E. 316; Decker v. Gavd- Electric Co. v. National Automatic ner, 124 N. Y. 334, 11 L. R. A. 480, Electrical Supply Co., 135 La. 55S, 26 N. E. 814. 65 So. 741. 3 Where the court is proceeding Only parties mentioned in the to make the appointment of the statute as proper applicants can receiver of the corporation by petition for the appointment, virtue of the statute, it proceeds Arent v. Liquidating Com'rs, 133 in strict accordance with the La. 134, 62 So. 602. statute. Chamberlain v. Rochester, Threatened insolvency is not etc.. Vessel Co., 7 Hun (N. Y.) sufficient ground under a statute 557- Cronan v. District Court, 15 naming insolvency as a ground. Ida' 184 96 Pac. 768; Mirabal v. Berryman v. Billings Mut. Heating Albuquerque Wool, etc.. Mills, 23 Co., 44 Mont. 517, 121 Pac. 280. N M 534, 170 Pac. 50. That the charter is liable to be Statutory requirements in re- forfeited is not sufficient under a pard to t>^e verification of the com- statute requiring forfeiture. Pru- I Rec. — 48 754 LAW OF RECEIVERS. has also generally been held that, even under the statutes, the appointment is not a matter of right on which the applicant can insist but is to be considered with reference to a certain judicial discretion,^ it is not feasible to set forth many general rules or principles as to what has been done or may be done under statutory authority. Mere differences in phraseology^ or context often lead to divergent judicial interpretation; indeed, we do not always find members of the same court agreeing among themselves. Decisions under statutory authority, even with reference to the mere matter of the appointment, are not to be taken generally as precedents and must be considered with reference to the special statutes under which they were rendered. There are a few points, how- ever, in regard to which it may be said there has been practically a unanimity of judicial opinion concerning the effect and meaning of the statutes. § 311. Equity Character of the Statutory Power. fSome statutes expressly confer the powers thereby created u])on courts of equity.^ In many it is provided that in so far as the statute does not take care of details, the proceedings shall be conducted in accordance with dential Securities Co. v. Three 4 Western Electric Co. v. Na- Forks, etc., R. Co., 49 Mont. 567, tional Automatic, etc., Co., 135 La. 144 Pac. 158. 559, 65 So. 741. There being a statute providing i See United States Trust Co. v. for the appointment of a receiver New York, W. S. & B. Rj'. Co., and another providing for a stock- 101 X. Y. 478, 5 N. E. 316; Morse holders" suit against directors for v. Metropolitan S. S. Co., 88 N. J. money wrongfully appropriated, Eq. 325, 102 Atl. 524. the two causes of action can not See the note attached to section be united in one suit. Nevins v. 309 discussing the opinion of Brooklyn Citizen, et al., 157 N. Y. Chancellor Kent in the case of Supp. 96. Attorney General v. Utica Ins. Co., Plaintiff must bring himself 2 Johns. Ch. (N. Y.) 371, which strictly under the provisions of forms the basis of many of the the statute, the statute being ex- decisions arising in the state of elusive. Kokernot v. Roos (Tex. New York and which is probably Civ. App.), 189 S. W. 505, the cause of the statutory provi- PRIVATE CORPORATIONS. "^^'^ the principles and practices of equity.^ Even in the absence of such expressions in the statute it is held that, the powers conferred on the court— the rights granted to litigants— are essentially equitable in their character, an In all of the details of levying the assess- ment the '' shortest, surest, and least expensive" of the equitable ways open to the court will be followed, and ways that will open up ancillary issues to cause trouble in the collection will be avoided, if possible, reliance always heing placed upon the propositions that unsub- stantial inequalities may be smoothed out upon distri- bution and that one who is held liable because of his technical obligation as shown by the corporate records may himself seek redress from one whom he may claim to have been the beneficiary owner of the stock. ^^ For the most part, the corporate record, for the pur- poses of making an assessment, is taken as showing the ownership of stock. When the record owner is not the real owner but only an agent or trustee of the real owner, either one could be held liable for the assessment and the court will levy against the one who is the more available from considerations of residence, solvency, and the like.^- This principle is especially applicable to a vtRosoff V. Gilbert T. Co., 221 Ct. 465; Dunn v. Howe, 107 Fed. Fed. 972; Graves v. Denny, 15 Ga. 849, 47 C. C. A. 13; Baines v. Bab- App. 718, 84 S. E. 187; Cumber- cock, 95 Cal. 581, 29 Am. St. Rep. land Lumber Co. v. Clinton, etc., 158, 27 Pac. 674, 30 Pac. 776; Rus- Co., N. J. Eq., supra. sell v. Easterbrook, 71 Conn. 50, 10 Scoville V. Thayer, 105 U. S. 40 Atl. 905; McKim v. Glenn, 66 143, 26 L. Ed. 968. Md. 479, 8 Atl. 130; Harper v. Car- n Fell V. Securities Co. of N. A. roll, 66 Minn. 487, 69 N. W. 610, (Del. Ch.), 100 Atl. 788. 1069; Mann v. Currie, 2 Barb. (N. i2Pauly V. State Loan, etc., Co., Y.) 294. As to the principle con- 165 U. S. 606, 41 L. Ed. 844, 17 Sup. cerning equity's choice among PRIVATE CORPORATIONS. 895 person who claims not to be the beneficial owner but to hold the stock simply to qualify himself as director ; in such an instance there w^ould be an additional, and, per- haps, controlling, consideration for holding the record owner if there was a statute making ownership of stock a qualification for holding the office of director.^=^ How- ever, one who holds stock simply as a trustee for a voting trust and has no other right in the stock than simply to vote it is not liable for an unpaid subscription ; the charge will be against the beneficial owners of the stock.^^ The executor or administrator of a deceased stockholder is a stockholder for the purpose of subscription liability/^ Since the liabilities of the company have to be deter- mined before an assessment is levied, the creditors, have become parties in the matter of the presentation of their available remedies, see Houghton V. Hubbell, 91 Fed. 453, 33 C. C. A. 574. 13 Finn v. Brown, 142 U. S. 56, 35 L. Ed. 936, 12 Sup. Ct. 136; Fell V. Securities Co. of N. A. (Del. Ch.), 100 Atl. 788. In this case, after a careful consideration of the matter, the following conclu- sions were stated: "When shares of stock which stand on the books of the company in the name of one person are held as agent for another, either the principal or agent are liable for the unpaid subscription for the shares. • "In case it be necessary for a receiver of the company appoint- ed by the Court of Chancery in voluntiiry liquidation proceedings, to assess and collect from the shareholders for the benefit of creditors of the company the amount unpaid on the stock, it is not inequitable to permit the re- ceiver to proceed against the agent rather than against the prin- cipal, if that course be best for the creditors. "When one takes shares of stock of a corporation in order to quali- fy him to be a director of the com- pany, he thereby holds himself out as being the owner thereof in his own right, and cannot escape lia- bility as the record owner of the stock for an assessment made thereon for the benefit of creditors of the company, by showing that he never had a beneficial interest in the stock, but held it as the agent for another, to whom he had delivered the certificate for the shares with a transfer thereof indorsed thereon." 14 See United States Independent Tel. Co. v. O'Grady; O'Grady v. United States Tel. Co., 75 N. J. Eq. 301, 21 L. R. A. (N. S.) 732, 71 Atl. 1040. 15 Converse v. Spargo, 184 Fed. 324 : Fell V. Securities Co. of N. A., supra. 896 LAW OF RECEIVERS. claims and are consequently before the court for the pur- poses of the assessment proceedings. It is not necessary that stockholders should have notice of the proceedings or be individually present or represented, unless there is a statutory requirement to that effect,!*^ |3^t under o-oneral rules of equity practice such notice as the court iG Brown v. Allebach, 156 Fed. 697; Mester v. Thomas, 122 Md. 445, 89 Atl. 844; Gilson v. Appleby, 79 N. J. Eq. 590, 81 Atl. 925. "The authorities hold that the corporation itself represents its stockholders in a proceeding brought in equity for its liquida- tion in so far as concerns the as- certainment of the amount of as- sets and debts and the necessity of a call, leaving open to such alleged stockholder the question whether he was in fact a stockholder, and the amount of his stock, and cross- claims or credits against the cor- poration." Van Tuyl v. Carpen- ter, 135 Tenn. 629, 188 S. W. 234, citing Coe v. Armour, etc., Wks., 237 U. S. 413, 59 L. Ed. 1027, 35 Sup. Ct. 625. In McDermott v. Woodhouse, 87 N. J. Eq. 615, 101 Atl. 375, it was said: "Again, in order to fix a stock- holder's liability, he must be bound by the proceedings to de- termine the amount thereof. He can not be bound without some sort of notice, and it can rarely happen in the case of a large cor- poration that all the stockholders are subject to a single jurisdiction, and it is probable that even in the case of a small corporation some of the stockholders reside in different jurisdictions. That seems to be the present case where the stockholders are only seven in number. For a time this difficulty of subjecting stockhold- ers to the jurisdiction of a single tribunal seemed insuperable. It was finally settled in Hawkins v. Glenn, 131 U. S. 319, 33 L, Ed. 184, 9 Sup. Ct. 739, applying the rule of Sanger v. Upton, 91 U. S. 56, 23 L. Ed. 220, that a stockholder is so far an integral part of the corporation that, in view of the law, he is privy to the proceedings touching the body of which he is a member. W^e have adopted this rule (Cumberland Lumber Co. v. Clinton Hill Lumber Mfg. Co., 57 N. J. Eq. 627, 42 Atl. 585), after expressing some doubt as to its soundness in Meley v. Whitaker, Receiver, 61 N. J. L. 602, 604, 68 Am. St. Rep. 719, 40 Atl. 593. See, also, Gilson v. Appleby, 79 N. J. Eq. 590, 81 Atl. 925. Where the assessment is made in a proceeding at the domicile of the corporation to which the cor-, poration is a party, the stock- holder can not question the pro- priety or amount of the assess- ment, although he may contend in a subsequent action against him personally to collect the assess- ment that he is not liable at all. Coe V. Armour Fertilizer Works, 237 U. S. 413, 423, 59 L. Ed. 1027, 35 Sup. Ct. 625." PRIVATE CORPORATIONS. 897 deems proper and sufficient is usually given. ^"^ Any statutory provision must, of course, be followed. ^^ Where an assessment by the court is considered a necessary preliminary to actions by the receiver it is the duty of the court to make an assessment upon proper application of the receiver. If the receiver makes a py'ima facie case by showing the existence of claims against the estate and entire lack of assets except unpaid subscriptions, and asks for an order levying an assess- ment, it is neither j^roper nor has the court authority to make an order granting the receiver permission to sue delinquents providing he files a bond ^'conditioned for the payment of the costs of said suit so prayed for, includ- ing a reasonable attorney's fee for defendant's attorney in case the receiver shall not recover"; and directing that all questions as to the validity of the claims again© c the company be determined in the receiver's suit.^^ 1" See Fell v. Securities Co. of N. A. (Del. Ch.), 100 Atl. 788. 18 Under the provisions of the English General Corporations Acts the whole matter of a stockhold- er's liability is determined in the receivership proceedings them- selves. See Leifchild's Case, L. R Eq. 1, 231; Waterhouse v. Ja- mieson, 2 Paters. (Scotch) 1812, L. R. 2 H. L., Sc. 29; Hamilton v. Simon, 178 Fed. 130; Cox v. Dickie, 48 Wash. 264, 93 Pac. 523. Any stockholder who was en- titled to notice of the assessment proceedings but was not given any notice, may, in the receiver's suit against him, question the validity and amount of the alleged debts of the company and need not go into the receivership proceedings them- selves for that purpose. Grady v. Graham, 64 Wash. 436, 36 L. R. A. I Rec— 57 IN. S.) 177, 116 Pac. 1098. See Chandler v. Brown, 77 111. 333; Lamar Ins. Co. v. Hildreth, 55 Iowa 248, 7 N. W. 573; Paine v. Mueller, 150 Iowa 340, 130 N. W. 19 Hosner v. Conservative Cas- ualty Co., 99 Wash. 161, 168 Pac. 1122, concerning the portion of the order directing a bond in this case, the Appellate Court said: "The court's orders prevented the receiver from proceeding. He was ordered to give a bond within ten days, when he had just made a showing that he had no funds with which to pay costs or ex- penses. As an officer of the court he could not be required nor ex- pected to procure private or per- sonal bond, nor could he be re- quired or expected to pay out of hia own individual funds for pro- curing a compensated bond." g98 LAW OF RECEIVERS. Wliere an assessment is considered necessary an action brought before the making of an assessment is prema- ture; and, if such an action is brought, it is error to render a judgment against the stockhokler for the full amount of his delinquency, but staying execution until an assessment has been levied by the receivership court, and directing that execution then issue for the amount of the assessments*^ As a rule the court in levying the assessment considers only defenses that are open in common to all stockhold- ers; and special defenses, such as the bearing of the statutes of limitation, the right to a greater credit than the books show, the validity of a release by the company, and like matters raised by individual stockholders are left to be determined in the receiver's suit; the court may, however, in its discretion determine any special plea for exemption submitted by any stockholder.-^ In some important respects the intervention of a re- ceivership cuts off defenses which a subscriber might interpose against an action by the company brought to recover the subscription. Since claims against the com- pany must be presented and determined in the receiver- ship court and since the payment of claims must be taken care of on distribution and determined in accor- dance with the condition of the funds and the principles governing priorities among claimants, a stockholder, in a receiver's suit, can not set otf a claim against the com- pany against his liability for the unpaid portion of his subscription.-- It is not an objection to the making 20 Rea V. Eslick, 87 Wash. 125, der a personal judgment against a 151 Pac. 256; Grady v. Graham, 64 stockholder who had not personal- Wash. 436, 36 L. R. A. (N. S.) 177, ly appeared or had not been made 116 Pac. 1098; Beddow v. Huston, a party by proper process. Howell 65 Wash. 585, 118 Pac. 752; Cham- v. Malmgren, 79 Neb. 16, 112 N. W. berlain v. Piercy, 82 Wash. 157, 313; Black v. Ore Knob Copper 143 Pac. 977. Co., 115 N. C. 382, 20 S. E. 476. 21 Fell V. Securities Co. of N. A., 22 Scoville v. Thayer, 105 U. S. supra. The court could not ren- 143, 26 L. Ed. 968 (Bankruptcy PRIVATE CORPORATIONS. 899 of a subscription assessment and the institution of an action to enforce it that a previous call by the company is outstanding and actions based upon it are pending.-^ The right of the subscriber to rescind his contract or claim an estoppel against its enforcement on the ground that the subscription was induced by false representa- tions by the company or its agents is seriously affected. Based upon the principle that all equities are determined as of the time when the receiver is appointed — that those are creditors who are creditors at that time; and those are stockholders who are stockholders at that time — it is sometimes stated that the creation of the receivership absolutely cuts off the defense of false representations from a stockholder who has made no move with reference to the matter prior to that time,-^ Probably the general rule would be to extend some slight leaway and not to hold the charge of laches too severely against a sub- scriber who had received no benefits from the stock and who had become a subscriber such a short time before the receivership as to make it inequitable to hold that he should have acted in the intervening interval. The rule is based on the general equity proposition that, where one of two innocent parties must suffer, the loss is placed upon the one who in equity is considered the more eul- case, see § 351, note 31) ; Sawyer 23 Brown v. Allebach, 166 Fed. V. Hoag, 84 U. S. 610, 21 L. Ed. 488. 731; Hamilton v. Simon, 178 Fed. 24 Oakes v. Turquand (Overend 130; Appleton v. Turnbull, 84 Me. & Gurney case),L. R., 2 H. L. 325; 72, 24 Atl. 592; Williams v. Trap- Tennent v. City of Glasgow Bank, hagen, 38 N. J. Eq. 57; See v. Hep- 4 App. Gas. 615; Scott v. Deweese, penheimer, 69 N. J. Eq. 36, 61 181 U. S. 202, 45 L. Ed. 822, 21 Sup. Atl. 843; Holcombe v. Trenton, Ct. 585; Bank of North America v. etc., Co., 80 N. J. Eq. 122, 82 Atl. Pennsylvania Oil, etc., Co., 216 618; Easton Nat. Bank v. Amerl- Fed. 377; Roe v. Oradell Farms, can Brick, etc., Co., 70 N. J. Eq. etc., Co., 85 N. J. Eq. 146, 96 Atl. 732, 10 Ann. Cas. 84, 8 L. R. A. 65; Mathis v. Pridham, 1 Tex. (N. S.) 271, 64 Atl. 917; Bain v. Civ. App. 58, 20 S. W. 1015; Clinton L. Assoc, 112 N. C. 248, Mitchell v. Hancock (Tex. Civ.), 17 S. E. 154. 196 S. W. 694. 900 LAW OF RECEIVERS. pable.-^ For tlie most part, the same principles of gen- eral corporation law that determine what defenses a stockholder may validly and effectively interpose against an attempt to enforce payment of the subscription obli- gation on the part of the company apply in a receiver's suit for the same purpose.-^ It is to be remembered in 25 Stone V. Walker (Ala.), 77 So. 554; Gress v. Knight, 135 Ga. 60, 31 L. R. A. (N. S.) 900, 68 S. E. 834; Cosmopolitan Life Ins. Co. v. Sheats, 20 Ga. App. 622, 93 S. E. 507. "In brief, our conclusion is that, when a stockholder has been induced by the false or fraudulent representations of the officers of a corporation to purchase its stock, he may during the solvency of the corporation, if the action is brought within a reasonable time after the fraud is discovered and before the statute of limita- tion has barred it, have a recission of hia contract upon equitable terms or recover the loss sus- tained by the fraud. But, if the corporation is insolvent when the action for recission or other relief is brought, or if proceedings have then been instituted to liquidate its affairs on the ground of insol- vency, and the rights of creditors will be affected, the shareholder who has been induced by fraud or misrepresentation to purchase stock can not obtain relief from his contract unless he became a stockholder so shortly before the insolvency as not to have had rea- sonable time or opportunity to in- vestigate its affairs and discover the fraud, nor unless upon the dis- covery he without delay asserts his right to appropriate relief. Hav- ing this view of the question, we think the lower court properly re- fused to permit the shareholders to rescind their contracts. Scott V. Deweese, 181 U. S. 203, 21 Sup. Ct. 585, 45 L. Ed. 822; Scott v. Ab- bott, 160 Fed. 573, 87 C. C. A. 475; Wallace v. Bacon (C. C), 86 Fed. 553; Wallace v. Hood (C. C), 89 Fed 11." The above is quoted in Preston V. Jeffers, 179 Ky. 384, 200 S. W. 654; a receiver's suit from Reid v. Owensboro Savings, etc., Co., 141 Ky. 444, 132 S. W. 1026. 26 Wyman v. Bowman, 127 Fed. 257, 62 C. C. A. 189 (condition at- tached to subscription may be waived by acceptance of stock with knowledge that condition had not been performed; under Ne- braska absolute original sub- scriber, though he has transferred his stock, is liable) ; French v. Busch, 189 Fed. 480 (part payment by transfer of real estate to com- pany, good defense pro tanto) ; Hollander v. Heaslip, 222 Fed. 808, 137 C. C. A. 1 (unperformed condi- tion attached to subscription good defense, if not waived) ; Graves v. Denny, 15 Ga. App. 718, 84 S. E. 187 (extension of time of payment without consideration not effec- tive; that directors were guilty of waste of assets through miscon- duct not a defense) ; Preston v. Jeffers, 179 Ky. 384, 200 S. W. 654 (cancellation of other subscrip- tions by company, mismanagement PRIVATE CORPORATIONS. 901 tills connection as well as in many others concerning cor- poration receiverships that the decisions of federal conrts are likely to be based upon interpretations of and deci- sions under state statutes by state courts.-' Even thoug-h the statute prohibits the issuance of stock without its being paid for, still where such stock is issued the acceptors of it are liable to the creditors of the cor- poration to the extent of the par value. The holders of such stock can not evade the liability which the law im- poses upon a stockholder to pay for his stock by contend- ing that it was issued in violation of law. Even though such issue of stock could be held void under familiar constitutional provisions prohibiting the issuance of stock ''except for money paid, labor done, or personal property furnished," it does not follow that an acceptor of such stock can claim immunity from assessment. And this would be particularly true where the stockholder has held himself out or permitted himself to be held out as the owner of the stock, or has participated or acquiesced in its issuance.-'^ Whether creditors who extended credit to a corpora- tion with knowledge of the facts and circumstances under which its stock or portion of it was issued in violation of law is a matter to be determined by the phraseology of and malfeasance on part of direc- that all capital stock had not been tors and officers not good de- subscribed may be lost by estop- fenses; subscriptions for more pel) ; Rea v. Eslick, 87 Wash 125 than par enforceable); Olson v. .n p, or.^ . , ■ \ .Warroad Mercantile Co., 136 Minn ^l ' "^^ ^"^'^'"^ '^^^ husband's 310, 161 N. W. 713 (subscribing ^"^^^''^Ption was a community corporation bound by acts of duly ^^^^ ^""^ ^^^"^^ ^^^^ been pre- authorized officer; ultra vires no ^^^^ted as claim against commu- defense) ; Stevens v. Lippman, 85 ^^^'^ estate upon the death of wife Misc. Rep. 347, 148 N. Y. Supp. ^^^ sustained on showing that sub- 419 (ineffective subscription can scription was individual liabilty of not be enforced); Cox v. Dielsie, husband). 48 Wash. 264, 93 Pac. 523 (de- -" § 312 this chapter, fenses on ground of invalidity in 2s Du Pont v. Ball (Del.), 106 organization of corporation and Atl. S9. 902 LAW OF RECEIVERS. the statute imposing the liability to the creditor. But it has been held that knowledge or participation on the part of the creditor in the issuance of stock as "fully paid" and "non-assessable," wdien in fact it was not fully paid, will not constitute a defense on the part of stockholders to a suit by the receiver on behalf of cred- itors to recover for unpaid par value where the claim of the creditor is just and equitable.-^ In proceedings by a receiver of an insolvent corpora- tion to assess stockholders on their statutory liability for unpaid stock issued to them as fully paid and non- assessable, interest on the creditors claims should be allowed from the time when the receiver has requested the court to make the assessment for the payment of the claims, where nothing was done before that to indicate that the stockholders would be expected to pay such 29 Du Pont V. Ball (Del.), 106 Atl. 39. But see in this connection the dissenting opinion of Mr. Jus- tice Heisel. In Dilzell Engineering, etc., Co. V. Lehmann, 120 La. 284, 45 So. 142, the defendant stockholders agreed among themselves that cer- tain stock should be issued and divided between them without paying the corporation therefor. In a receiver's suit the defendants set up the invalidity of the trans- action under the constitution. Of this defense the court said: "While it is not here said ex- pressly that the value of the labor or property received in payment of the stock must be equal to the face value of the stock, that is the idea meant to be conveyed. The defendants in this case do not contend differently, but argue that, inasmuch as the stock is stricken with nullity, no action can arise upon it against the subscriber. How far this may be true, as be- tween the corporation and the subscriber, we need not inquire. It can not be true as between the creditors of the corporation and the subscriber. . . . Such be- ing the situation, the question presented is whether the man- agers of the affairs of a corpora- tion in this state, who have dis- tributed among themselves in part or in whole the stock of the' cor- poration without value received to the corporation, can by invok- ing article 266 of the constitution escape liability to the creditors of the corporation who have dealt with the corporation upon the faith of the said stock having been issued for value. The ques- tion is not debatable. The an- swer is that they can not, and that they are liable, not because the stock is a valid contract, but be- cause, as between them and the creditors of the corporation, the PRIVATE CORPORATIONS. 903 claims.^'' After the liability of the stockholder to an assessment has been determined, together with the amount thereof, it should be enforced in a court of law unless some element of equity jurisdiction appears. ^^ In the absence of a clearly expressed statutory an- nouncement as to the liability for such unpaid stock and the method of its collection, the courts sometimes indulge in speculations as to whether it is based upon the trust fund idea or that the corporation held itself out as hav- ing the funds represented by the par value of the stock^^ validity of the contract will not be permitted to be inquired into. They are estopped from setting up the invalidity or nullity. Ewart on Estoppel, p. 187 et seq." 30 Du Pont V. Ball (Del.), 106 Atl. 39. In this connection see also : Burr v. Wilcox, 22 N. Y. 551 ; Handy v. Draper, 89 N. Y. 334; Ma- son V. Alexander, 44 Ohio St. 318, 7 N. E. 435; Corning v. McCul- lough, 1 N. Y. 58, 49 Am. Dec. 287; Baker v. Bank, 9 Mete. (Mass.) 182; Terry v. Anderson, 95 U. S. 628, 24 L. Ed. 365. And under the National Banking Act (Act Cong. June 3, 1864, c. 106, 13 Stat. 99), it has been held that interest runs from the date of the comptroller's order to collect an amount equal to the full par value of the stock, the amount due from the stock- holders being then liquidated and payable. Casey v. Galli, 94 U. S. 673, 24 L. Ed. 168. 31 McDermott v. Woodhouse, 87 N. J. Eq. 615, 101 Atl. 375. See also Barkalow v. Totten, 53 N. J. Eq. 573, 32 Atl. 2; Hood v. Mc- Naughton, 54 N. J. L. 425, 24 Atl. 497. In Cox v. Dickie, 48 Wash. 264, 93 Pac. 523, it was held unneces- sary to bring a separate suit against each stockholder where the statute does not require it. And in Winterholer v. Hoffman, 119 La. 125, 43 So. 980, a suit against a large number of stock- holders for different sums alleged to be due for unpaid stock was dismissed for misjoinder of parties defendant. 32 "It would be an impeachment of the trust fund doctrine to hold that one who had opened a line of credit with a corporation (pre- sumptively on the faith of its rep- resentations as to capital stock) and who furnished goods from time to time, as the necessity of its customer required, should be denied the status of an existing creditor. To put one accustomed to dealing with a corporation to the hazard of testing its credit upon each transaction would be violative of that sound public pol- icy which impresses a corpora- tions every act, but it would also put upon the corporation a bond that would be embarrassing, if not intolerable. Where relations are once assumed, the law ought to presume, in the absence of evi- dence of notice, that each trans- action, if, in the aggregate, they possess the character of "a course 904 LAW OF RECEIVERS. altliougii generally holding in favor of its recovery by the receiver on one or both theories.^^ But some courts content themselves with merely interpreting the statute as to the provisions contained therein respecting the liability and the methods permitted by it for recovering from the stockholder.^^ of dealing," is based upon the faith established when the first account was opened. There is no testi- mony tending to show that the protesting creditors had any notice of the attempted cancellation. Upon either theory of the law, we find no escape from the holding that Mr. Panton is bound by his subscription." There seems to be in the above statement from Murphy v. Panton, 96 Wash. 637, 165 Pac. 1074, a sort of a mixture of the "trust fund" and the "holding out" theory. See, also, Hospes v. Northwestern Mfg., etc., Co., 48 Minn. 174, 31 Am. St. Rep. 637, 15 L. R. A. 470, 50 N. W. 1117; First Nat. Bank v. Gustin Minerva, etc., Min. Co., 42 Minn. 327, 18 Am. St. Rep. 510, 6 L. R. A. 676, 44 N. W. 198. 33 In re Jassoy Co., 178 Fed. 515, 101 C. C. A. 641; Drennen V. Jen- kins, 180 Ala. 261, 60 So. 856; Hightower v. Thornton, 8 Ga. 486, 62 Am. Dec. 412; Meholin v. Carl- son, 17 Idaho 742, 134 Am. St. Rep. 286, 107 Pac. 755; Great Western Tel. Co. V. Gray, 122 111. 630, 14 N. E. 214; Haskell v. Gardner (Ind. App.), 93 N. E. 458; Marion Trust Co. V. Blish, 170 Ind. 686, 18 L. R. A. (N. S.) 347, 84 N. E. 814, 85 N. E. 344; Hughes v. Hall, 117 Md. 547, 83 Atl. 1023; Frank v. Morrison, 58 Md. 423; Hayes v. Brotzraan, 46 Md. 519; Hopper v. Brodie, 130 Md. 443, 100 Atl. 644; In re People's Live Stock Ins. Co. (Spillman v. Mendenhall), 56 Minn ISO, 57 N. W. 468; Commerce Trust Co. v. Hettinger, 181 Mo. App. 338, 168 S. W. 911; Van Schoick V. Mackin, 129 App. Div. 335, 113 N. Y. Supp. 408; Rankine v. Elliott, 16 N. Y. 377; Donald v. American Smelting, etc., Co., 62 N. J. Eq. 729, 48 Atl. 771, 1116; Dill V. Ebey, 27 Okla. 584, 46 L. R. A. (N. S.) 440, 112 Pac. 973; Mitchell V. Porter (Tex. Civ. App.), 194 S. W. 981; National Bank, etc., V. Texas Inv. Co., 74 Tex. 421, 12 S. W. 101; Thompson v. First State Bank of Amarillo (Tex. Civ. App.), 189 S. W. 116; National Bank, etc., v. Texas Inv. Co., 74 Tex. 421, 12 S. W. 101; Chamberlain v. Piercy, 82 Wash. 157, 143 Pac. 977; Evans V. Coventry, 8 De Gex M. & G. 835, 44 Eng. Reprint 612. A judgment on stockholder's lia- bility may be set off against bonds ovv'ned by the stockholder but transferred by him after the re- ceiver had begun proceedings look- ing toward collection to one who knew of the liability. Hynes v. Illinois Trust & Savings Bank, 226 111. 95, 10 L. R. A. (N. S.) 472, 80 N. E. 753 (affirming judgment 126 ni. App. 409). 34 See discussion of Delaware and New Jersey statutes in John W. Cooney Co. v. Arlington Hotel Co., supra (Del. Ch.), 101 Atl. 879, and same case in Supreme Court PRIVATE CORPORATIONS. 905 § 352. Effect Where the Statutory Liability Is Directly to the Creditor Instead of Corporation. Statutes imposing a liability upon stockholders some- times impose that liability for the exclusive benefit of the creditor and in terms which allow the creditor alone to recover it.^ This is particular!}^ true in respect to what are now properly and generally known as statutory liability statutes such as impose a double liability or a liability to creditors based upon the proportion of shares which the stockholder owns compared with the total num- ber of shares issued. Under the terms of some statutes the statutory liability, whether double or proportionate, is imposed for the express benefit of the creditor alone, while under other statutes the liability though imposed for the benefit of creditors may be enforced in a creditor's suit or by a receiver who is expressly made a quasi- assignee of the creditors for that purpose. An apparent confusion has arisen among the authorities because of a failure to differentiate cases arising under the variant statutes. It is obvious that where the statute in express terms makes the right to recover the liability personal to the creditor, the right of action is not an asset of the cor- poration and the receiver is not in a legal position to sue under name of Du Pont v. Ball of himself and other creditors of a (Del.), 106 Atl. 39. bankrupt corporation to recover 1 In Firestone Tire & Rubber Co. ^^^^ the defendants as stockhold- V. Agnew, 194 N. Y. 165, 16 Ann. ^^'^ ^he balance unpaid on their Cas. 1150, 24 L. R. A. (N. S.) 628, 86 N. E. 1116, the statute read as stock subscriptions to the extent necessary to satisfy the unpaid in- debtedness of the corporation. The follows: "Every holder of capital Knr,i-,.,,,.f ^ +• u j /■ ■' bankrupt corporation had made a stock not fully paid, in any stock compromise with its creditors and corporation, shall be personally ^as discharged. The court held liable to its creditors, to an amount that the discharge excused the equal to the amount unpaid on the plaintiffs from procuring a judg- stock held by him for debts of the ment against the corporation as corporation contracted while such required by the statute and that stock was held by him." The the action would lie against the suit was by a creditor on behalf defendants. 906 LA^V OF RECEIVERS. upon it- On the other hand a quasi-assignee for the cr 2 Where a statute imposing a double liability upon the holders of corporate stock does not include or authorize an action by a re- ceiver and the courts of the state hold that the statute provided the only remedy, a single action in which all persons having an in- terest in the matter should be joined or represented and that the receiver of an insolvent corpora- tion could not maintain an action to enforce the superadded lia- bility, the receiver will not be per- mitted to enforce the liability in a foreign state. Such statutes do not make such liability an asset of the corporation to be recovered by him nor do they provide for a transfer of any right or title to a receiver to enforce the lia- bility. Hale v. Allinson, 188 U. S. 56, 47 L. Ed. 380, 23 Sup. Ct. 244. See also, Finney v. Guy, 189 U. S. 335, 47 L. Ed. 839, 23 Sup. Ct. 558. In other words where under the statute the stockholders liability is not an asset of the corporation but runs directly to the creditors, a receiver who has no greater rights than that of an ordinary chancery receiver is not in a posi- tion to sue to enforce such lia- bility. Miller v. Amoretti (Wyo.), 181 Pac. 420. In Bostwick v. Young, 118 App. Div. 490, 103 N. Y. Supp. 607, the receiver of the corporation sued upon the theory of an unpaid sub- scription. A demurrer was sus- tained upon the ground that insufficient facts were averred to make out a cause of action under the terms of the New York stat- ute a personal obligation of the if by the statute he is made editors for the purpose of stockholder direct to the credi- tor appears to be created. The court in discussing the question, said: "There can be no doubt that the appointment of this receiver did not vest in him a right which was personal to the creditors, or enable him to receive under cii'- cumstances in which the corpora- tion could not have maintained an action. It is equally clear thai the corporation itself would have no standing to demand that the defendants should pay the par value of stock issued to them as full paid-up stock, pursuant to an agreement which was between the corporation, and the defendants, was valid and binding." In Farnsworth v. Wood, 91 N. Y. 308, a receiver was appointed of a corporation upon the sequestra- tion of its property on the return of an execution. He sought to enforce against the stockholders the personal liability to creditors imposed by the statute upon stockholders of the character of the one of which he was receiver. The court held that the liability under the Act of 1848 was a sev- eral individual liability of each stockholder directly to such of the creditors as have complied with the requisite conditions precedent. The court held that there was no provision in the statute by which the right of such creditors can be vested in a receiver of the corpo- ration. And speaking to the point the court said: "The liability does not exist in favor of the corpora- tion itself, nor for the benefit of all its creditors, but only in favor of such creditors as are within PRIVATE CORPORATIONS. 907 collecting tliis liability for their benefit, the right of action is one which passes to the receiver and is, of course, properly exercised by him, and under such cir- cumstances the receiver being vested with the creditor's right of action against the stockholders with full author- ity to enforce it, is under no difficulty in enforcing that right of action in jurisdictions beyond that of the court which appointed him." Statutes which impose statutory liability upon stockholders generally require the creditor to attempt the collection of his claim against the corpo- ration before suing the stockholder. Under such statutes lie is excused from suing the corporation if the order appointing a receiver has directions restraining creditors from suing the corporation.'' the prescribed conditions. It is not a general right but one which attaches to the particular credi- tors only who are within the con- ditions, and it is to be enforced by those, by these in their own right and for their own special benefit. The receiver in this case is not vested with the rights of action of these creditors, but only with the property which was se- questrated under the provisions of section 36, chapter 8, title 4, article 2 of the Revised Statutes, viz.: 'the stock, property, things in action and effects of the cor- poration.' The rights of certain creditors to prosecute their claims against certain of the stockholders never were the property of the corporation, no rights of action vested in it, nor is there any pro- vision of the statute which trans- fers these rights of action from the creditors to the receiver." 3 See Converse v. Hamilton, 224 TJ. S. 243, 56 L. Ed. 749, Ann. Cas. 1913D, 1292, 32 Sup. Ct. 415. Under Ohio statute a receiver of an insolvent corporation may sue in the federal court of another state for assessments levied by an Ohio court on the stockholders. Irvine v. Baker, 225 Fed. 834. 4 In Hunting v. Blun, 143 N. Y. 511, 38 N. E. 716, a sequestration action had been commenced by a creditor against a corporation and a receiver appointed accompanied by a restraining order against suits by creditors. The final judg- ment made the injunction perpet- ual. A creditor commenced an action against a stockholder to enforce the statutory liability without having obtained a judg- ment against the corporation. The court held that the injunction ex- cused the creditor from first ob- taining judgment against the company. In Kincaid v. Dwinelle, 59 N. Y. 548, it was held that the appoint- ment of a receiver in a suit to dissolve a corporation before the obtaining of a final judgment against the corporation by a cred- itor did not prevent such a suit ;03 LAW OF RECEIVERS. An order levying an assessment or one refusing to levy an assessment is appealable as on order, a decree, or judgment finally determining a riglit.^ An assess^ ment decree not appealed from can not be collaterally attacked and is binding upon stockholders as to all mat- ters properly decidable therein, such as the necessity for an assessment, the amount of the indebtedness of the cor- poration, and the number of shares standing in the name of the stockholder.^ against the corporation and a sub- sequent suit against a stockholder upon the statutory liability. "While section 3744 of the Code of 1907 only authorized a judgment creditor of a corporation, having an execution returned 'no prop- erty found,' to file a bill in equity to subject to the payment of his judgment the unpaid subscriptions of one or more stockholders with- out joining the other stockholders . . or could maintain a suit therefor against the stockholders, yet the averments of the bill in this case relieve the complainant from the necessity of complying with the provisions of this section before filing the bill; or, in other words, they showed this section was not applicable because It would be impracticable to get judgments," the company having been dissolved. This statement is quoted from Drennen v. Jenkins, 180 Ala. 261, 60 So. 856, a case in which a creditor brought suit on the subscription liability in place of the receiver, in Hundley v. Hewitt, 195 Ala. 647, 71 So. 419, a receiver's, though not an assess- ment, case. See also, Pankey v. Liippman, 187 Ala. 199, 204, 65 So. 771, in which it was said on the same point: "The status of a trust established by the statute , . . brings into play the gen- eral doctrines and practices of equity in the administration of a trust brought within its jurisdic- tion and to justify — indeed to re- quire — the full exercise of its powers to the end that adjustment and relief may be made and awarded. Equity's customary thoi'- oughness so requires." 5 Mister v. Thomas, 122 Md. 445, 89 Atl. 844; Pacific Coast Coal Co. V. Esary, 85 Wash. 448, 148 Pac. 579; Hosner v. Conservative Cas- ualty Co., 99 Wash. 161, 168 Pac. 1122. 6 Mister v. Thomas, 122 Md. 445, 89 Atl. 844; Hamilton v. Levison, 198 Fed. 444; Holcombe v. Trenton White City Co., 82 N. J. Eq. 364, 91 Atl. 1069, affirming decree 80 N. J. Eq. 122, 82 Atl. 618. In an action by the receiver of an insolvent corporation to en- force payment of a certain per- centage of the par value of unpaid bonus stock, a court is not author- ized to inquire into the considera- tion paid after insolvency for claims fixed by judgment, in the absence of any alleg'ations of fraud. Gordon v. Cummings, 78 Wash. 515, 139 Pac. 489. That the corporate records erro- neously show the number of shares subscribed for by a defen- PRIVATE CORPORATIONS. 909 C. Higlit of Receiver to Sue for Assets in Cases Where Corporation Itself is Estopped to Sue. §353. Receiver's Right to Sue for Assets as to Which the Corporation Is Estopped to Sue. Many of the principles discussed in the preceding sec- tion are applicable to the discussion in this section and should be considered in this respect.^ **The receiver unites in himself the right of the trust combination and also the right of creditors, and he may- assert a claim as the representative of creditors which he might be unable to assert as a representative of the combi- nation merely. The general rule is well established that a receiver takes the title of the corporation or the individual whose receiver he is and that any defense which would have been good against the former may be asserted against the latter. But there is a recognized exception which permits a receiver of an insolvent individual or dant in a receiver's suit is an ob- of giving a stockholder's attorney jection to be urged in the assess- opportunity to raise questions ment proceedings. Hamilton v. which he failed to raise on the Simon 178 Fed. 130. hearing through a misapprehen- An assessment decree is not binding upon a stockholder who sion of the legal scope and effect of the hearing. Cumberland Lum- ber Co. V. Clinton, etc., Mfg., Co., has fully paid for his stock and is g^ j^ j_ ^^ g^^^ g^ ^^j g^,j, not subject to assessment either , ^ e ^.u a ^ ■^ •' 1 In many of the details con- as to the validity of claims or . ,, ^ ^ • ^i.- cerning matters presented in this their priority. Dickinson v. Kline, j ^u j- j.- ^ ^ -^ ' and the preceding section, as, for 96 Neb. 435, 148 N. W. 141. • cfo ^ fv, .t p , • ' instance, the matter of levying an An assessment having been duly assessment on delinquent stock- levied the receiver may institute holders, the controlling principles proceedings for the discovery of are the same, and we therefore the real owner when that fact have not hesitated, in the preced- has been concealed by having the i^g section, to cite cases in which stock recorded in the name of an the main matters involved may irresponsible person. Kurtz v. have been such as belong here. Brown, 152 Fed. 372, 81 C. C. A. jn this section, however, no au- 498, 11 Ann. Cas. 576. thorities will be intentionally used Assessment proceedings may except such as exclusively pertain not be re-opened for the purpose to its own subject matter. 910 LAW OF RECEIVERS. corporation in the interest of creditors to disaffirm deal- ings of the debtor, in fraud of their rights. "^ The general rule stated in the quotation is, as we have seen in the preceding section, universally recognized. The exception mentioned is given equally unanimous recognition. ' * It is the settled doctrine that the receiver of an insolvent corporation represents not only the cor- poration but also its creditors and stockholders, and 2 Pittsburg Carbon Co. v. Mc- Millin, 119 N. Y. 46, 7 L. R. A. 46, 23 N. E. 530. In this case the ac- tion was as follows: Several cor- porations formed a combination contrary to the anti-trust laws of the state. A receiver of the trust — the "trust combination" referred to in the quotation — was ap- pointed. One of the constituent companies, Pittsburg Carbon Co., that had withdrawn from the trust prior to the receivership, sued a party on a claim that had accrued prior to the receivership. The debtor interpleaded McMillin, the trust receiver. It was held that the receiver was entitled to the money, notwithstanding that the debtor might have successfully de- fended against the trust because of its illegal character. See also, Gillet V. Moody, 3 N. Y. 479; Por- ter V. Williams, 9 N. Y. 142, 59 Am. Dec. 519; Alexander v. Relfe, 74 Mo. 495. In Haywood v. Lincoln Lumber Co., 64 Wis. 639, 26 N. W. 184, it is held: (1) That the directors of the corporation are trustees of all the property belonging to it and have no right to secure to themselves any preference or ad- vantage. Marr v. Bank of West Tennessee, 4 Coldw. (Tenn.) 471, 484; Koehler v. Black River Falls Iron Co., 67 U. S. (2 Black.) 715, 17 L. Ed. 339; Curran v. Arkansas, 56 U. S. (15 How.) 304, 306, 14 L. Ed. 705, 706; Richards v. New Hampshire Ins. Co., 43 N. H. 263; Bradley v. Farwell, Holmes, 433, Fed. Cas. No. 1779; Drury v. Mil- waukee & S. R. Co., 74 U. S. (7 Wall.) 299, 19 L. Ed. 40; "aine v. Lake Erie & L. R. Co., 31 Ind. 283, 353; Gaslight Improv. Co. v. Ter- rell, L. R., 10 Eq. Cas. 168; Smith V. Lansing, 22 N. Y. 520, 521; Whitwell V. Warner, 20 Vt. 425; Buell V. Buckingham, 16 Iowa, 284, 85 Am. Dec. 516; Hopkins' Appeal, 90 Pa. 69. (2) Nor to take a mort- gage to themselves for their own benefit to the injury of others in equal right. Corbett v. Woodward, 5 Sawy. 403, Fed Cas. No. 3223; Koehler v. Black River Falls Iron Co., 67 U. S. (2 Black) 715, 17 L. Ed. 339; Hoyle v. Plattsb.urgh 6 M. R. Co., 54 N. Y. 314, 13 Am. Rep. 595; European & N. A. R. Co. V. Poor, 59 Me. 277; Butts v. Wood, 38 Barb. (N. Y.) 181; Scott V. Depeyster, 1 Edw. Ch. (N. Y.) 513; Verplanck v. Mercan- tile Ins. Co., 2 Paige (N. Y.) 438; Great Luxembourg Ry. Co. v. Mag- nay, 25 Beav. 586, 53 Eng. Reprint 761; Cook v. Berlin Woolen Mill Co., 43 Wis. 433, 434; Pickett v. School Dist, 25 Wis. 551, 553, 3 Am. Rep. 105; Re Taylor Orphan Asylum, 36 Wis. 534, 552. PRIVATE CORPORATIOXS. 911 that in his character as trustee for the latter he may disaffirm and maintain an action as receiver to set aside illegal or fraudulent transfers of the property of the corporation made by its agents or officers or to recover its funds or securities invested or misapplied. "^ In most of the instances in which the receiver sues under this exception the illegality or fraud in the transaction complained of was committed by the directors or officers and there remained a right of action in the company which could have been enforced by stockholders on be- half of the company; but either the acquiescence or ex- press ratification of the stockholders destroyed this right and a situation was created similar in legal effect to what would have been the result if the stockholders had directly participated in the transaction in the first place. The company, the directors, and the stockholders are estopped to complain. Since the receiver acts as repre- sentative of the creditors alone in this respect the re- 3 Attorney-General v. Guardian troit Trust Co. v Goodrich 175 Mut. Life Ins. Co., 77 N. Y. 272. Mich. 168. Ann. Cas. 1915A,' 821 To the same effect and gener- 141 N. W. 882; Payne Hardware ally speaking of the receiver as Co. v. International Harvester Co "trustee" for creditors as distin- 110 Miss. 783, 70 So. 892; Lyons ^uished from either the corpora- v. Benvey, 230 Pa. 117, 34 L. R. A tion or the stockholders, are: (N. S.) 105, 79 Atl. 250. Huiskamp v. Moline Wagon Co., Sale of assets as a whole by re- 121 U. S. 310, 30 L. Ed. 971, 7 Sup. ceiver does not include asset that Ct. 899; Sawyer v. Hoag, 84 U. S. company could not claim but «10, 21 L. Ed. 731; Peabody v. which receiver might recover on New England Waterworks Co., 184 behalf of creditor. Minnesota 111. 625, 56 N. E. 957, 958, 75 Am. Thresher Mfg. Co. v. Langdon, 44 St. Rep. 195; Marion Trust Co. v. Minn. 37, 46 N. W. 310. See Stokes Blish, 170 Ind. 686, 18 L. R. A. v. Williams, 226 Fed. 148 141 (N. S.) 347, 84 N. E. 814 (rehear- C. C. A. 146. ing denied, 85 N. E. 344); Marco- Receivers appointed by courts vich v. O'Brien (Ind. App.), 114 of equity appointed in the adminis- N. E. 100; Franklin Nat. Bank v. tration of insolvents are, in the Whitehead, 149 Ind. 560, 583, 63 absence of restrictive statutes au- Am. St. Rep. 302, 39 L. R. A. 725, thorized to enforce the rights of 49 N. E. 592; Hammond v. Cline, creditors as well as the rights of 170 Ind. 452, 84 N. E. 827; Parker the debtor. King v. Pomeroy, 121 V. Nickerson, 137 Mass. 487; De- Fed. 287, 58 C. C. A. 209. 912 LAW OF RECEIVERS. covery, if any, inures to their benefit alone ; and lie can not recover without showing that claims of creditors re- main unsatisfied, nor can he recover more than is requi- site to meet such liabilities of the company.^ In an Illinois case,^ it is stated that ''the actions which a re- ceiver may maintain to set aside transactions binding on the receivership corporation or individual" are only those where (1) the receiver by force of some statute can act for the creditors; (2) the act complained of was iiitra vires and not binding on the corporation; (3) the receiver was appointed in a proceeding prosecuted by creditors in actions supplemental to execution and the receiver had the rights of the creditors at whose instance and to secure whose claims he was appointed; and (4) the receiver was suing for property, or assets, that be- longed to the debtor. This classification is, perhaps, as complete a one as could be made. Like all such attempted classifications it is either subject to exceptions or its 4 Lynn v. McCue, 94 Kan. 761, ing company, with interest, costs, 147 Pac. 808; Pryor v. Gray, 72 and expenses. Mclver v. Young N. J. Eq. 436, 65 Atl. 1016, affirm- Hardware Co., 144 N. C. 478, 119 ing 70 N. J. Eq. 413, 62 Atl. 439; Am. St. Rep. 970, 57 S. E. 169. Easton Nat. Bank v. American In an action against certain Brick etc. Co., 70 N. J. Eq. 722, stockholders on a claim of con- 64 Atl 1095. version by them of certain assets Where the directors of a cor- received on the sale or the busi- poration had wrongfully trans- ness of the receivership company ferred all its assets to another to another corporation it is. corn- company, in exchange for the lat- petent for defendant to show that ter's stock, which they divided at the time of the transaction among themselves, to the preju- complained of there was set aside dice of their creditors, and the a fund, sufficient for the purpose, latter company thereafter became to pay all the ciaims against the insolvent, the receiver of the com- company and that other parties pany whose assets were sold is who had joined in the transaction entitled to prove his claim against with defendant and were equally the latter company for the full liable with him had not been sued, value of the assets so conveyed, Jacobs v. Morgenthaler, 149 Mich, though he could not recover as 1, 112 N. W. 492. his pro rata share of defendant's 5 Republic Life Ins. Co. v. Swi- assets more than would be suffi- gert, 135 111. 150, 12 L. R. A. 328, cicnt to pay the debts of the sell- 25 N. E. 680. PRIVATE CORPORATIONS. 913 tc^rms must be given considerable elasticity in special cases. To be taken as a separate class, exclusive of the others, the first class mentioned must be taken to refer only to cases in which the receiver must expressly rely upon statutory authority to support his right to sue. There are such cases, or class of cases, and we will refer to some of them hereafter for all the other classes, it is to be understood, the receiver's right to sue depends upon the inherent equitable powers of the court. There seems to be some inconsistency between the language designating the second class and that used in the intro- duction to the classification itself — between the use of "not binding" in the class designation and "binding" in the introduction. In an action in which a receiver of a corporation sued another corporation on a stock sub- scription liability and in which was interposed the de- fense that the purchase of the stock was not binding as being ultra vires, it was said :^ "The doctrine of ultra vires is calculated to protect first, the interest of the public that the corporation shall not transcend the powers granted to it, and second, the interest of the stockholders that the capital shall not be subjected to the risk of enterprises not contemplated by the articles of incorporation, and therefore not autho- rized by the stockholders in subscribing for the stock. Railway Companies v. Keokuk Bridge Co., 131 U. S. 371, 384, 9 Sup. Ct. 770, 33 L. Ed. 157. The interest of the public is to be conserved by the state and not by the in- dividual stockholder. The right of the stockholder him- self to object for the protection of his own interest may be lost by his own consent or acquiescence, for 4t does not lie in the mouth of a stockholder to object to what 6 Olson V. WaiToad Mercantile Minn. 282, 96 N. W. 85; Alexander Co., 136 Minn. 310, 161 N. W. 713. v. Relfe, 74 Mo. 495; Strickland See Minnesota Thresher Mfg. Co. v. National Salt Co., 79 N. J. Eq. V. Langdon, 44 Minn. 37, 46 N. W. 182, 223, 81 Atl. 828, 832. 310; Hunt v. Hanser M. Co., 90 1 Rec— ;s 914 LAW OF RECEIVERS. the company lias done, if the action which he complains of was taken with his knowledge and consent. He can not be heard to complain that he has been injured by the doing of something which he knew of at the time, and expressly consented to, or, by long silence, acquiesced in.' Allen v. Wilson (C. C), 28 Fed. 677, 2 Thompson 1981." To uphold the above classification as accurate for the purposes for which it was made, it must be understood that the second class refers to cases in which the situa- tion is like that described in the quotation ; that is to cases in which the receiver, on behalf of creditors, seeks to set aside a transaction of the company that was ultra vires in character, but because of equitable reasons was bind- ing upon the company and the stockholders.'^ In regard to the third class, the expression ''supplemental to exe- cution" must be understood as broader than the purely statutory ''supplemental proceedings" and to include such proceedings, except as far as cases coming under the first class are concerned, and, as well, actions to set aside fraudulent conveyances and to recover equitable or canceled assets.^ The property, or assets, referred to in the fourth class must be such as at one time belonged to the company but the legal title to which has been lost through some wrongful act on the part of the company, such that its detrimental effect could be avoided as far as creditors are concerned. Moreover, to make a dis- tinction between the last two classes the receivers re- ferred to in the last must be understood as corporation receivers alone. 7 See Gay v. Hudson River, etc., 8 See Chapter XII, supra. Co., 187 Fed. 12, 109 C. C. A. 66. PRIVATE CORPORATIONS. 915 §334. Actions on Behalf of Creditors to Recover Corporate Property from Strangers Where Corporation Itself Estopped. Actions wliicli the receiver may institute in his so- called capacity as representative of creditors and as acting only for their benefit may be directed against (a) strangers to the corporation, (b) directors of the cor- poration, or (c) stockholders of the corporation. As to strangers to the corporation it may be stated that, in general, the receiver may pursue what was for- merly the property of the company when it has passed into the hands of others through some wrongful or frau- dulent act of the corporation, detrimental to the interests of creditors, wherever he may find it, subject only to the defense of purchase for a valuable consideration by one innocent of and without knowledge of the infirmity in the chain of title. In this respect his powers are analogous to and as extensive as those of a trustee in bankruptcy or the receiver of an individual appointed under any of the principles referred to in Chapter XII, supra. ^ The receiver may set aside, or have annulled, a fraudu- lent conveyance or assignment of corporate property.^ He may set aside or successfully resist enforcement of a chattel mortgage or other lien void as to creditors be- cause not executed or recorded in accordance with statu- tory provisions.^ A receiver may sue a pledgee of the 1 Minnesota Thresher Mfg. Co. 3 Bell v. New York Safety V. Langdon, 44 Minn. 37, 46 N. W. Steam Power Co., 183 Fed. 274; 310; Bradley v. United Wireless American Can. Co. v. Erie Pre- Tel. Co., 79 N. J. Eq. 458, 81 Atl. serving Co., 171 Fed. 540; Frank- 1107; Powers v. C. H. Hamilton lin National Bank v. Whitehead, Paper Co., 60 Wis. 23, 18 N. W. 20. 149 Ind. 560, 63 Am. St. Rep. 302^ 2 Whitman v. United Surety Co. 39 L. R.A. 725, 49 N. E. 592; Fidelity (Dorsey), 110 Md. 421, 72 Atl. Trust Co. v. Staten Island Clay 1042; Bradley v. United Wireless Co., 70 N. J. Eq. 550, 67 Atl. 1078; Telegraph Co., 79 N. J. ii.q. 458, Mutual Investment Co. v. Walton 81 Atl. 1107; Nevitt v. First Nat. Mach. Co., 91 Wash. 298, 157, Pac Bank, 91 Hun 43, 36 N. Y. Supp. 682. ^^^- With the permission of the 916 LAW OF RECEIVERS. corporation for conversion of the pledged property, and, where there had been a previous judgment, binding on the company but not on the receiver, the recovery will be limited to the benefit of creditors.^ A receiver may raise the defense of usury where the company might not be able to do so.^ The receiver may institute an action to have declared void bonds issued by the corporation.^ A court creditors whose claims tiave been allowed may intervene and exercise this same right. Equi- table Trust Co. V. Great Shoshone, etc., Co., 245 Fed. 697, 158 C. C. A. 99. (Petition for Writ of Certio- rari pending.) 4 Lynn v. McCue, 94 Kan. 761, 147 Pac. 808. The judgment re- ferred to in the text was obtained in an action pending against the company at the time of the ap- pointment of the receiver and prosecuted to judgment thereafter without the receiver's being made a party. On the principle that all equities are to be determined as of the time when the receiver was appointed (see § 23 this chapter, supra) it was held that the judg- ment was not binding upon the receiver. 5 James Bradford Co. v. United Leather Co. (Del. Ch.), 95 Atl. 308. In this case it was said: "It is the right and duty of a receiver or other fiduciary to raise the question as to the validity of the agreement, for he acts for all who have interests against the borrowing company and is therefore in a different posi- tion in this court in this proceed- ing from a borrower who seeks the aid of a court of equity against the lender on the ground of usury." The receiver had sued to recover certain assets that had been assigned as security for a debt and claimed that the con- tract was invalid because usurious. See Lynn v. McCue, 94 Kan. 761, 147 Pac. 808; Curtis v. Leavitt, 15 N. Y. 9. The receiver of an insolvent cor- poration may question a transac- tion whereby the corporation bor- rowed money, paying an alleged usurious rate of interest. James Bradford Co. v. United Leather Co. (Del. Ch.), 95 Atl. 308. 6 See V. Heffenheimer, 55 N. J. Eq. 240, 36 Atl. 966. With the consent of the receiver- ship court, a creditor may, in the receivership proceedings, contest the validity of bonds issued by the company. On the cancellation of the bonds bona fide holders thereof will be protected by having the lien of the mortgage preserved for their benefit; but, in this con- nection, unsecured creditors will be protected by judgments against the transferrers of the bonds in favor of the estate. Where bonds were issued as bonus to stockhold- ers for the purpose of protecting minority stockholders the agree- ment of the stockholders among themselves will be carried out as far as possible by giving the minority preference in such sur- plus as may be left after creditors PRIVATE CORPORATIONS. 917 wrong against creditors which receivers are frequently called upon to remedy, is that accomplished by the trans- fer of the assets of one corporation to another on the agreement that the purchasing company will issue its stock to the stockholders of the selling company in lieu of the old stock and will assume the debts of the seller. Such a substitution of one debtor for another is a fraud upon creditors and the receiver may recover the assets or their value from the purchasing company.''' • are fully paid. Williamson v. Col- lins, 243 Fed. 835, 156 C. C. A. 347. i Mclver v. Young Hardware Co., 144 N. C. 478, 119 Am. St. Rep. 970, 57 S. E. 169; Dalsheimer v. Graphic Arts Co., 86 N. J. Eq. 49, 97 Atl. 497; Alexander v. Relfe, 74 Mo. 495. This was practically a case of the transfer of assets of one company to another, although the object was accomplished in a more round-about way than the simple one mentioned in the text. The action took the form of one for damages against a corporation that through ownership of stock in the receivership corporation and con- trol of its directors accomplished the transfer and the denuding of the latter company of all of its property. In the opinion it is said: "Though the proof may not estab- lish that defendant . . . com- mitted an actual fraud in doing the wrong for which redress is asked, yet it is clearly shown that the wrong committed was a construc- tive fraud because done in con- travention of that public policy of this state which forbids the assets of corporations to be wasted, can- celed, or in any manner withdrawn from the reach of creditors. Fraud of this description — constructive fraud — though not originating in any actual evil design, having for its purpose the perpetration of injury on others, is yet equally prohibited by law as within the same reason and mischief as acts and contracts done malo animo. . . . 'On the part of fraud," therefore, equity can afford relief asked in the name of the receiver as well as upon the ground of avoiding a multiplicity of suits which would have to be brought if each creditor were compelled to seek a several redress for his own injury." There may be mentioned here, as illustrating the principle that, where several ways of proceeding to remedy a wrong are open, equity will travel the surest and shortest way. Gillett v. Chicago Title & T. Co., 230 111. 373, 375, 82 N. E. 891. In this case, which sought to remedy the wrong men- tioned in the text, the stockholders were held liable for the value of their stock in the new company, it being held that they had not paid anything for the new stock since the transfer of the assets from one company to the other was in reality not a sale at all. 918 LAW OF RECEIVERS. §355. Actions on Behalf of Creditors Against Directors anl Officers in Cases Where Corporation Itself Is Es- topped. It was stated in a preceding section that many of the actions which receivers find it necessary to institute against directors, or other similar officers, of the corpora- tion, as such, are founded upon the directors' misfeas- ance, malfeasance, or negligence. It often happens that the right of stockholders to complain of transactions giving rise to charges of this character against directors is barred by their active participation or silent acquies- cence therein. The right of even a dissenting stockholder may be lost by laches.^ The right of creditors to com- plain and to seek a remedy may, however, remain and pass to the receiver. ''The general creditors have as much right as the stockholders or the bondholders to be protected against the fraud and negligence of the direc- tors and they have a right, through the receiver, to com- pel the directors to make good any loss which resulted from the purchase by the company of valueless parcels of real estate if it appears that the loss w^as occasioned either by the fraud or the negligence of the defendants."- Under this principle receivers may hold directors liable for misfeasance, malfeasance, or negligence in selling stock for property at an exaggerated value or for any like wrongful disposition of corporate assets.^ There is quite commonly created by statute, on behalf of creditors, a joint and several liability of directors for dividends illegally paid from the capital fund. Although this liability did not exist at the common law, and al- though it is usually created only for the benefit of those 1 See, Dalsheimer v. Graphic 3 Coddington v. Canaday, supra. Arts Co., 86 N. J. Eq. 49, 97 Atl. See also Waterhouse v. Jamieson, 497. 2 Paters (Scotch) 1812, L. R. 2 2 Rowland v. Caru, 232 Fed. 35, H. L. (Sc.) 29; Williamson v. Col- 146 C. C. A. 227; Coddington v. lins, 243 Fed. 835, 156 C. C. A. 347. Canaday, 157 Ind. 243, 61 N. E. 567. PRIVATE CORPORATIONS. 919 who were creditors at the time, it is very generally held that the receiver may enforce the liability on behalf of the class of creditors for whose benefit it is created. The rule that permits such an action on the part of the re- ceiver has been very fully stated as follows:^ ''Onr court, in the recent case of Ventress et al. v. D. H. AVal- 4 Metzger v. Joseph, 111 Miss. 385, 71 So. 645; Stoltz v. Scott, 23 Idaho 104, 129 Pac. 340; Holcombe V. Ames, 87 N. J. Eq. 486, 100 Atl. 609; Brenaman v. Whitehouse, 85 Wash. 355, 148 Pac. 24. In this case the law is thus stated: "It is undoubtedly true, as ap- pellants say, that 'the purpose of such statutes is to enable inquir- ing creditors to look to the public record as to the amount of the capital stock of a corporation, and to extend credit upon the faith that it has not impaired its capital by any unlawful means.' But a transaction on the part of a stock company, whereby it retires its own stock, adding nothing of per- manent value as assets in the place of it, certainly falls within the prohibition of the statute. The effect of the transactions in this stock was that, whereas the stock should have been outstanding and its value in the treasury or In the assets of the company, it was not outstanding but was in the trea- sury of the company, and its pro- ceeds were divided among the three stockholders as dividends. "Beginning with Tait v. Pigott, 32 Wash. 344, 73 Pac. 364, and re- affirmed on the second appeal of that case in 38 Wash. 59, 80 Pac. 172, down to Kom v. Cody Detec- tive Agency, 76 Wash. 540, 50 L. R. A. (N. S.) 1073, 136 Pac. 1155, this court has consistently held that a corporation in this state can not traffic in its own stock; that the capital stock of the cor- poration is a trust fund for the payment of its debts, upon the faith of which the law presumes credit was given unless other se- curity was taken at the time by the creditor; and that it is imma- terial, since the thing which was unlawfully taken reduced the avail- able resources of a now insolvent company, that the company was solvent at the time the transaction occurred. Appellants seem to think that the case of Northern Bank & Trust Co. v. Day, 83 Wash. 296, 145 Pac. 182, arrives at a dif- ferent result. But that was a case where the capital stock of the cor- poration was increased to repre- sent the net accrued profits to stockholders, and there was no reduction and extinction of any of the capital stock. "Appellants contend that 'the evidence in this case shows that there was no time between the declaration of a dividend and the incurring of an indebtedness of any of the creditors represented by this receiver when the assets of the corporation were below $5,000.' As before shown, this is immaterial. However, it was shown that it was in debt to one of the appellants in a substantial sum, and that the indebtedness was not paid. In the Kom Case, supra, it 920 LAW OF RECEIVERS. lace, Receiver, 71 South. 636, is committed to tlie holding that equity has original jurisdiction of a suit on the part of a receiver against directors of a bank for gross negli- gence in the discharge of their official duties. We fail to appreciate why equity should not be a proper forum for this action, instituted by the receiver of an insolvent banking establishment to recover a dividend disbursed in violation of the express provisions of the statute, and when the fund to be recovered should equitably be pro- rated amongst that class of creditors whose debts existed at the time the dividend was declared, and whose interests are in a large measure now represented by the receiver. This court is committed to the holding that the receiver, to a large extent, represents creditors as well as the de- funct corporation, whose estate is being administered upon by him under the direction of the court. Payne Hardware Co. v. International Harvester Co., 70 South. 892. The liability sought to be recovered is expressly imposed by section 923 of the present code. It provides that the directors who declared and paid such dividend 'shall be jointly and severally liable to creditors whose debts then existed, to the extent of such withdrawal or dividend and interest.' It is true that the right of action is given to creditors, but the liability is limited to the amount of the dividend declared and paid, and this con- stitutes a single fund in which many of the creditors have an equity, and should in equity be jororated among the several creditors beneficially interested. This can best be accomplished in a court of equity. One payment of this dividend by the directors would discharge once and was admitted that the company, at " 'The statute contemplates the time of the transaction and at transactions that may arise in the time of the action, was solvent faith of the capital stock, and is and had no creditors, and urged broad enough to protect future that therefore the statute could creditors and also stockholders have no bearing on the case. This who are not parties to a prohib- court held to the contrary, saying, ited contract.' " per Chad wick, J.: PRIVATE CORPORATIONS. 921 for all time the liability. The declaration of a dividend when a corporation is totally insolvent impairs the capital stock, and 'such a distribution of the assets of a corpora- tion is in the nature of a fraud upon its creditors, and is remediable in equity.' . . . 10 Cyc, 883. Many of the courts hold that the personal liability of directors for declaring dividends in excess of the net profits or surplus can not be enforced in a court of law, but that equity is the proper and exclusive forum. " 'Equity has jurisdiction where the effect of the statute is to create a common fund for the security of creditors, although there may be a concurrent remedy at law.' Thompson on Corporations (2nd ed.) vol. 4, par 5078." It may be said, however, that in regard to such statu- tory liabilities as the one here referred to, liabilities in excess of and of a character different from those known to the common law and recognized in equity, some courts are inclined to the view that they can not be enforced by the receiver unless the statute expressly confers upon him the power to do so.^ It may be said, in regard to the so-called 'Hrust fund" theory concerning corporate assets mentioned in some of our quotations just used, as was said at the close of a preceding section, that it is not held to be strictly applicable to the matter of cor- porate rights and duties under all circumstances. For instance, when a receiver sued the president of a corpo- ration for an accounting and return of assets disbursed by him because, in a manner to create preferences, he had, just prior to the receivership and at a time when the company was insolvent, distributed its assets, the pro- ceeds of a fire insurance policy, among its creditors, it was held that the receiver had no cause of action. The corporation, it was held, had a right to prefer one cred- 5 Kinter v. Connolly, 233 Pa. St. 5, 81 Atl. 905; Childs v. Adams 43 Pa. Super. Ct. 239. 922 LAW OF RECEIVERS. itor to another, even thougli it was insolvent. The assets of an insolvent corporation, was the ruling, do not become a trust fund to be administered primarily in the interest of creditors until a court of equity by some proper pro- cess acquires jurisdiction so to administer them.^ §356. Actions to Recover Illegal Transfers of Property or Dividends Paid to Stockholders. In addition to the right to recover from the directors dividends illegally declared from capital instead of sur- plus earnings, as shown in. the last section, the receiver is generally empowered to recover such payments for the benefit of creditors from such stockholders who have wrongfully received them on the ground that such trans- actions are constructively fraudulent in respect to credi- tors and thus recovery is necessary to create a fund for the payment of creditors.^ The recovery of such divi- dends by the receiver on the ground of impairment of capital is generally regulated as to its details by statutory provisions. 2 A distinction under some forms of statutes regulating the matter exists in that under some statutes the right of action to recover such illegal dividends is vested in the creditors alone and not in the corporation. Under such statutes if the right is not given by the statute to the receiver authorizing him to recover for the benefit of the creditors, the right of action is not an asset of the corporation and accordingly suit can not be main- tained by him for such recovery. If, however, he is made 6 Wheeler v. Matthews, 70 Fla. 175 Mich. 168, Ann. Cas. 1915A, 317 70 So 416 821, 141 N. W. 882; Kretschmar v. X T. ^ nu ini Stone, 90 Miss. 375, 43 So. 177; 1 Ranee's Case-L. R. 6 Ch. 104. g^j..^j^j^j^^ ^ National Salt Co., 79 In re National Funds Assurance ^^ j ^^ ^gg, 81 Atl. 828, affirming Co., 10 Ch. Div. 118; Hayden v. r^^ ^ j gq 325^ 76 Atl. 1048; Thompson, 71 Fed. 60, 17 C. C. A. Strickland v. National Salt Co., 79 592. N. J. Eq. 182, 81 Atl. 828, affirming 2 Detroit Trust Co. v. Goodrich, 79 N. J. Eq. 223, 81 Atl. 832. PRIVATE CORPORATIONS. 923 a qiia.si-asslgnee of the creditors for that purpose he may maintain the action in their behalf.^ Whore individual members of the corporation have wrongfully benefited by receiving- corporate property, the receiver generally has the right to recover the same'from them.* 3 Minnesota Thresher Mfg. Co. v. Liangdon, 44 Minn. 37, 46. N. W. 310, was an action by one who had purchased at a receiver's sale all of the assets of the receivership company against a stockholder for dividends wrongfully received. It was held that the dividends were not assets of the corporation, and therefore not included in the prop- erty sold. For the purpose of reaching this conclusion it was shown that the right of action against the stockholder was an asset of creditors only and passed to the receiver. It was said: "The receiver has, in substance, the same powers as an assignee in bankruptcy, or a receiver upon a creditor's bill or proceedings sup- plemental to execution, and he succeeds to the rights of the cred- itors as well as the insolvent cor- poration, and has the power to en- force the rights which the cred- itors, but for the proceedings, might have enforced in their own behalf. . . . Among the rights which pass to the receiver as the representative of the creditors is the right to recover property con- veyed by the corporation in fraud of its creditors, or capital with- drawn and refunded to the stock- holders without provision for full payment of the corporation debts. This right of the receiver does not depend upon any express stat- ute granting it, but rests upon the general equitable doctrine that the capital of a corporation is a trust fund for the benefit of its creditors and those to whom it has been re- funded are trustees for their ben- efit. Everything becomes assets in his hands . . . which were as- sets as to creditors as well as what was assets as to the corpora- tion." i Gillet V. Moody, 3 N. Y. 479. (The company, while insolvent, had purchased from a director some of his stock in the company, paying, therefore, a bond owned by the company. The receiver sued to recover the bond. It does not clearly appear from the report, fiom the point of view as to whether or not stockholders were in a position to complain of this transaction, whether it properly belongs in this section or in the previous one. It is, however, fre- quently cited as supporting the doctrine of this section.) Voor- hees V. Malott, 73 N. J. Eq. 673, 69 Atl. 643, affirming Voorhees v. Nixon, 72 N. J. Eq. 791, 66 Atl. 192. (The promoter of a corporation sold property to the corporation at an exaggerated price, receiving some stock on account of the pur- chase price and a mortgage for the balance. The receiver was allowed a credit on the mortgage equal to the difference between the price paid by the mortgagee and the priced charged the com- 924 LAW OF RECEIVERS. §357. Actions on Behalf of Creditors Respecting Unpaid Stock, Bonus Stock, and Statutory Liabilities in Cases Where the Corporation Is Estopped. We will now consider receivers' actions against stock- holders to recover for bomis or underpaid stock- issued as fully paid, or for stock subscriptions canceled by the company where the liability therefor is claimed to have accrued under such circumstances that stockholders are estopped to complain and only creditors, or receivers on behalf of creditors, may seek redress. It is sometimes said that there is a divergence of opinion, or a lack of harmony, among courts as to the right of receivers to sue under such circumstances. A decision quite com- monly relied upon to support the view that a receiver may not sue is one from Illinois, a case to which we have before referred. We wdll discuss this case in a note appended hereto.^ pany. In actions such as these under discussion the receiver can not recover if the creditor can not. To give a valid cause of action in favor of creditors or of the receiver on behalf of creditors the transaction complained of must be not only wrongful, but also harmful. Creditors must suffer some injury therefrom. If the transaction serves a legitimate purpose, but is somewhat irregular in form, it may not be assailed. If, for instance, when stockholders are legitimately entitled to divi- dends and without the formal dec- laration of dividends the corpora- tion pays out its funds for the benefit of stockholders to amounts not in excess of what might have been disbursed as dividends, such payments can not be recovered by a receiver from the stockholders if the corporation thereafter be- comes insolvent. Little v. Gara- brant, 90 Hun 404, 35 N. Y. Supp. 689. See also Murphy v. Panton, 96 Wash. 637, 165 Pac. 1074. 1 Republic Life Ins. Co. v. Swi- gert, 135 111. 150, 12 L. R. A. 328, 25 N. E. 680. The above case, which is often relied upon in discussions of the subject, cited numbers of cases. We will in this note discuss those cases. In Curtis v. Leavitt, 15 N. Y. 9, the court said: "The appellant as receiver has no interest in or power over the property affected by the trusts in question, except such as he de- rives under the statutes which have been mentioned. It has been said in this case, as in other cases, that he represents the creditors and the stockholders, but for all the purposes of inquiry into his PRIVATE CORPORATIONS, 925 It is to be remembered that we are here consideriiio- an exception to a general rule concerning a corporation title he reallj^ represents the cor- poration. He is by law vested with the estate of the corporate body and takes his title under and through it. It is true indeed that he is declared to be a trustee for creditors and stockholders, but this only proves that they are the beneficiaries of the fund in his hands, without indicating the sources of his title or the extent of his powers. If, then, in a contro- versy between the receiver and third parties in respect to the cor- porate estate, it is possible to form a conception of rights, legal or equitable, belonging to the shareholders as individuals, which the corporation itself could not assert in its own name, the re- ceiver does not represent those rights. So far as shareholders are concerned, he can litigate respect- ing the fund upon precisely the grounds which would be available to the corporation if it were still in existence, solvent, and no re- ceivership had been constituted. In regard to creditors, I should certainly incline to take the same view of his rights and powers un- der the statutes referred to." In Alexander v. Relfe, 74 Mo. 495, discussing this question the court said: "He (the receiver) can not, it is true, overthrow any valid act of the corporation which he repre- sents, but when acts have been done in fraud of the rights of creditors he may litigate for their benefit, though the act in question be valid as to the corporation i.salf; in which case he holds adversely to the corporation." The Illinois court says this state- ment was not necessary to the de- cision. The action was one brought by the receiver to recover damages from a corporation which, through ownership of stock in the receiv- ership corporation, controlled its board of directors and had brought about the transfer to itself of all of the assets of the controlled com- pany. The plan had been initiated by the purchase by the defendant corporation of practically all of the stock of the receivership cor- poration so that, at the time of the transaction complained of, its only stockholders were the defendant and a few others who actively par- ticipated In the scheme. The trial court gave judgment for the re- ceiver. The court of appeals re- versed this decision on the express ground that "the receiver was re- stricted to such actions as the cor- poration could have maintained had it been in existence." The Su- preme Court, however, upheld the trial court. Not only did it use the language quoted in the Illinois opinion, but also that quoted by us in a previous note. Clearly both statements were necessary to the decision. The case of Hyde v. Lynde, 4 N. Y. 387, was also cited. This was a receiver's action against a policy holder in a fire insurance company on a canceled deposit note. Under the statute when in- sured property was sold the policy became void and the insured could get back his deposit note on pay- ing his pro rata share of existing 926 LAW OF RECEIVERS. receiver's power to sue. The general rule is that a re- ceiver has only such choses in action as were assets of liabilities. In this case the policy tolder had received back his note without paying anything on the understanding that there were no debts for which he was liable. The receiver sued on the ground that it afterwards appeared that a mis- take had been made and that there were existing obligations of which the policy holder should have paid a part. The majority of the court ruled that there had been no fraud or equitable mistake warranting a change in the arrangement made at the time the note was surren- dered, and that the arrangement as made was binding. There is no statement here of any distinction between the rights of the company and the stock- holders on the one hand and of the creditors on the other. After hav- ing decided the case in this way the court then supposes a case. "If" the transaction, though lawful in itself, had been done for a fraudulent purpose and the sur- render of the note had been with intent to defraud creditors, then the creditors might seek their own remedy, but the receiver could not act for them. This part of the opinion is quoted by the Illinois court. It is, however, immediately followed by the statement: "It is not necessary, however, to decide that question in this case for there is no proof that the settlement was made with intent to defraud any one." This statement the Illinois court fails to mention, an omission all the more noticeable in view of its insistence that certain expres- sions in the Missouri case above referred to were unnecessary to the decision. There is a dissent- ing opinion to the effect that the mere surrender of the deposit note had nothing to do with the policy holder's liability to share in the company's debts, and that the com- pany, or the receiver for the com- pany could enforce that liability, regardless of the change in the possession of the note. Farnsworth v. Wood, 91 N. Y. 308. This was a receiver's action on the statutory, or so-called "added," liability of stockholders that is a liability for the debts of the company in an amount, fixed by statute, over and above the par or subscription price of the stock. It was held that this liability could not be enforced by the receiver, and could be enforced only by creditors on their own behalf. But it is admitted, with practical una- nimity, that the added liability of stockholders stands on an entirely different footing from their liabil- ity for bonus, underpaid, or can- celed stock. Coope v. Bowles, 42 Barb..(N. Y.) 87. This was an action by the re- ceiver of a copartnership to set aside an assignment for the ben- efit of creditors on the ground ot fraud and defect in the execution of the instrument. The decision was based entirely on a defect in the pleading in the complaint, of plaintiff's standing as a receiver. The portion of the opinion quoted in the Illinois case was stated in this connection and is as follows: "A receiver in general is not clothed with any right to maintain PRIVATE CORPORATIONS. 927 the corporation aild that when he sues he must be pre- pared to meet such defenses as might have been inter- an action which the parties or the estate which he represents could not maintain." The receiver was one appointed in statutory pro- ceedings supplemental to execu- tion and the court, discussing cer- tain points in the case on their merits for guidance in a new trial, clearly indicated its opinion to be that, on an amended complaint, the receiver would prevail, or, at least, could maintain the action. Piscataqua Fire, etc., Ins. Co. v. Hill, 60 Me. 178. This was an ac- tion by statutory trustees on vol- untary dissolution against the trea- surer for misappropriation of funds. It was held that they could not maintain the action. The portion of the opinion which the Illinois court uses is as fol- lows: "They [the trustees] repre- sent the corporation alone and not its creditors or stockholders. The creditors or stockholders can have no legal interest in the property involved in this suit. A receiver may increase the general fund for the payment of debts or distribu- tion but the property if recovered is still that of the corporation, legally as well as equitably. The claims of the creditors and of the stockholders, if they have any, are in the first instance against the corporation and they have no other except as provided by law. If the conduct of the corporation, its officpj-s, or stockholders, has been such as to give other remedies to the creditors such may properly be pursued in their own names. So far as their rights are in ques- tion they must be vindicated by themselves and not by others in their behalf. The same is true of the stockholders." The last sen- tence is supported by cases that set forth the general principle of cor- poration law that a stockholder can not sue to vindicate a corpo- rate right without showing that he has received permission to do so or that the company has re- fused to act. Without questioning the propriety of the decision or its applicability to any question concerning the powers of a cor- poration receiver, it is sufficient here to say that for the purpose for which it was used by the Illinois court, it "proves too much." It wipes out not only the exception we are discussing, but also the right of the receiver un- der the general rule concerning his power to litigate to maintain actions which the shareholder may maintain if he can avoid the limi- tations under which he labors be- cause of, under the company's regime,, the right of the company to proceed in the first instance, and, pending the receivership, the receiver's priority. Waterhouse v. Johnson, 2 Pat- ers (Scotch) 1812, L. R. 2 H. L. Sc. 29. This was a receiver's — or, as called in England, liquidator's— proceeding to have a stockholder held liable for the value of his stock because, although it was is- sued as being fully paid, it, in fact, had not been. The company had issued statements to the effect that, of the par value of its cap- ital stock, all had been paid with the exception of a small percent- 928 LAW OF RECEIVERS. posed against tlie company itself. The exception is, that the receiver, as representing the creditors, and in a legal age thereof, for which alone the sLock was subject to call, and the company records showed the same situation. As a matter of fact the amount stated to have been paid had not been paid. In the re- ceiver's proceedings the defendant set up the defense that he had purchased his stock on the open market and had paid calls up to the full limit of the delinquency stated to exist and was entirely ignorant of the fraud on the part of the company. In expressing their opinions to the House of Lords, the Law Peers held that the defense was good. Two of them used expressions to the ef- fect that the receiver had no greater rights than the company would have had and was under the disability of meeting the same defenses that could be interposed against the company. These state- ments are what the Illinois case uses; but it is clear that too in- clusive a meaning is given to them. If the company had sued on the same liability the same de- fense would have been good. In addition, the stockholder might have successfully claimed that the company was barred by its own fraud from enforcing any liability. It is to be remembered also that, if the company had sued, it would have had to admit that it could use any money recovered for any purpose and could not claim, as the receiver would be compelled to show, that the money was needed and would be used simply to pay creditors. The facts that both defenses would have been good against the company and that the first was good against the receiver have no bearing at all on the question as to whether or not the second defense would have been good against the re- ceiver's claim for creditors. Singularly enough the Illinois case overlooked the following statement, found in the opinion of the Lord Chancellor: "I appre- hend . . . that it is unneces- sary to come to any precise de- termination upon that point here, but if the Joint Stock Company .4cts be thoroughly sifted there will no doubt be considerable ground for coming to the conclu- sion when the proper time comes . . . that the official liquidator, who, in that capacity, is bound to collect all the assets of the company and distribute them by the direction of the court among creditors, is in a position in which he may assert rights as against the corporation and assume a po- sition as against the members of the company which the company itself possibly might not be in a position to assert." In re British, etc., Cork, Co. (Leifchild's Case) L. R. 1, Eq. 231. This was likewise a receiver's proceeding to have a stockholder enrolled as liable for an unpaid portion of the value of his stock on the ground that, though issued as fully paid, it was in truth not fully paid. Defendant was a trans- feree. The stock had originally been issued in return for certain patent rights but the certificate, or deed of transfer, recited on its PRIVATE CORPORATIONS. 929 capacity adversary to tlie corporation, may disaffirm face that the purchase price was a certain amount, inconsiderable and much below par value. The stockholders contended that the expressed selling price was merely nominal and claimed the right to go behind the writing and show the 'true consideration. The re- ceiver contended that the stock- holder was bound by the deed. The court ruled in favor of the stockholder, and, considering the original transaction, ruled that it had been entirely fair and un- tainted by fraud. The Illinois court makes use of certain ex- pressions found in the opinion, but it is evident that, taking the expressions out of their context, it is made to appear that they ■have a more inclusive significance than would be given to them when read where they were originally used, and than, in fact, they were there intended to have. As far as its bearing upon the argument that the Illinois court was mak- ing is concerned, this case has a value identical with that possessed by the other British case just above reviewed. It may be here remarked that the defense em- ployed in the Leifchild's Case is always recognized as being avail- able to a stockholder in a re- ceiver's suit. In practically all cases in which the receiver sues ■on a charge that property re- ceived by the company in ex- change for stock was, in the transaction, fraudulently given a grossly exaggerated value, the re- ceiver, because the statutes make the decision of the directors con- •clusive, except on a showing of Iraud or gross negligence, is com- I Rec— 59 pelled and is permitted to go behind the record to show the truth. Likewise a stockholder may, for the purpose of establish- ing a defense, be permitted to show that the truth is at variance with the apparent purport of the record as far as any inference of fraud to be drawn therefrom is concerned. There is nothing in this principle inimical to the ex- istence of the power of a receiver to sue on behalf of creditors and, in a manner, adversely to the com- pany and the shareholders. In regard to the Leifchild's case it is further said, in the Illinois case, that: "It was further held that it was not necessary to i - quire whether the creditors could obtain any relief by bill in chan- cery." This statement was niaue with reference not to an action instituted by the creditors against the same defendant, on the same claim, and on the same ground, but with reference to an action based on an entirely different ground, namely, fraud in the or- ganization of the company and necessarily against different de- fendants. There is no implication in the statement, as made, that the creditors might sue though the receiver could not. The reason for the reference to chancery was that under the English statute, the pending matter was in the receivership proceedings before the receivership court, whereas the suggested action would have to be an independent suit. The reason why it was not necessary to make the inquiry was because "no such case has been presented." Following its analysis of the 930 LAW OF RECEIVERS. such of its acts as were illegal or fraudulent, and detri- mental to the interests of creditors. foregoing cases the Illinois court, as showing the character of all of the cases cited by appellants, who were contending for the receiver's right to sue, gives the classifica- tion that we set forth in a previ- ous section. This is supposed to be a classification of all of the cases which a receiver has a right to maintain in his special capacity as representative of creditors. "With the law of these cases," says the court, "we have no fault to find." Then follows the con- clusion: "We think the decided weight of authority sustains the rule in respect to the powers of receivers, where there has been no enlargement of their powers by legislative enactment, that they have such rights of action only as were possessed by the persons or corijorations upon whose es- tates they administer." We are unable to see any consistency be- tween the court's conclusion and its remark that it had no quarrel with the law of the cases classi- fied, if any validity is to be given to the classification. This case has been adversely commented upon by other courts. In a receiver's action against a stockholder on a stock subscrip- tion that had been wrongfully can- celed by the company, the Su- preme Court of Alabama, Hundley V. Hewitt, 195 Ala. 647, 71 So. 419, refused to accept it as giving a correct exposition of the law. The Supreme Court of Indiana in Marion Trust Co. v. Blish, 170 Ind. 686, 18 L. R. A. (N. S.) 347, 84 N. E. 814, 85 N. E. 344, referred to it "because of its clear discussion of the character of a receivers title under general statutes," but considered that "the conclusion there reached that a receiver does not represent creditors . . . appears to be out of line with other authorities" although "it should be said in explanation of it that the court was dealing with a particularly narrow statute." This same explanation, that the opinion was based upon the spe- cial provisions of the statute un- der which the receiver had been appointed, was advanced in Cole V. Satsop Co., 9 Wash. 494, 43 Am. St. Rep. 858, 37 Pac. 700. In the latter case, however, the court, calling attention to the classification of cases in the Illinois case and the court's remark that it had no fault to find with the law of those cases, ruled that the case before it came under the third class. The action was based upon a stock subscrip- tion. The defense was that not all of the stock of the company had been subscribed and the company was not authorized to commence business. Since the stockholder knew of the existing situation at the time he accepted stock, the court held that, though the defense might have been good if the company had been suing, it was not good against the re- ceiver suing in behalf of credi- tors. The court said: "It is need- less to call attention to the fact that the case before us is of the class mentioned [Class Three]." There was no apparent reason why PRIVATE CORPORATIONS. 931 This subject was necessarily involved in the discussion the creditors themselves might not have proceeded against the stockholders because there was no specific property to be seized. The common method, however, is to proceed through the intermediate aid of a receiver. We think the decision in the Illinois case may have been right, but the opinion, on the point above reviewed, is certainly poorly con- sidered. We think the trouble with it is that the court did not say what it meant. Certainly what it said was not necessary to the decision, if the decision was right. At the very outset of its discussion the court says: "If the order directing proceedings against the stockholders who had transferred their unpaid stock to the corporation was valid and was not erroneous it seems it must necessarily be so either because the assignment made by the com- pany to the receiver invested the latter with such title, right, or power as would enable him to maintain such suit; or because a receiver has authority under the rule which prevails in chan- cery courts to avoid the voluntary and lawful acts of the person or corporation whose estate he repre- sents or may be clothed with such power by the court of chancery which appointed him; or because the statute for the dissolution of insurance companies makes the receiver appointed in conformity with its provisions the representa- tive of the creditors of the com- pany that is restrained from fur- ther prosecution of its business." There is nothing in the doctrine that a receiver may, for the bene- fit of creditors, disaffirm a trans- action by which the receivership corporation is itself bound to the effect that the receiver may "avoid the voluntary and lawful acts" of the corporation. The very foundation of his right in this re- spect is that the act is unlawful. When a receiver sues a stock- holder, or, for that matter, a di- rector or a stranger to the corporation, on the ground that the defendant has wrongfully profited through some unlawful act of the corporation, he must always be prepared to meet the defense that the act complained of was a "valid and lawful" trans- action, and a successful mainte- nance of such a defense will prove a bar to the receiver's recovery in the action. Such was the situ- ation in the Leifchild's case, cited by the Illinois case, and, without any distortion of its meaning, the decision in the former was a per- fect precedent for the decision in the latter, when placed on proper grounds. For it is evident that the Illinois court considered the transaction complained of in the case before it to be a perfectly valid exercise of corporate authority. The cor- poration had permitted subscribers to stock, who had paid less than twenty per cent of their subscrip- tions, to surrender their subscrip- tions and receive fully paid stock for the money they had already paid in. Such a transaction might be perfectly valid as far as the corporation was concerned. See, Enright v. Heckscher, 240 Fed. 863, 153 C. C. A. 549; Noyes v. Wood, 247 Fed. 72, 159 C. C. A. 932 LAW OF RECEIVERS. 290; Miirpliy v. Panton, 96 Wash. 637, 165 Pac. 1074. It is evident that, in the light of all of the circumstances, which do not fully appear in the report of the case, it was so considered in the case under roview. From this point of view, the opinion in Leifchild's case might have been adopted in principle in support of the decision in the Illinois case. But the former is certainly not authority for the proposition that there is no exception to the gen- eral rule that a receiver has no rights of action except such as the receivership corporation had; nor can the latter be properly said to amount to authority to that effect, although on the surface it appears to support such a proposition. With its view of the facts of the case before it, the Illinois court might have done just as the New York court did in Curtis v. Leavitt, supra, assumed without deciding that the exception in favor of cred- itors did exist, and still have reached the same conclusion as to the merits of the action. The doctrine that there is such an ex- ception and that it enables a re- ceiver to sue stockholders for the value of stock issued as fully paid when in fact nothing was paid for it, although the company itself could not have maintained such an action, prevails in Illinois, in spite of the case just reviewed. Gillett V. Chicago Title & T. Co., 230 111. 373, 375, 82 N. E. 891. In this case it is said: "If, as be- tween themselves and the corpora- tion, they [subscribers to stock] had the right to decline to take certificates of stock for which they had paid nothing they had no such right as to creditors. When they became the owners of the stock, though they acquired it without paying anything therefor, they in- curred a contingent liability to creditors which was not to be avoided by refusing to receive the certificates." The force and meaning of the exception is somewhat emphasized by the fact that the court cites in support of its exposition of the law the case of Sprague v. Na- tional Bank of America, 172 111. 149, 64 Am. St. Rep. 17, 42 L. R. A. 606, 50 N. E. 19, a suit by creditors to vindicate their own rights. It may also be noticed that in this case it was also held that a transferee of stock, innocent and ignorant of the fraud in the chain of title, could not be held liable for its value, which, as pointed out above, is in line with the holding in Waterhouse v. Jamieson, 2 Pat- ers (Scotch) 1812, L. R. 2 H. L. Sc. 29. See also Cohen v. Toy, etc., Co., 172 111. App. 330. It may be stated here, in pass- ing, that it is a somewhat common practice on the part of courts, even of courts that have frequently sustained the exception to the gen- eral rule, unnecessarily to remark when ruling that a transaction complained of by the receiver is valid and not open to criticism, or sustaining some other defense raised against a receiver, such as the bona fide purchase of bonus or underpaid stock. See Waterhouse V. Jamieson, 2 Paters (Scotch) 1812, L. R. 2 H. L. Sc. 29, that a receiver has only such rights as the corporation had, and even to say that if the rights of creditors have been invaded they must pur- sue the remedy in their own per- sons. See Bostwick v. Young, 118 PRIVATE CORPORATIONS. 933 in previous sections- setting forth the character of the hability of stockholders respecting unpaid stock and the confusion arising from variant statutes respecting the method of collection. In respect to the question of whether the corporation itself could be estopped from suing the stockholders, it naturally is dependent upon the particular view held by the courts of the jurisdiction involved in regard to the extent to which a corporation is allowed to go in selling its stock for less than par and whether its contracts in that respect are valid as against its creditors. In a comparatively recent case in New Jersey,^ it was said: ''The doctrine that corporate stock issued, out- standing, and unpaid for is a trust fund for the benefit of creditors, is a hard and fast rule imbedded in the de- cisions of the courts of this and other states, and is never relaxed. In this state, however, the stockholder 's liability to creditors no longer depends alone upon the trust fund theory, but is held to be statutory." And in another case from that same state^ it was stated: ''But in this state the stockholders' liability to creditors does not depend alone or chiefly upon the theory of 'holding out.' It depends upon the stockholders' voluntary acceptance for considerations touching his own interest of a statutory scheme to which watered stock, under whatever device issued, is absolutely a lien, and which requires stock sub- scriptions to be made good for the benefit of creditors of insolvent companies, without distinction between prior and subsequent creditors, or between creditors who had App. Div. 490, 103 N. Y. Supp. 607; etc., Co., SO N. J Eq 122 132 82 Little V. Garabrant, 90 Hun 404, 35 Atl. 618. (Promotion stock ) ' N. Y. Supp. 689. This practice is 4 Easton Nat. Bank v American probably responsible for some of Brick, etc., Co., 70 N. J. Eq 732 10 the seeming confusion among the Ann. Cas. 84, 8 L. R. A. (N S ) 271 cases and the assertion that there 64 Atl. 917. (Alleged fraudulent is a variance among the decisions. valuation given to patent rights - ^^^ ^'§ ^'^' et seq. accepted in payment for stock ) 3 Holcombe v. Trenton White, 934 LAW OF RECEIVERS. notice and those wlio had none." The statute referred to in the above two quotations is one generally found in many jurisdictions, either in constitutional or statutory enactment, or in the provisions of corporation charters, forbidding the issuance of stock for any consideration other than money, or labor performed or property equal in value to the par value of the stock; it was not a statute expressly conferring upon receivers the right to sue on behalf of creditors. Both of the cases cited up- held the right of a corporation receiver to sue stock- holders who had received stock for less than par.^ "The powder to maintain a suit of this character need not be expressly conferred by statute upon the receiver, but if it can be fairly implied, either from the general scope and purpose of the statute or as an incident to a power expressly given, there is sufficient warrant for its exer- cise." This statement was made in support of a re- ceiver's right to maintain an action, for the benefit of creditors, to avoid the company's wrongful cancellation of a stockholder's subscription.^ ''The demand of the statutes, as well as the logic of the cases, is, that the working capital of a corporation is the amount named in its articles, and is, in theory, paid in full, either in cash or by the promise of a subscriber to whom the law will attach the presumption of solvency. Publication of the amount of the capital stock is, and must be, a con- tinued holding out to all the world, creditors present as well as prospective, that the capital is paid or sub- scribed." This statement is made in a case in which appellate court, reversing a judgment of the trial court, ordered judgment to be entered in favor of the receiver against a stockholder on a subscription canceled by the company without consideration."^ This character of the liability of a stockholder upon his statutory liability as 5 Rosoff V. Gilbert Transp. Co., 221 Fed. 972. 6 Hundley v. Hewitt, 195 Ala. 647. 71 So. 419. 7 Murphy v. Panton, 96 Wash. 637, 165 Pac. 1074. PRIVATE CORPORATIONS. 935 a stockholder was set forth in an important Delaware case*^ as follows: ''A Delaware corporation can not make a subscription contract which will free the sub- scriber from the statutory liability, for that statute is notice to all who make such contracts and is read into and becomes a part of every stock subscription contract. The fundamental principle is that shares of stock in a corporation are a substitute for the personal liability of partners, and the liability to pay for stock taken up to the par value thereof is a fund for the benefit of creditors of the company, and whoever takes shares of stock of a Delaware corporation assumes that liability for the benefit of creditors in case of insolvency of the company. ''Upon holders of preferred stock, who took the shares pursuant to a subscription contract, and upon those who acquired shares of common stock without a formal sub- scription, the statutory liability is of course imposed. However acquired the constitutional and statutory provi- sions as to what constitutes payment for stock are part of the contract, express or implied, respecting both kinds of stock. As to creditors, there is no difference between the liability of holders of stock and subscribers to stock, for both are liable. " 'In equity and as against creditors, the acceptance of stock without paying for it places the acceptor in the position of a subscriber. ' See v. Heppenheimer, 69 N J Eq. 36, 78, 61 Atl. 843, 860 (1905)." The foregoing quotation is from a decision in which it was held that the holders of common stock issued ostensibly as promotion stock— for labor performed be- fore the incorporation and not afterwards— but in reality s John W. Cooney Co. v. Arling- Court under the title of Du Pont v ton Hotel Co. (Del. Ch.), 101 Atl. Ball (Del.), 106 Atl. 39. The modi- ^^^- fications did not, however, affect The above case was affirmed the point to which it is here cited with modifications by the Supreme 936 LAW OF RECEIVERS. to be used as a bonus to subscribers of preferred stock- were liable to the receiver for such proportion of its par value as was necessary to pay the debts of the cor- poration.^ The subquotation is also from a receiver's case. A corporation may, unless by statute expressly prohibited from doing so, sell its stock for less than par. A creditor who actually knew of the terms on which stock was sold could not complain of it on the score that he had extended credit to the corporation under the belief that its stock had been sold for par, nor could one who extended credit to the company before a stockholder became a member of the company require him to pay more for his stock than his agreement with the company called for. If creditors have not been injured by trans- actions had under this principle then there are no rights of creditors in connection therewith to be remedied by the receiver and the receiver has no cause of action against the stockholders.^^ The same rule holds as to "treasury stock" — that is stock Avhich was validly sold but returned to the company either by gift or valid pur- chase—and, generally, as to increase stock. The com- pany may sell such treasury or increase stock at such price as it may be able to obtain, unless it is prohibited from doing so or makes contrary public statements, with- out invading the rights of creditors and laying founda- tion for claims against stockholders on the part of cred- itors or the receiver.^i Such stock is presumably fully 9 John W. Cooney Co. v. Arling- itor's action) ; Hospes v. North- ton Hotel Co., supra. But see western Mfg., etc., Co., 48 Minn, affirmance with modification under 174, 31 Am. St. Rep. 637. 15 L. R. A. title of Du Pont v. Ball (Del.). 106 470. 50 N. W. 1117 uHandley v. Stutz. 139 U. S. ^*^- ^^- 417, 35 L. Ed. 227. 11 Sup. Ct. 530; 10 Scoville V. Thayer. 105 U. S. ^^.^ ^ ^^^,^y^ Carolina Gold, etc., 143, 26 L. Ed. 968; First Nat. Bank ^q^ 14 ped. 12; affirmed, 119 U. S. V. Gustin Minerva, etc.. Min. Co.. 343^ 30 L. Ed. 420, 7. Sup. Ct. 231. 42 Minn. 327, 18 Am. St. Rep. 510, See Eastoii Nat. Bank v. American 6 L. R. A. 676, 44 N. W. 198 (cred- Brick, etc.. Co. (N. J. Eq.), supra. PRIVATE CORPORATIONS. 937 paid wlien first issued from the treasury. Moreover, if there is some defect or invalidity in the issuance of stock that appears on the face of the corporate record — such as the issuance of stock beyond the amount allowed by its charter, that is, over-issued stock, or acceptance of a secured promissory note in payment of stock in a juris- diction where such a consideration is prohibited — the creditor is held to have notice of the infirmity and not to have been misled to his injury by the transaction and there has been no wrong for the receiver to reinedy.^^ If we take into account the various conditions above mentioned — the widely prevalent statutory requirement tliat stock shall not be disposed of at less than its par value ; that, unless prohibited in some way, including by its own voluntary purpose as stated to the public, a cor- poration may lawfully sell its stock below par ; that the record may, by exhibiting some infirmity in the issue of stock, warn those dealing with the company not to rely on it as a basis for giving credit; that courts frequently make statements concerning the powers of receivers which, when taken out of their context, may seem to have a meaning much more general than it was intended they should have where used, it may be said that there is no real variance of decision as to the right of a receiver to remedy any injury that may have been done to the corporation creditors through wrongful issuance of stock, even though the corporation and the stockholders may be barred from complaining. We have not observed any well considered case that holds that, when a corpora- tion has issued its stock at a price lower than par when creditors, either because of statutory or charter provi- sion or for some other reason binding on the company, 12 Scoville V. Thayer, supra 661; Enright v, Heckscher, 240 (over-issued stock); Mitchell v. Fed. 863, 153 C. C. A. 549. With Porter (Tex. Civ. App.), 194 S. W. reference to this case see note 47, 981. See also Laredo Imp. Co. v. this section. The first case cited Stevenson, 66 Fed. 633, 13 C. C. A. is an assignee in bankruptcy case 938 ' LAW OF RECEIVERS. have a riglit to presume that it was issued for par, and the transaction was conducted under such circumstances as to make it binding upon the corporation and all the shareholders, the receiver may not recover from the im- plicated stockholders, excluding those who are insolvent, an amount, up to the full diiference between the amount they paid and the amount they were presumed to pay, sufficient to liquidate all of the liabilities of the company, including those due to creditors who knew the actual fact as well as those who did not, and those due to prior as well as subsequent creditors, plus the expenses of the receivership, including the cost of collecting from the stockholders ; and there is no case that holds that, when a corporation, under circumstances binding upon the compan}^ and all of the stockholders, cancels an unpaid valid stock subscription, or obligation, without substi- tuting therefor an equally valuable asset for the benefit of creditors, the receiver may not recover from the stock- holder so much of the amount from the payment of w^hich he was relieved as may be necessary for similar purposes. The well considered cases all rule the other way.^^ 13 Peck V. Elliott, 79 Fed. 10, 24 61 Atl. 843; Holcombe v. Trenton C. C. A. 425, 38 L. R. A, 616; White, etc., Co., 80 N. J. Eq. 122, Wyman v. Bowman, 127 Fed. 257, 82 Atl. 618; Easton Nat. Bank v. 62 C. C. A. 189; Rosoff v. Gilbert American Brick, etc., Co., 70 N. J. Transp. Co., 221 Fed. 972; Hundley Eq. 732, 10 Ann. Cas. 84, 8 L. R. A. V. Hewitt, 195 Ala. 647, 71 So. 419; (N. S.) 271, 64 Atl. 917; Murphy v. Fell V. Securities Co. of N. A. (Del. Panton, 96 Wash. 637, 165 Pac. Ch.), 100 Atl. 788; Meholin V. Carl- 1074; Cole v. Satsop R. Co., .S son, 17 Ida. 742, 134 Am. St. Rep. Wash. 487, 494, 43 Am. St. Rep. 286, 107 Pac. 755; Gillett v. Chicago 858, 37 Pac. 700; Gordon v. Cum- Title & T. Co., 230 111. 373, 375, mings, 78 Wash. 515, 139 Pac. 489. 82 N. E. 891; Cohen v. Toy Gun, PeU's Case, L. R., 8 Eq. 222. etc., Co., 172 111. App. 330; Haskell It is frequently stated that in V. Gardner (Ind. App.), 93 N. E. xespect to the matter here dis- 458; Preston v. Jeffers, 179 Ky. cussed the rights of corporation 384, 200 S. W. 654; Webre v. receivers are analagous to, if not Christ, 130 La. 450, 58 So. 145; See identiVil with, those of trustees in V. Heppenheimer, 69 N. J. Eq. 36, bankruptcy. Hundley v. Hewitt, PRIVATE CORPORATIONS. 939 105 Ala. 647, 71 So. 419; Herf & F. Chemical Co. v. Brewster, 54 Tex. Civ. 217, 117 S. W. 880. It seems net improper, therefore, to call at- tention here to a case which, though a bankruptcy case, dis- cusses the matter we are here in- terested in and in a way that shows that the court considered that its exposition of the law would be equally applicable to a receivership case. The case is En- right V. Heckscher, 240 Fed. 863, 153 C. C. A. 549. It may be said, however, that the corporation in- volved was a New Jersey corpora- tion and the decision, as to the various points involved was, to some extent at least, based upon statutes and decisions of that state. The case was an action by the trustee in bankruptcy against stockholders who had been sold Increase stock for 50 per cent of its par value through a manipulation intended to give the transaction the appearance of a sale of "trea- sury stock," but decided by the court to be a pretense and fraudu- lent as to creditors. Among the rulings made in the case are (1) that stock — even increase stock — issued below par is, under the New Jersey statute, illegally issued and the purchaser is liable to creditors for the difference; (2) that when property is accepted by a corpora- tion in exchange for its stock any overvaluation of the property al- lowed by the company, either with fraudulent intent or, even in the absence of fraud, through culpable negligence, renders the issue ille- gal and makes the purchaser liable for the difference between the real value of the consideration as of the time of the deal and the par vCue of the stock; (3) that a transferee of stock illegally issued is liable in the same way and to the same extent as the transferrer if he has binding notice of the illegality; (4) that an assessment levied upon stockholders by the bankruptcy court is binding upon the stockholders as to the amount of the liabilities of the bankrupt company, the value of its assets, and the amount of the necessary assessment (see, in re Newfound- land Syndicate, 196 Fed. 443, 201 Fed. 917, 120 C. C. A. 255); (5) that interest may be charged against a stockholder on such a liability from the time he received his stock; (6) that a corporation can not, after the rights of cred- itors have intervened, relieve a stockholder of his contingent lia- bility under such circumstances by receiving back the stock and issu- ing him an amount equal at par to the consideration actually paid. In considering this last mentlonod point the court said: "But neither a board of directors nor the stock- holders themselves can accept a surrender of shares and a release of a shareholder from liability thereon, when to do so would prej- udice the rights of creditors. It could not be done if a single stock- holder objected. Cartwright v. Dickinson, 88 Tenn. 476, 17 Am. St. Rep. 910, 7 L. R. A. 706, 12 S. W. 1030; Wills V. Nehalem Coal Co., 52 Ore. 70, 96 Pac. 528; Shelby County R. Co. v. Crow, 137 Mo. App. 461, 119 S. W. 435. If all the stockholders agreed, it could not avail, if debts had been incurred which there were no means to pay, except out of the capital stock which was released. For as against creditors capital stock and the liability attaching to it can not 949 LAW OF RECEIVERS. §358. General Defenses to Actions by Receiver on Behalf o2 Corporate Creditors. In cases coming under the above rule — or exception to the general rule concerning the receiver's powers^ various points incidentally arise. Where the considera- tion for stock is labor or property, and not money, the question of the good faith of the company in accepting the property as equal in value to the stock arises. The decision of the company is presumed to be correct and fair and the burden of showing the contrary is on the receiver attacking the transaction. It is not necessary, however, to show actual fraud; it is sufficient to show culpable negligence, as for instance, failure to make any investigation or appraisement of the property or ac- cepting merely the word of an interested party. ^ If the decision is against the stockholder he may nevertheless and as a general rule be allowed a credit equal to what the court determines to be the real value of the labor or property as of the time when the stock was issued.^ be squandered or surrendered. states a cause of action on con- Upton V. Tribilcock, 91 U. S. 45, tract and that is the nature of the 23 L. Ed. 203; Webster v. Upton, obligation which a subscriber to 91 U. S. 65, 23 L. Ed. 384; Potts v. stoclv in a corporation assumes to Wallace, 146 U. S. 689, 36 L. Ed. the company." Mere general alle- 1135, 13 Sup. Ct. 196. And where a gations of fraud in such a corn- stockholder claims, as against a plaint will be disregarded as sur- creditor or a trustee in bankruptcy, plusage. Under such a complaint it that he surrendered his stock, or is not permissible to the receiver the number of his shares was re- to prove that the stock was ille- duced at a time and under circum- gaily issued as promotion stock, stances which permitted it to be Lamphere v. Lang, 213 N. Y. 585, done, it would be incumbent on 108 N. E. 82. Per contra, see him to show that the time and Cohen v. Toy Gun Mfg. Co., 172 HI. circumstances were such that it App. 330. See also Hundley v. could lawfully be done. Payne v. Hewitt, 195 Ala. 647, 71 So. 419. Bullard, 23 Miss. 88, 55 Am, Dec. i Holcombe v. Trenton White, 74. The defendant has shown etc., Co., 80 N. J. Eq. 122, 82 Atl. nothing of the kind in this case." 618. See Honeyman v. Haughey An allegation in a receiver's (N. J. Ch.), 66 Atl. 582. complaint that stock had been 2 Pell's Case, L. R., 8 Eq. 222; issued and unpaid for "plainly Enrlght v. Heckscher, supra; See PRIVATE CORPORATIONS. 941 Tlie question of the liability of a transferee of the stock is another that may incidentally arise in such an action. The rule is that there is open to him the defense of being an innocent purchaser for value. If he successfully main- tains such a defense he escapes liability ; but if he takes the stock with knowledge — not necessarily actual, but legal knowledge — of the fraud or illegality connected with its original issuance he is liable.^ Such defenses as that the stock was 'treasury" stock or increase stock and subject to be sold at less than par are determined in accordance with principles of general corporation law, just as they would be if the action had been brought by a creditor in person. Under the common law a stockholder in a corporation was deemed not to be a party to any contract made by the company and was therefore held not to be liable for its debts beyond the amount of his subscription to its stock,^ In many jurisdictions, however, he is by constitutional and statutory provisions made liable to a greater amount. This added liability of the stockholder is commonly desig- nated as "statutory," to distinguish it from his liability on his subscription. In some instances the amount of this liability is made equal to the par value of the stock and is spoken of as double liability ; in others it is made pro- portionate to the amount of the stock holdings as com- pared with the total amount of the company's stock issued and is spoken of as proportionate liability. In all instances the statutory liability is created for the benefit of creditors. It is, however, in a certain sense different from the liability to creditors that we have just been discussing. The latter was in the first instance an asset of the company. The company, however, by some con- tract with the stockholder, waived, or surrendered, this V. Heppenheimer, supra; Easton 3 Waterhoiise v. Jamieson, supra. Nat. Bank v. American Brick, etc., 4 See Hicks v. Burns, 38 N. H. Co., supra. 141, 145. ()42 LAW OF RECEIVERS. asset as far as it, the company, was concerned, and was thereafter estopped from claiming any further liability on the part of the stockholder.^ However, the estoppel as to the company is not effective against creditors and the liability of the stockholder remains an asset in the receiver's hands which he can enforce on behalf of creditors. The statutory liability of the stockholder, how- ever, is not generally an asset of the company and rarely, if ever, can be enforced by it. It generally is made by the statutes an asset of the individual creditors to be enforced by each one according to his own interests. Under some statutes, the receiver is vested with the right of action on behalf of the creditors as a sort of trustee. This is the equitable view of the matter; and since, in equity, a corporation receiver takes his title through and under the corporation, it is the rule in equity that the receiver does not acquire this liability as an asset which he can enforce for the benefit of the estate which he is administering; nor does he, in the absence of express statutory provisions, acquire it for the benefit of any set of creditors of the estate. ''It would seem to be quite clear that if this added liability of stockholders is an asset of the corporation, the receiver of such corpora- tion, when insolvent, should be authorized to enforce the liability. If on the contrary, the added liability of stockholders is a provision for the benefit of creditors and not to be considered an asset of the corporation, the creditors only would have the right of action and be entitled to enforce the so-called added liability. , . . The liability by our statute is expressly declared to be for all debts contracted, and is obviously for the benefit of the creditor, and can not be deemed an asset of the corporation. The corporation, therefore, not being en- titled to invoke the statutory right we can not see by 5L.iim V. American Wlieel & Vehicle Co., 165 Cal. 657, Ann. Cas. 1915A, 816, 133 Pac. 303. PRIVATE CORPORATIONS. 943 what construction the receiver could claim to be entitled to claim a right or remedy not existing in the corporation itself.'"^ It is commonly said that this statutory liability is in the nature of collateral security for the creditors and that because of it the stockholders stand as pro tanto sureties for the debts of the corporation;'^ and the view above expressed, to the effect that it is not to be enforced by the receiver, is held even where the statutes expressly vest all the estate and assets of the company in the re- ceiver,^ When the receiver is viewed as the representative of all of the creditors, and when it is considered that the benefits of the statutes imposing added liability upon a stockholder are generally limited to creditors whose claims accrued during the period that he owned stock, there is no gainsaying the logic of these decisions. If the receiver recovered the statutory amounts for which stockholders were liable and placed the money in the general funds of the estate for the benefit of all creditors, a certain inequality would follow respecting creditors, and thus the rule that imposes upon the receiver an atti- tude of impartiality toward all parties interested in the estate would be violated.*^ Besides it being a fundamental rule of corporation receiverships that equality is equity, such a receivership is imposed upon a corporate estate to prevent a promiscuous scramble for their rights among its creditors, with resultant inequalities due to a host of circumstances of which some creditors could take advantage one against the other, and to gather the estate under the administration of a court for equitable eClapp V. Smith, 22 N. M. 153, 454, 20 Blatchf. 525; Brown v. 159 Pac 523. Allebach, 166 Fed. 488. Tin re British, etc., Cork Co. ^ Bolton v. Mayer, 90 Md. 711, 714, 78 Am. St. Rep. 456, 47 L. R. A. (Leifchild's Case), L. R. 1, Eq. g^„ ^^ ^,. „„^ 231; Waterhouse v. Jamleson, 2 9 See Marion Trust Co. v. Blish, Paters (Scotch) 1812, L. R., 2 H. L. 170 Ind. 686, 18 L. R. A. (N. S.) iif>/ of Breeivcr Toward Contracts of Corporation and of Himself. § 359. Litigation Concerning the Receiver's Own Transactions. After the receiver assumes control of the corporate property and the management of the business, he occu- pies toward the property and the business, as far as third U. S. 652, Ann. Cas. 1917A, 104, 58 L. Ed. 1518, 34 Sup. Ct. 926. A receiver of an insolvent cor- poration was entitled to set off the amount due from a stockholder on his statutory liability for debt of the corporation against the claim of the stockholder's estate for money due from the corporation. Coyle V. Taunton Safe Deposit & Trust Co., 216 Mass. 156, 103 N. E. 288. The statutory liability of a stock- holder does not include liability for the expenses of the receivership. Idem. An order of court levying an as- sessment for statutory liability against stockholders of a corpora- tion belonging to a class of corpo- rations whose stockholders are by statute expressly exempt from such liability is void and can not serve as a valid foundation for a receiver's action against stock- holders; the charter is determina- tive of the character of the cor- porate business for this purpose. Marin v. Augedahl, 32 X. D. 536, 156 N. W. 101. A judgment creditor on a lost claim is entitled to the benefit of the stockholder's liability to be collected by the receiver. Henley V. Myers, 76 Kan. 723, 17 L. R. A. (N. S.) 779, 93 Pac. 168, 173. The statutes of limitation on a receiver's claim against a stock- holder for his statutory liability begin to run from the time of the entry of a decree making an as- sessment. Irvine v. Putnam, 167 Fed. 174. See Shipman v. Tread- well, 208 N. Y. 404, 102 N. E. 634; 209 N. Y. 545, 102 N. E. 1113; Ir- vine v. Bankard, 181 Fed. 206. It is to be remembered in connection with these actions that, since re- ceivers authorized to enforce the statutory liability are, as a rule, vested by statute, with the legal title to assets which they are au- thorized to claim, and may, there- fore, sue in their own name in any jurisdiction, the statute under con- sideration in any case may be a statute of jurisdiction different from that in which the action is pending. See Irvine v. Elliott, 20"3 Fed. 82. As to whether or not a statute amending the law so as to make this liability enforceable only by a receiver instead of by each creditor in his own behalf is obnoxious to the constitutional in- hibition against the impairment of contracts as to the stockholder. See Henley v. Myers, 76 Kan. 723, 17 L. R. A. (N. S.) 779, 93 Pac. 168, 173; as to creditors, see Harrison v. Remington P. Co., 140 Fed. 385, 5 Ann. Cas. 314, 3 L. R. A. (N. S.) 954, 72 C. C. A. 405. The citizenship of the receiver, and not of the creditor, determines the jurisdiction of a federal court. Irvine v. Bankard, 181 Fed. 206. 950 LAW OF RECEIVERS. parties are concerned, a position similar to that of any private owner. He protects the property of the estate from interference with or injury by the acts of others and if his rights in these matters are violated he has the same remedies as any owmer would have. On the other hand it is incumbent upon him to use and manage the jjroperty with due regard to the rights of others ; he must exercise tlie same degree of care tow^ard others in this regard as ^^any owner is required to exercise, and if others arc injured through negligence in the performance of his duties in this regard he is liable as an owner w^ould be. The same thing is true of his transactions in the operation of the business of the corporation. Those wdio deal with him do so as they would with any private business person, subject to the limitation that they are presumed to know that he has authority to act only within the lines pre- scribed by the court. lie may enforce his own contracts and they may be enforced against him just as if he were acting in his own behalf. Since in these matters he is acting for the court, and in reality it is the court that is acting through its officer, or servant, or agent, the receiver may sue or be sued concerning them without previous per- mission of the court, and the receiver sues or is sued in his own name.^ 1 See Butterworth v. Degnon C. Co., 53 Hun 636, 6 N. Y. Supp. 735; Co., 214 Fed. 772, 744, 131 C. C. A. Singerly v. Fox, 75 Pa. li2; Gui- 184; Ames v. American Telephone marin & Co. v. Southern, etc., & Telegraph Co., 166 Fed. 820; Trust Co., 100 S. C. 12, 84 S. E. 298. Breed v. American Tel. & Tel. Co., 166 Fed. 825; Wason v. Frank, 7 When the receiver sues an as- signee for the benefit of creditors to recover property in the latter's Colo. App. 541, 44 Pac. 378; Pou- ^^^^^^^^^^ ^e is not subject to the der V. Catterson, 127 Ind. 434, 26 imitations placed upon a creditor N. E. 66; Maxwell v. Missouri Val- suing a similar defendant with ref- ley Ice, etc., Co., 181 Iowa 108, 164 erence to the necessity of making N. W. 329; Wilson v. Welch, 157 a previous demand, proving a Mass. 77, 31 N. E. 712; Robinson v. claim, etc. .American Bonding Co. Mills, 25 Mont. 391, 65 Pac. 114; v. WMlliams, 62 Tex. Civ. App. 319, Farnsworth v. Western Union Tel. 131 S. W. 652. PRIVATE CORPORATIONS. 951 It may be said that in all actions in wbicli a receiver is a party, those relating either to his own transactions or the transactions of the receivership company, apart from such details as are affected by the fact that a re- ceiver is a party, all issues raised and all questions re- lating to matters of procedure and the like are governed by the same rules, or principles, of law or equity as would control in litigation between parties associated wdth the action in a purely private, or individual capacity.- 2 Allen V. Roydhouse, 232 Fed. 1010 (standard of duty of a corpo- ration director; instructions to jury). Wright v. Ankeny, 217 Fed. 985. (Where several stockholders are sued in one action on their sub- scriptions to stock the action against each is regarded as a sev- eral and independent action so far as the right to move the suit from a state to a federal court is con- cerned.) Peck V. Elliott, 79 Fed. 10, 24 C. C. A. 425, 38 L. R. A. 616 (right of corporation to increase its stock; presumption as to pay- ment of tax on increase stock). Hollander v. Heaslip, 222 Fed. 808, 137 C. C. A. 1 (effect of condition in a contract). Pittsburgh, etc., Co. v. Duncan, 232 Fed. 584, 146 C. C. A. 542 (relation of one cor- poration to another as determined by ownership of stock in one by the other). Rowland v. Corn, 232 Fed. 35, 146 C. C. A. 227 (standard of duty of a director when selling his own property to the company; difference between charge of con- spiracy in a civil and a crim- inal action). Wright v. Ankeny, supra (right to sue non-resident for a money judgment). Brown v. Allebach, 166 Fed. 488 (sufficiency of notice to meet statutory require- ment). French v. Busch, 189 Fed. 480 (sufficiency of pleading the giving of statutory notice; neces- sity for pleading place of pay- ment). Schofield V. Baker, 242 Fed. 657 (filing cost bill). Lusk v. Batkin, 240 U. S. 236, 60 L. Ed. 621, 36 Sup. Ct. 263 (validity of state tax on foreign corporation). Val- lery v. Denver, etc., R. Co., 236 Fed. 176, 149 C. C. A. 366 (standard of duty of a corporation owning control of stock in, and controlling directors of another). Noyes v. Wood, 247 Fed. 72, 159 C. C. A. 290 (standard of duty of directors in dealing with company concerning their own interests). James Brad- ford Co. V. United, etc., Co. (Del. Ch.), 95 Atl. 308 (whether contract usurious or not). Graves v. Denny, 15 Ga. App. 718, 84 S. E. 187 (effect of plea of general issue in suit on unconditional contract in writing). Lynn v. McCue, 94 Kan. 761, 147 Pac. 808 (whether or not contract is usurious; whether sale of pledged property amounted to con- version; necessity for tendering payment of debt in action for con- version of pledged property). Hop- per V. Brodie, 130 Md. 443, 100 Atl. 644 (venue where several defen- dants). Olson V. Warroad M. Co., 136 Minn. 310, 161 N. W. 713 (au- thority of agent to bind company; 952 LAW OF RECEIVERS. § 359a. Duty of Receiver Respecting Executory Contracts. We have just been consideriug one exception to the general rule that the receiver, deriving his title under and through the company, takes the estate as he finds it, acquiring all the company's rights and assets, and being subject to all of its obligations and liabilities. This excep- tion is to the effect that tlie receiver may, under certain circumstances, disaffirm the acts of the corporation and recover, for the benefit of creditors, assets that, once belonging to the company, had been lost to it before the initiation of the receivership. This exception tended to benefit the creditors by increasing the assets of the estate. We have now to consider another exception to the general rule concerning the receiver's title: an exception that tends to benefit those interested in the estate by reducing its liabilities. This exception has to do with executory contracts of the corporation in force at the time of the appointment of the receiver. The general duty of a receiver respect- ing executory contracts has been previously discussed and the general rules therein set forth are applicable to corporation receivers.^ That appointment and the pass- ing over of the entire control of the corporate business to an officer of the court, puts it out of the power of the company to perform its end of any such contract. There results, therefore, a breach of the contract, as far as the company is concerned, giving a cause of action for dam- ratification of agent's acts). Metz- defendants). Underbill v. Rutland ger V. Joseph, 111 Miss. 385, 71 So. R. Co., 90 Vt. 462, 98 Atl. 1017 (au 645 (whether statute penal or not thority of agent to bind company; as affecting period of limitation ratification of agent's acts). Rea of action). Clapp v. Smith, 22 v. Eslick, 87 Wash. 125, 151 Pac. N. M. 153, 159 Pac. 523 (effect of 256 (whether contract community amendment of remedial statute on obligation or that of individual pending suit). Holcombe v. Ames, spouse). 87 N. J. Eq. 486, 100 Atl. 609 (re- i See §§ 34 et seq.. supra. And in moval of action from state to fed- respect to public utilities, see eral court where there are several chapter devoted to that topic. PRIVATE CORPORATIONS. 953 figes to the other party if he is ready, willing and able to perform. If the matter stopped there, and the receiver had nothing further to do than to receive a claim for dam- ages and see that it was properly recognized on. distribu^ tion, then the course of proceeding would be in accord- ance with the general rule. But such is not the course allowed by equity. The receiver is given the right to determine whether or not the contract was a prudent one for the company to enter into. If the receiver were compelled to carry out the contract, transactions under it would be in his own name and any liabilities accruing therefrom would be expenses of the receivership itself, and under the general rule of priorities on distribution would be entitled to be paid ahead of the claims of gen- eral creditors of the company. Since, in many instances, the condition of the company's affairs that warrants the creation of a receivership is due to the assumption by the company of improvident and ruinous contracts, through inefficiency or carelessness, or, perhaps, even fraud on the part of its managers, and since the other party to the contract is presumed to have known of its real character and value, it is considered inequitable to place upon the general creditors, wiiose contracts have been completed and whose claims will probably not be paid in full, any further burdens from the continuance of the contract; and the receiver is given the right to reject, or disaffirm, it, if he decides that such would be the outcome of his operating under it. He is appointed, rather to protect and preserve the property placed in his charge than to execute contracts made by its owner. On the other hand, if the contract turns out to be a meritorious one in the hands of the receiver and one whose continuance would work to the benefit of the general creditors, it is not con- sidered inequitable to give him the right to adopt it and compel the other party to do for him what it had con- 954 LAW OF RECEIVERS. traded to do for the company.^ The rule in this respect has been stated as follows :'^ ''The general rule laid down is that a receiver is not liable upon the covenants and contracts of the person or corporation for whose prop- erty he is appointed receiver, unless he adopts the con- tracts as his own. The general rule is that no executory contract is binding upon the receiver until adopted by him. It is, however, his duty to refuse to be bound by any contract which would prove burdensome, or imperil the fund intrusted to his care as receiver." It is his duty to investigate for the purpose of deter- mining w^hat election to make, and he is entitled to reason- able time for this purpose. Speaking of an instance in which the receiver, for the purpose of determining what course to pursue, had performed a portion of the part of the contract remaining unfilled at the time of his appoint- ment, the court said :^ ' ' It seems to us that he pursued the proper course. On taking possession as receiver, he found a contract which might develop into an exceedingly valuable asset. Had he repudiated it, without investiga- tion, he would have been guilty of a clear dereliction of duty. He was in duty bound to proceed with the con- tract if it were beneficial to the estate administered by him and to abandon it if not beneficial. He had a reason- able time to investigate before deciding this problem. 2 Curtis V. Walpole, etc., Co., 227 etc., Co., 227 Fed. 698; Du Pont v. Fed. 698; Maxwell v. Missouri Val- Standard Arms Co., 9 Del. Ch. 315, ley Ice, etc., Co., 181 Iowa 108, 164 81 Atl. 1089; Spencer v. World's N. W. 329; Brown v. Warner, 78 Columbian Exposition, 163 111. 117, Tex. 543, 22 Am. St. Rep. 67, 11 45 N. E. 250; Fountain v. Stickney, L. R. A. 394, 14 S. W. 1032; Scott 145 Iowa 167, 139 Am. St. Rep. 410, V. Rainier P., etc., Co., 13 Wash. 123 N. W. 947; Brown v. Warner, 108, 42 Pac. 531. supra; Scott v. Rainier, etc., Co., 3 Maxwell v. Missouri Valley Ice, supra. etc., Co., 181 Iowa 108, 164 N. W. The rule stated above is not ob- 329. viated by the fact that the com- 4 Butterworth v. Degnon Con- pany may appear to be solvent, tracting Co., 214 Fed. 772, 131 Empire Distilling Co. v. McNulta, C. C. A. 184; Curtis v. Walpole, 77 Fed. 700, 23 C. C. A. 415. PRIVATE CORPORATIONS. 955 ... He had no riglit to go on with a contract which q was certain to subject the creditors, whose interest he was bound to protect, to additional loss." As stated above, an executory contract is not binding upon the receiver until he adopts it ; it is not one that is binding upon him until he disaffirms it. Parties to flie corporate contracts are supposed to know this rule. A party to a contract may at any time, especially when occa- sion for some performance under it arises, call upon the receiver to announce his election or may call upon the court to make any equitable order to protect his rights pending the receiver's decision.^ But, in the ab- sence of such an order, or an express understanding with the receiver, or conduct on the part of the receiver amounting to and binding as an adoption of the con- tract, any performance by the receiver is not to be under- stood as being under the contract, and any liability accru- ing in favor of the receiver from such performance is to be adjusted on a quantum meruit basis since the services due were rendered by the receiver as a receiver and not by the corporation.^ If a contract is indivisible a receiver may not adopt part and reject the rest; he must adopt or reject it as a whole ;^ neither may a receiver, without an order of court, make a binding agreement as to any material modification of the terms of an execu- tory contract.*^ If the receiver rejects the contract, then it is considered that there has been a breach thereof as of the time of the appointment of the receiver. Since the company is held responsible for the fact of the receivership, and on the theory that the receivership was caused by the company's 5 See Hanna v. Florence Iron Co., 222 N. Y. 290, 118 N. E. 629; Guimarin & Co. v. Southern, etc.. Trust Co., 100 S. C. 12, 84 S. E. 298. ti Butterworth v. Degnon Contracting Co., 214 Fed. 772, 131 C. C, A. 184. 7 Hanna v. Florence Iron Co., 222 N. Y. 290, 118 N. E. 629. 8 St. Joseph Gas Co. v. Barker, 243 Fed. 206. 956 LAW OF RECEIVERS. own acts, the other party is entitled to damages for the breach, to be measured as they would be measured be- tween the company and the other party, irrespective of the fact that a receivership has intervened. If the dam- ages can be measured by any method of computation gen- erally recognized in such cases, as, for instance, the breach of a contract to purchase merchandise, where ex- pected profits would be the measure of damages, a claim therefor may be presented against the estate in the same manner as any other claim is presented. The claim ranks as that of a general creditor.^ If, pursuant to the terms of the contract, and prior to the receivership, steps have been taken to claim a breach on account of failure of the company to comply with its provisions, the receiver is bound thereby, and he must remedy the situation within the required time or a breach will be established.^" § 360. Position of Receiver Toward Leases of the Corporation. Leases stand upon the same footing as other executory contracts. The receiver has a reasonable time in which to determine whether or not the lease shall be continued. If he abandons the lease the landlord has a claim for damages, the measure thereof being the same as in any 9 Curtis V. Walpole Tire, etc., breach is viewed as produced by Co., 227 Fed. 698; Malcomson v. operation of law. People v. Globe, Wappoo Mills, 88 Fed. 680; Penn- etc., Ins. Co., 91 N. Y. 174. See, svlvania Steel Co. v. New York C. ^^ ''^ ^^^^^n & Co., 175 Fed. 312. Ry. Co., 198 Fed. 721, 117 C. C. A. ^ previous demand upon the of- fleers of the receivership company 503; Wells v. Hartford, etc., Co., 76 Conr. 27, 55 Atl. 599; Maxwell to perform the contract is not es- sential to the institution of an v. Missouri Valley Ice, etc., Co., ^^^.^^ ^g^j^g^ ^^^ receiver for a 181 Iowa 108, 164 N. W. 329. breach. Chas. E. & W. F. Peck v. A different rule may prevail Southwestern Lumber & Export- where, the receiver being ap- ing Co., 131 La. 177, 59 So. 113. pointed in a case conducted by the lo In re Ross & Son, 10 Del. Ch. state and looking toward the disso- 434, 95 Atl. 311; Kuebler v. Haines, lution of the corporation, the 229 Pa. 274, 78 Atl. 141. PRIVATE CORPORATIONS. 957 case of a breach of a covenant to lease by a lessee.^ For the period that he occupies the property, or retains pos- session of it under the lease, the receiver pays only rea- sonable rental; the claim for this rental ranks as an ex- pense of the receivership.^ If the landlord has a statu- tory, or other lien, for his rent, this survives the appoint- ment of a receiver.^ If the receiver adopts the lease he pays the covenanted rental and the charge is an expense of the receivership.^ The general rules applicable to leases held by one over whom a receiver is appointed were discussed in the subdivision devoted particularly to leases.^ E. Management of the Property as a Going Concern. § 381. Conducting Property or Business as a Going Concern. The propriety of the receiver conducting the business of the receivership as a going concern, where it consists of a mercantile or other commercial business, is not now seriously questioned and courts as a matter of course authorize receivers to so conduct the business of receiver- ships with the view to preserving the business as a going concern pending the litigation, if a sale of the receiver- ship property is not contemplated, and if such a sale is contemplated as the ultimate end of the receivership for the purpose of selling the property to the best advan- tage.^ In the earlier cases, the courts were undoubtedly 1 In re Mullings Clothing Co., rental as it accrues, it has been 238 Fed. 58, 151 C. C. A. 134; held that the court may compel Woodland v. Wise, 112 Md. 35, 190, the landlord to leave the receiver 76 Atl. 502. in undisturbed possession and rely 2 Atkinson & Co. v. Aldrich C. upon a sale of the corporation as- Co., 248 Fed. 134. sets for his compensation. Parr 3 C. T. Patterson Co. v. Port v. Blue Ridge Coal Co., 72 W. Va. Barre Lumber Co., 136 La. 60, 66 174, 77 S. E. 894. So. 418. ^ See § 235, supra. 4 If the court desire the receiver i Guaranty Trust Co. v. Interna- to continue as lessee but there are tional Steam Pump Co., 231 Fed. not funds on hand to pay the 594, 145 C. C. A. 480; American 958 LAW OF RECEIVERS. reluctant to operate a business througli a receiver, but where the duration of the receivership was apparently temporary and the necessity of operation was apparent in order to preserve the good will, which was often the greatest element of value of a business, they very nat- urally authorized the receiver to conduct operations until it could be determined what final disposition of the receiv- ership property would be necessary. Where a receivership is created in a suit which does not involve the dissolution of the corporation, it is generally expected that the receivership property will be restored to the corporation when the issues in the case have been decided, and naturally the preservation of the property, if it be a business property, necessarily involves the con- tinuation of the business by the receiver pending the receivership so as to prevent loss and continue it as a going business. When, however, the purpose of the action in which the receiver has been appointed is the dissolution of the cor- poration, then a question is naturally presented as to whether it is for the best interests of the receivership to continue the business with a view to selling it as a going business or to close up its affairs with the least possible delay. Where the dissolution of the corporation is be- cause of its insolvent condition, a court naturally will not desire to run a business which the persons most inter- ested have been unable to run successfully. If, however, Pig Iron, etc., Co. v. German, 126 Co., 87 Ore. 74, 169, Pac. 519, re- Ala. 194, 85 Am. St. Rep. 21, 28 So. ceiver operated a hotel under or- 603; Graver v. Greer, 107 Tex. 356, der of court. 179 S. W. 862. In Jacob v. Uncle Sam Plant- Todd V. Lippincott, 258 Fed. 205, ing & Mfg. Co. (La.), 81 So. 604, is an instance of a very success- a receiver was placed in charge fully conducted receivership. of a corporation conducting a plan- In Michel V. V^illiam Necker, tation and was directed to borrow Inc. (N. J. Ch.), 106 Atl. 449, the money to pay taxes and proceed receiver continued in operation an with its operation. The corpora- undertaking business. tion, though embarrassed, was not In Henderson v, Tillamook Hotel insolvent. PRIVATE CORPORATIONS. 959 the failure of the business lias been because of insufficient capital or temporary financial embarrassments and the creditors and the corporation itself through its officers desire to continue the business as a going concern, it is within the discretion of the court to allow its receiver to do so, and it may allow funds to be obtained through the sale of receiver's certificates.^ A distinction, however, exists as to the conducting of operations as between strictly private corporations and public utilities as far as such operations may be dependent upon the issuance of receiver's certificates for that purpose. In a private cor- poration receivership the court will not as against the objection of creditors issue receiver's certificates for operating funds and make such certificates a prior lien to other existing heirs. Whereas a broader rule obtains in respect to public utilities on account of the interest of the public in having the service furnished and the fact that every public utility receivership has in it the germ of a sale of the property as a going concern or of a reor- ganization for the purpose of continuing the service.^ Of course, where the business of the corporation is in such a condition that it is a going concern at the time of the 2 International Trust Co. v. v. Chester County Electric Co., 9 Decker Bros., 152 Fed. 78, 11 L. R. Del. Ch. 247, 80 Atl. 801; Cronan A. (N. S.) 152, 81 C. C. A. 302; v. District Court, 15 Idaho 184, 96 Pusey & Jones v. Pennsylvania Pac. 768; International Trust Co. Paper Mills, 173 Fed. 634; Haines ^- decker Bros., 152 Fed. 78. 11 Ti 1 XI71, 1 r^ ooA TT'^A ocQ L. R. A. (N. S.) 152, 81 C. C. A. V. Buckeye Wheel Co., 224 Fed. 289, v / i -„^ ^ ^ . ,-«r TT ^ rriu 302; Nowcll V. International Trust 139 C. C. A. 525; Horton v. Thomas ^^^ ^^^ ^^ ^ McNally Co., 168 App. Div. 248, ^^^ 153 N. Y. Supp. 429; Karn v. j;^ ^^^^^ instances the issuance Rorer Bron Co., 86 Va. 754, 11 S. E. ^j receivers' certificates for pur- 431; Lockport Felt Co. v. United poses of preserving the property Box Board & Paper Co., 74 N. J. have been denied in the cases ot Eq. 686, 70 Atl. 980; Lewis v. Lin- private corporations. Hooper v. den Steel Co., 183 Pa. St. 248, 38 Central Trust Co., 81 Md. 559, 29 Atl. 606. L. R. A. 262, 32 Atl. 505; Perrin, 3 Title Ins., etc., Co. v. California etc., Printing Co. v. Cook Hotel, Development Co., 171 Cal. 227, 152 etc., Co., 118 Mo. App. 44, 93 S. W. Pac. 564; Central Trust & Sav. Co. 337. 960 L-^W OF RECEIVERS. receivership and the income appears to be such as to warrant continuing the business in operation, the court is only then concerned with the question whether the preservation of the business requires its operation. If the financial needs of the corporation are merely such as may be procured from a resort to its income capacity or excess of assets over liabilities, money may be obtained for operation expenses without the necessity of issuing receiver's certificates, which displace prior liens. This is the situation in most of the cases where the court authorizes the receiver to continue operations of the busi- ness. The court merely authorizes him to continue it as a going business. When a business which is being conducted by a re- ceiver is being dissipated by the expenses of operation, the receiver should apply to the court for permission to sell the property.^ A receiver should obtain an order of the court author- izing him to operate the business, since without such an order from the receivership court he is personally liable for losses resulting from such operations.^ §362. Duty of Receiver Regarding Pending Contracts of Employment. Contracts for personal employment stand, in general, on the same basis as other executory contracts. If the receiver does not continue the contract, the question as to whether or not the employee is entitled to damages is determined, practically, according to general principles of law. If the contract was one terminable at will, there could, of course, be no question of damages; if it was the employment of an elective officer under provisions of 4 state Cent. Sav. Bank v. Fan- leans, etc., Milk Co., 122 La. 717, ning, etc., Chain Co., 118 Iowa 698, 48 So. 162. 92 N. W. 712. A receiver should not turn over 5 State Cent. Sav. Bank v. Fan- a milling property to another per- ning, etc., Chain Co., 118 Iowa 698, son to operate. Shadewold v. 92 N. W. 712; Villere v. New Or- White, 74 Minn. 208, 77 N. W. 42. PRIVATE CORPORATIONS, 961 the charter or by-laws, or an employment of some other servant, for a stated period or on condition that notice of intention to terminate it should be given by the com- pany, but carrying wages payable periodically in an amount fixed for the period, damages are not allowed, on the theory that tlie intervention of a receivership was an event that might well have been in the minds of the par- ties at the time the contract was made as one liable to occur and prevent the company's further fulfillment of the contract, and on somewhat the same principles that apply in the case of the death of an employer ;^ if, how- 1 McElheney v. Jasper Trading Co., 12 Ga. App. 790, 78 S. E. 727; Law V. Waldron, 230 Pa. 458, Ann. Cas. 1912A, 467, 79 Atl. 647. An executive officer of a corpo- ration is not entitled to a salary allowance for salary accruing un- der his contract for services, after the appointment of a receiver. Williamson County Bkg. & T. Co. V. Roberts-Buford Dry Goods Co., 118 Tenn. 340, 12 Ann. Cas. 579, 9 L. R. A. (N. S.) 644, 101 S. W. 421. On a receivership of an insol- vent corporation, the termination of an existing contract for the services of a general manager by the receiver does not entitle the manager to damages since the pos- sibility of such a termination is implied. Du Pont v. Standard Arms Co., 9 Del. Ch. 315, 81 Atl. 1089. A corporation receivership ter- minates a contract previously made by the corporation employ- ing a general counsel at a yearly salary, which was terminable at will, and no action or notice by its officers or directors was neces- sary to effect such termination II Rec— 61 since their powers are suspended. Burton v. Bay State Gas Co. of Delaware, 188 Fed. 161, 110 C. C. A. 197. In the case of an uncompleted employment contract, the recei"- ership of the employer's property and business has been regarded as preventing completion by opera- tion of law, leaving neither party further bound by it, and leaving the employee no allowable claim for damages. People v. Globe Ina Co., 91 N. Y. 174. In Commonwealth v. Eagle Fire Ins. Co., 14 Allen 344, it was held that inasmuch as the exercise of the functions of the president of a corporation were suspended during the receivership, he was not entitled to salary. But where the contract between the corpora- tion is not so much one of per- sonal service as one of an agency, such as that of an advertising agent of a newspaper publishing company the receiver may refuse to adopt the contract and thus leave the party to his remedy of damages for breach of the con- tract by the corporation. Com- mercial Pub. Co. V. Beckwith, 161 N. Y. 329, 60 N. E. 642. 962 LAW OF RECEIVERS. ever, the employment was for a stated period with wages fixed at a certain amoimt for the period, tliough, possibly, to be paid in installments during its course, the contract is regarded as indivisible and damages are allowed.^ § 363. Right of Receiver to Employ and Discharge Employees Connected With the Receivership. Most of the controversies which have arisen with re- spect to employments by receivers have occurred in con- nection with railroad employment, and will be discussed under the chapter devoted to Public Utilities, since there are phases in connection with the topic, and especially in so far as the right to strike is concerned, Avhich are affected to some extent by the fact of the public's interest in the continued operation of a public utility by whomso- ever may be in possession thereof. In respect to private corporations, the receiver in em- ploying servants and agents to aid him in operating the receivership property is in no better nor worse condition than private employers, with the exception that in the case of a conspiracy to interfere unlaw^fully with the 2 Miller v. Cosmic Cement, Tile missal, on the theory that the re- & Stone Co., 109 Md. 11, 71 Atl. 91. ceivership was the equivalent of Judgment, Rosenbaum v. United disablement at completing the States Credit-System Co. (Sup. contract. 1897), 60 N. J. Law 294, 37 Atl. In Spader v. Mural Decoration 595, reversed; Rosenbaum v. Mfg. Co., 47 N. J. Eq. 18, 20 Atl. United States Credit-System Co., 378, contracts existed with certain 61 N. J. L. 543, 40 Atl. 591. employees for a term of years Baker v. D. Appleton & Co., 187 for service as salesmen and fore- N. Y, 548, 80 N. B. 1104, affirming men. Before the expiration of the 107 App. Div. 358, 95 N. Y. Supp. agreement the corporation employ- 125; Lenoir v. Linville Improve- ing them became insolvent and a ment Co., 117 N. C. 471, 23 S. E. receiver was appointed over it. 442, 51 L. R. A. 146. It was held that the employees In Isaac McLean Sons Co. v. were entitled to damages for William S. Butler & Co., 227 Fed. breach of the contract, which 325, damages were allowed, based claim for damages should be de- on the agreed salary for the con- termined like other claims ot tract period, less what was earned that character and presented in under other employment after dis- the receivership like other claims. PRIVATE CORPOEATIONS. 963 operation of tlie receivership property, tlie employees or other persons aiding in the conspiracy would be guilty of contempt of court, whereas they would not be so guilty in the case of a private employer unless protected by some injunctional order.^ Where the provisions of a Workmen's Compensation Act are not made exclusive, a receiver may elect whether to operate under its provisions or not.^ § 364. Rights of Employees in Case of Grievances. The receiver is the arm of the court. He is the agent of the court in respect to the business affairs of the receivership and the property covered by it. In his rela- tion to employees the receiver should, undoubtedly, take the same position which the court is presumed to take. It is the duty, of course, of the court to do justice to every employee connected with the receivership, and pre- vent, by its orders, oppression, injustice, or wrongs toward any of its employees.^ In the case of grievances on the part of employees of the receivership, they un- doubtedly have a right to petition the court to be heard in regard to the matter and the court will investigate tlie matter so presented to it.^ §365. Right of Employees of Receiver to Belong to Trade- Unions. The right of employees to belong to trade-unions has been recognized in connection with railroad receiver- ships.' But it has been held that although the receiver 1 Thomas v. Cincinnati, N. O. & i Farmers Loan & Trust Co. v. T. P. Ry. Co., 62 Fed. 803; Re Central, etc., Banking Co., 166 Fed. Doolittle, 23 Fed. 544; United 333 (a railroad receivership case). States V. Kane, 23 Fed. 748; Re 2 Continental Trust Co. v. To- Higgins, 27 Fed. 443. See full dis- ledo, St. L. & K. C. R. Co., 59 Fed. cussion of the subject under Pub- 514 (a railroad receivership case), lie Utilities. i Thomas v. Cincinnati, etc., Ry. 2 Devine v. Delano, 272 Del. 166, Co., 62 Fed. 803 (opinion by Judge Ann. Cas. 1918A, 689, 111 N. E. 742. Taft). 964 LAW OF RECEIVERS. may deal with a trade-union regarding the terms and conditions of the employment that the same schedules must apply to all employees regardless of whether they are members of the union or not.- This is on the ground that the court will not discriminate between employees. The equity courts are the means by which the rules of law are kept abreast of the complex industrial changes and current methods of commercial life. They adapt their remedies to the new conditions wdtli which business affairs are confronted with a view to doing full and com- plete justice to all parties concerned, and it is not doubted that the equity courts will be able to properly meet and dispose of all phases of employment on the part of its receivers regardless of whether the situation has ever arisen before or not. This idea is well illustrated by the remarks of the court in one of the earlier cases,^ w^here the court said: "Every just order or rule known to equity courts was born of some emergency, to meet some new conditions, and was, therefore, in its time, without precedent. If based on sound principles, and beneficent results follow^ their enforcement, affording necessary relief to the one party without imposing illegal burdens on the other, new remedies and unprecedented orders are not unwelcome aids to the chancellor to meet the constant and varying demands for equitable relief," The extent to which the employees of a receiver may enforce their demands by means of a strike are set. forth under that heading in the chapter on Public Utilities. § 366. Payment of Wages to Persons Employed by the Receiver. The persons employed by the receiver in administering the estate are naturally paid by the receiver from receiv- ership funds in his hands as part of the necessary costs of administration, and the general rules in regard to 2 Waterhouse v. Comer, 55 Fed. 3 Toledo, etc., Ry. Co. v. Pennsyl- 149, 19 L. R. A. 403 (a railroad re- vanla Co., 54 Fed. 746, 751, 19 ceivership case). L. R. A. 395. PRIVATE CORPORATIONS. 965 omployments and the rights arising thereunder apply/ And where the statute provides for the payment and the manner in which it shouhl be paid and funds to which it attaches, the matter is governed by the specific terms of the statute- as to whether they create a mere priority or a lien upon the receivership property. § 367. Payment of Wages Earned Immediately Prior to the Receivership. The same general rules respecting the giving of a preference which are applicable to public utility corpora- tions are applicable to a private corporation respecting a preference of claims for wages prior to the appoint- ment of the receiver. The basic foundation of this rule is a diversion of income to bondholders or betterments instead of payment of the operating expenses of the concern.^ 1 Brown v. A. B. C. Fence Co., 52 Hun 151, 5 N. Y. Supp. 95; Grabbe v. Moffit, 133 Iowa 54, 110 N. W. 142; Hilliard v. Sterling- worth Ry. Supply Co., 236 Pa. St. 82, Ann. Cas. 1913D, 1115, 84 Atl. 680. Under the rule that net earn- ings, while property is in the pos- session of a receiver appointed by a court, may be applied to the payment of claims having supe- rior equities to that of the bond- holders; held, that if a balance of salary due the president of the road was a prior claim, he had Avaived it by the published annual report as such president, in which he had put his salary each year among the paid items. If his sal- ary was not in fact paid he was only a general creditor. Addison v. Lewis, 75 Va. 701. A claim of contractors for build- ing an extension of the road did not come within the rule. Addison V. Lewis, 75 Va. 701. 2 In re Pleasant Hill Lumber Co., 126 La. 743, 52 So. 1010. 1 In Le Hote v. Boyet, 85 Miss. 636, 3 Ann. Cas. 705, 38 So. 1, the court allowed a preference in pay- ment of claims for wages for ser- vices performed for the corpora- tion before the appointment of a receiver upon a showing that such services were necessary to con- tinue the business and preserve the property. See, also, Drennen V. Mercantile Trust, etc., Co., 115 Ala. 592, 67 Am. St. Rep. 72, 39 L. R. A. 623, 23 So. 164; Dickinson V. Saunders, 129 Fed. 16, 63 C. C. A. 666 (but under statutory provi- sions) ; Jones v. Arena Pub. Co., 171 Mass. 22, 50 N. E. 15. The leading case in the federal courts allowing a preference for wages claimed for services prior to 966 LAW OF RECEIVERS. The matter of whether wages earned within a short period prior to the receivership have a certain priority of pajTiient or constitute a lien upon the corpus of the receivership property is one which is generally regulated by the statutes of the various states, and resort must be had to such statutes, which are often variant as to form, to ascertain the exact status of such claims in respect to the receivership property.^ Claims for services ren- the receivership is Fosdick v. Schall, 99 U. S. 235, 25 L. Ed. 339. In Wood V. Guarantee Trust, etc., Co., 128 U. S. 416, 32 L. Ed. 472, 9 Sup. Ct. 131, the court pointed out that the doctrine of Fosdick V. Schall, 99 U. S. 235, 25 L. Ed. 339, had never been ap- plied to any but railroad cases, and called attention to the pecu- liar property of a railroad com- pany and its functions as com- pared to a mere private corpora- tion. In this connection see, also, Cal- houn V. St. Louis, etc., R. Co., 14 Fed. 9, 9 Biss. 330; Blair v. St. Louis, etc., R. Co., 22 Fed. 471; American Loan & T. Co. v. East, etc., R. Co., 46 Fed, 101; Finance Co. v. Charleston, etc., R. Co., 52 Fed. 524; Central Trust Co. v. Chattanooga Southern R. Co., 69 Fed. 295; Douglas v. Cline, 12 Bush (Ky.) 608; Mcllhenny v, Binz, 80 Tex. 1, 26 Am. St. Rep. 705, 13 S. W. 655; Litzuberger v. Jarvis-Conklin Trust Co., 8 Utah 15, 28 Pac. 871. 2 Geppelt V. Middle West Stone Co., 90 Kan. 539, 135 Pac. 573. Under Rev. St. 1908, §§ 6998- 7000, making claims for wages in case of suspension of business or receivership preferred claims, claims of employees for labor are in a preferred class, to be paid in preference to other simple contract creditors, but do not create an express statutory lien superior to all other liens without reference to priority, though the proviso that the act shall not be construed to extend to creditors holding mortgages for debts actually ex- isting before the labor was per- formed is disregarded. Central Sav. Bank v. Newton, 59 Colo. 150, 147 Pac. 690. Wages which are part due may be made a claim prior to a mort- gage under a statute giving me- chanics and laborers employed in mills a lien on goods manufac- tured by their labor. Security Trust Co. V. Bank of Bernice, 239 Fed. 665, 152 C. C. A. 499. Under a New York statute giv- ing preference to the wages of an "employee" of a corporation and defining such an employee, and under the state court's inter- pretation of a similar statute, it was held by the federal court that an attorney employed by a public utility corporation to procure op- tions on certain properties at a fixed wage per day and certain expenses, was not an employee under the statute. Gay v. Hudson, etc.. Power Co., 178 Fed. 499. Laborers in the employment of a corporation whose property is put into the hands of a receiver PRIVATE CORPORATIONS. 967 dered the corporation prior to the receivership must be proved in the same manner in respect to facts concerning them as would be required in the absence of receivership proceedings.^ Statutes giving preferences to salaries and wages due employees of a corporation over other creditors in case of the insolvency or receivership of the corporation create a personal privilege which does not, ordinarily, pass with an assignment of the debt.* The preference accorded to railroad employees was denied in the case of a navigation company upon the theory that a navigation company Avas in a different posi- tion from that of a railroad company in that the sov- ereign power had not contributed to its construction in a way in which the sovereign power contributes to rail- road companies.^ who takes immediate possession thereof, with whom they properly file their claims, are not required to file claims with a sheriff who had levied upon all such property four days before the appointment of the receiver, unaer Iowa Acts. 23d Gen. Assem., chap. 48, giving a preference to the laborers of a corporation whose property Is seized or put into the hands of a receiver, and requiring them to file such claim with the officer seizing the property or with the receiver. St. Paul Title Ins. & T. Co. V. Diagonal Coal Co., 95 Iowa 551, 64 N. W. 606. Under some statutes of this character it is held that the pref- erence given to labor claims is only priority of payment over other simple contract creditors, and that it does not create an ex- press statutory lien superior to all other liens without reference to priority. Seymour v. Berg, 227 111. 411, 10 Ann. Cas. 340, 81 N. E. 339; McDaniel v. Osborn, 166 Ind. 1, 117 Am. St. Rep. 354, 2 L. R. A. (N. S.) 615, 75 N. E. 647. 3 Mizell V. Elmore & Hamilton Contracting Co., 219 Fed. 528, 135 C. C. A. 278. 4 Southern Ry. Co. v. Bretz, 181 Ind. 504, 104 N. E. 19; Riverside Contracting Co. v. City of New York, 218 N. Y. 596, Ann. Cas. 1918C, 1075, 113 N. E. 564; Riche- son V. National Bank of Mena, 96 Ark. 556, 132 S. W. 912. 5 Bound V. South Carolina R. Co., 50 Fed. 312, 313 (refusing a preference for arrears of salary of a general frieght and passenger agent of a navigation company). 968 LAW OF RECEIVERS. F. Sialtts of Receivers in Foreign Jurisdictions Ecspccting Property of the Corporations. §368. Assets Located in a Jurisdiction Other than that of the Domicile of the Corporation. The preceding sections concerning the administration of the estate of a corporation that has passed under a receivership have dealt primarily with reference to the marshaling of the corporate assets located within the domiciliary jurisdiction of the corporation by a receiver appointed by a court having authority therein. How- ever, with the great modern increase in the practice of casting business ownershij^s or managements into cor- porate form, it seldom happens that a corporation con- fines its enterprises to its domiciliary locality, and prac- tically every large corporation extends its business beyond that locality and acquires assets and assumes liabilities in many otlier judicial jurisdictions. When a corporation receivership extends to the closing up of its affairs and the distribution of all of its assets equitably among all of its creditors and stockholders, not only must the home assets and liabilities be taken care of, but there must, as well, be a marshaling of the foreign assets and a jDrovision for the foreign debts. These foreign affairs are administered through one of three agencies : (1) The receiver appointed by the court of its own domi- cile; (2) a receiver appointed, for the special purpose of aiding and completing the administration of the for- mer, by a court having authority within a foreign juris- diction, within wdiich the corporation has assets;^ (3) an independent receiver appointed within such foreign jurisdiction. 2 These agencies may, for convenience, be respectively spoken of as a domiciliary receiver, an ancillary receiver, and a foreign independent receiver.^ 1 See § 337 et seq., supra. ion that courts usually use the 2 See § 328, supra. term "foreign receivers" to desig- 3 It is to be remembered in read- nate receivers other than those ing any judicial decision or opin- appointed within their own juris- PRIVATE CORPORATIONS. 969 In the administration of such corporate foreign estates there are two underlying and controlling principles: (a) Each state, or jurisdiction, has the right to protect its own resident, or citizen, creditors of the corporation ; and (b) in accordance with the provisions of the consti- tution of the United States [Article IV, §2: ''The citi- zens of each state shall be entitled to all privileges and immunities of citizens in the several states"] all credi- tors of the corporation, both home and foreign, are en- titled to share equally, according to their equitable rank, in all of the assets of the estate. § 369. Right of Foreign Jurisdiction to Protect Its Resident Creditors. An important corollary of the former of these two principles is that the question as to whether or not the domiciliary receiver may enforce the collection of assets located in a foreign jurisdiction by the aid of the courts of that jurisdiction is a matter of comity between the jurisdictions to be determined by the laws and the policy and the practice of the courts of the foreign jurisdiction. Under this principle, the general rule is that a mere chancery receiver, including not only a receiver ap- pointed by a court of equity by virtue of its inherent powers but also a receiver appointed under a statute that is virtually only declaratory of the equity rule, or law, has not the privilege of suing in a foreign jurisdiction and may not be empowered to do so merely by an order of the appointing court direct- ing him to do so. This rule was applied in Booth V. Clark, a comparatively early decision of the United States Supreme Court, considered as a leading case on the subject.^ After a very careful historical re- view of the matter, the court said: ''Our industry has diction, even though the receivers i Booth v. Clark (1854), 58 U. S. referred to may be domiciliary in 322, 15 L. Ed. 164. the sense in which we have above used the term. 970 LAW OF RECEIVERS. been tasked unsuccessfully to find a case in which a re- ceiver has been permitted to sue in a foreign jurisdiction for the property of the debtor. So far as we can find, it has not been allowed in an English tribunal ; orders have been given in the English chancery for receivers to pro- ceed to execute their functions in another jurisdiction, but we are not aware of its ever having been permitted by the tribunals of the last. We think that a receiver has never been recognized by a foreign tribunal as an actor in a suit. He is not within that comity which nations have permitted, after the manner of such nations as practice it, in respect to the judgments and decrees of foreign tribunals, for all of them do not permit it in the same manner and to the same extent, to make such comity international or a part of the laws of nations. . . . In those countries of Europe in which foreign judgments are regarded as a foundation for an action, whether it be allowed by treaty stipulations or by comity, it has not as yet been extended to a receiver in chancery. In the United States, where the same rule prevails be- tween the states as to judgments and decrees, aided as it is by the first section of the fourth article of the consti- tution and by the Act of Congress of May 26, 1790, by w^hich full faith and credit are to be given in all of the courts of the United States to the judicial sentences of the different states, a receiver under a creditor 's bill has not as yet been an actor as such in a suit out of the state in which he was appointed. . . . We think that a re- ceiver could not be admitted to the comity extended to judgment creditors, without an entire departure from chancery proceedings, as to the manner of his appoint- ment, the securities which are taken from him for the performance of his duties, and the direction which the court has over him in the collection of the estate of the debtor, and the application and distribution of them. If he seeks to be recognized in another jurisdiction, it is to take the fund there out of it, without such court hav- PRIVATE CORPOKATIONS. 971 ing any control of his subsequent action in respect to it, and without his having even official power to give secur- ity to the court, the aid of which he seeks, for his faith- ful conduct and official accountability. All that could be done upon such an application from a receiver, according to chancery practice, would be to transfer him from the locality of his appointment to that where he asks to be recognized, for the execution of his trust in the last, under the coercive ability of that court; and that it would be difficult to do, where it may be asked to be done, with, out the court exercising its province to determine whether the suitor, or another person within its jurisdiction, was the proper person to act as a receiver." It is true that in the case just referred to, the receiver was not a corporation receiver. He was one appointed by a New York state court, under a statute, to proceed, in the interest of a judgment creditor, against equitable assets of the debtor.^ However, the principle as laid down, is of general application, and is so regarded by the courts. Accordingly, Ave find it said by the United States Circuit Court of Appeals for the Sixth Circuit, in a recent case, in which a corporation receiver of an Ala- bama corporation, appointed by an Alabama state court under a state statute, commenced suit in a federal court in Ohio, that: ''It is the settled rule that a mere chan^ eery receiver is but an officer of the court appointing him, and that in the absence of some conveyance or stat- ute vesting in him title to the debtor's property he can not sue in the courts of a foreign jurisdiction for its recovery upon the mere order of the appointing court, or without other authority than that arising from his appointment as receiver; and that in the absence of actual conveyance ... the question whether the re- ceiver has title is governed by the statutes of the state by whose court the appointment was made." The con- clusion in the case was that under the statute, as inter- 2 See Booth v. Clark, supra. 972 LAW OF RECEIVERS. preted by the Alabama courts, the receiver had no ri^lit to sue except as authorized to do so by the appointing court and that he could not under the instant statute be authorized to sue in a foreign jurisdiction.^ In the case of Booth v. Clark, the action was laid in the federal court of the District of Columbia and the con- test was between the receiver appointed by the New York state court and a trustee appointed in voluntary bankruptcy proceedings in New Hampshire. At the out- set of its argument the court stated the question of the case to be: ^'As an officer of a court of chancery, for a particular purpose, will he [the receiver] be recognized as such by a foreign judicial tribunal, and be allowed to take from the latter a fund belonging to the debtor for its application to the payment of a particular creditor within the jurisdiction of the receiver's appointment, there being other creditors in the jurisdiction in which he now sues contesting his right to do sol" While it thus appears that there was not involved in the case any necessity of a court's protecting creditors who were resi- dents, or citizens, of its own jurisdiction, there is, in the argument, as shown by the above quotations, at least an implication that the reason usually given for not permit- ting a chancery receiver to sue outside of the appointing 3 Sterrett v. Second Nat. Bank, tional M. F. Ins. Co., 90 S. C. 544, etc., 246 Fed. 753, 754, 159 C. C. A. Ann. Cas. 1913D, 221, 74 S. .E. 33; 55. See Hale v. Allinson, 188 Howard v. Chesapeake & O. Ry. U. S. 56, 47 L. Ed. 380. 23 Sup Ct. ^o., 11 App. Cas. (D. C.) 300. 244; Great Western Min., etc., Co. ^n action against a foreign cor- poration, having an agency in the V. Harris, 198 U. S. 561, 49 L. Ed 1163, 25 Sup. Ct. 770; Keatley v state, is not prevented from pro- ceeding to judgment, by a subse- Furey, 226 U. S. 399, 57 L. Ed. 273. ^^^^^^ ^^^^.^^ dissolving the corpo- 33 Sup. Ct. 121; Southern Bldg. & ration and appointing receivers to L. Assn. v. Price. 88 Md. 155, 42 ^{nd up its affairs, made in the L. R. A, 206. 41 Atl. 53; Homer v. state of its creation, unless it is Barr P. E. Co.. 180 Mass. 163, 91 shown that the corporation is ut- Am. St. Rep. 269. 61 N. E. 883; terly extinct. Hunt v. Columbian Leman v. MacLennan, 75 Ohio St. Ins. Co., 55 Me. 290, 92 Am. Dec. 643, 80 N. E. 1129; Frink v. Na- 592, PRIVATE CORPORATIONS. 973 jurisdiction is the court's duty to protect such creditors. In the case cited from the Sixth Circuit there was no question of creditors other than those represented by the receiver and the decision was rested on another ground, as follows: ^'A disposition by this court of the appeal without determination of the merits is unfortu- nate. . . . But lack of title in plaintiff is not a mere * technicality' in the ordinary meaning of that term, for there is always, theoretically at least, a possibility that defendant may be subjected to further suit by the owner of the title and right of action." This reason, however, had not appealed to the trial court; and while, as thus appears, other reasons for not permitting a chancery receiver to sue in a foreign juris- diction may be sometimes assigned, as a practical propo- sition the right of local creditors to be protected is the one usually given. In a South Carolina case, in which a North Carolina corporation and its receiver, appointed by a federal court in North Carolina, were sued on a claim against the receiver himself and one not accruing under the corporation management, the plaintiff having attached corporate funds in South Carolina, the court said: ''It appears in the record that [the appointing court] had directed the application for an ancillary re- ceiver in the federal court of South Carolina; yet this had not been done, but, in case the ancillary receiver should thereafter be appointed, it was the purpose of the receiver to take the fund out of the jurisdiction of the courts for South Carolina, both federal and state, and require the domestic creditor to go into the foreign juris- diction to recover his claim. It further appeared that it was the intention of the receiver to distribute between the creditors of the bankrupt and the creditors of the receiver 'equitably.' Equitably may mean equally. If this is not his intention it ought to appear. The creditors of the bankrupt and the creditors of the receiver are not in the same class. The creditors of the receiver in the 974 LAW OF RECEIVERS. administration of the bankrupt estate must be paid in full before there is anything to be distributed equitably between the creditors of the bankrupt estate. . . . There is no showing in the record that there is any other creditor who is in the same class with the respondents." The appeal was by the receiver from an order of the lower court denying the receiver's motion to vacate the attachment, and the order was affirmed.* 4 Guimarin & Co. v. Southern L. & T. Co., 100 S. C. 12, 84 S. E. 298. On the same principle a state may protect its own resident, or citizen, debtors of a corporation against an action instituted under such circumstances as to be ob- noxious to the views or policy of the state as to what constitutes due process of law. Under a stat- ute of New York the state super- intendent of banks was empow- ered to take possession, under certain circumstances, of a bank, and, if he deemed it necessary, levy an assessment against stock- holders upon their statutory added liability, without any judicial pro- ceeding, or the appearance of the stockholders or of the corporation. Having done so in a certain case, the superintendent and certain Tennessee stockholders appeared in the courts of that state to en- force collection of the assessment. In affirming an order of the trial court dismissing the action, the state Supreme Court said: "The statutory rule quoted could be applied here only through comity. Should comity, a favor, be extended here, in support of the arbitrary non-judicial action of the superintendent of banks of the state of New York, which would cast upon our own citizens the burden of either going to New York in person, or by agents, and at great expenditure of time and money investigating all of the as- sets and liabilities of a great bank- ing institution in that state? The unreasonableness of such a course is manifest on its mere statement. Cases may be easily imagined where the initial expense of such an investigation would be much more than the liability sought to be enforced. In such instances the mere demand by suit would be equivalent to a compulsion to pay, and so the party would be deprived of his day in court. If the rule could so operate in any case it ought not to be enforced in this jurisdiction at all. So the question recurs: Shall we enforce a liability bond solely on the arbi- trary action of the superintendent of banks of the state of- New York? We decline to do so. . . . But we should add in this connec- tion that the question is not whether the New York act is valid. That is an inquiry for the New York courts, under the constitu- tion of that state, and we do not express an opinion on it. We do say, however, that it is against the policy of this state to vest such powers in a mere ministerial offi- cer, powers which we regard as of a highly judicial nature, to be PRIVATE CORPORATIONS. 975 That the protection of domestic creditors has been a dominant reason for restricting the chancery receiver's right to sue is shown by the fact that, at least in more recent years, the restriction has not been enforced in the absence of a showing that there were domestic creditors or a positive law or policy of the jurisdiction against doing so.^ In other words, the fact of a receivership in the domicile state of a corporation will not in the absence exercised only by courts after due notice and the appearance of parties in person or by represen- tation." Van Tuyl v. Carpenter, 135 Tenn. 629, 188 S. W. 234. 5 The rule that a receiver has no extra-territorial jurisdiction is subject to a well established ex- ception which allows him to sue extra-territorially where there are no domestic creditors and where it is not against the public policy of the state in which the suit is brought. Rogers v. Riley, 80 Fed. 759. The limitations under which a foreign receiver may enforce a claim to the property of the non- resident debtor are those pre- scribed by the law and policy of the state wherein the property is situated. Zacher v. Fidelity Trust, etc., Co., 106 Fed. 593, 45 C. C. A. 480. See Pollock v. Carolina Inter- state Building & Loan Assn., 48 S. C. 65, 59 Am. St. Rep. 695, 25 S. E. 977: Patterson v. Lynde, 112 111. 196, 207; Chicago, etc., Ry. Co. V. Keokuk, etc., Packet Co., 108 111. 317, 48 Am. Rep. 557; Waters- Pierce Oil Co. V. Bell, 71 Mo. App. 653; Van Tuyl v. Carpenter, 135 Tenn. 629, 188 S. W. 234; Har- dee V. Wilson, 129 Tenn. 511, 167 S. W. 475. A receiver of a foreign corpora- tion appointed by the court of the state of its domicile and consid- ered as a common-law receiver is not vested with the legal title to real estate of the corporation sit- uated in South Dakota, where the corporation has not voluntarily, or otherwise, conveyed the property to the receiver. Joy v. Midland State Bank, 26 S. D. 244, 128 N. W. 147. "Our law prefers the claims of the domestic attaching creditors to those of foreign creditors, or claimants, and this policy will be upheld against indirect as well as against direct attacks." Clark v. Supreme Council of Order of Chosen Friends, 146 Cal. 598, 80 Pac. 931. Every remedy to gather in the assets is afforded unless it would interfere with the policy of the state or impair the rights of its own citizens. A state that does not discriminate between its own citizens and those of a foreign state discharges all the obliga- tions required by the rule of cour- tesy. Mubon V. Ongley Electric Co., 156 N. Y. 196, 50 N. E. 805. 97G LAW OF RECEIVERS. of ancillary receivership prevent a foreign creditor from asserting his rights.*' § 370. Effect of Having Ancillary Receivers Appointed. One method of overcoming the above noticed restric- tion upon the right of a domiciliary receiver to sue for assets in a foreign jurisdiction is to have ancillary re- ceivers appointed in the foreign jurisdictions in which assets are located. Such receivers may be given all the powers and rights as to the local assets of the corpora- tion as the domiciliary receiver may have in the home jurisdiction or such as they might have in the jurisdic- tions in which they are appointed if they were there domiciliary receivers.^ Such receivers, however, are under the control and direction of the courts appointing 6 Choctaw, etc., R. Co. v. Wil- liams, etc., Co., 75 Ark. 365, 87 S. W. 632; Hunt v. Columbian Ins. Co., 55 Me. 290, 92 Am. Dec. 592; Taylor v. Columbian Ins. Co., 96 Mass. (14 Allen) 353; Osgood v. Maguire, 61 N. Y. 524; Woerishof- fer V. North River Const. Co., 99 N. Y. 398, 2 N. E. 47; Kruger v. Bank of Commerce, 123 N. C. 16, 31 S. E. 270. 1 On the application for an an- cillary receiver in a federal juris- diction, while a stockholder may intervene to contest the appoint- ment, he may not attack the ap- pointment of the domiciliary re- ceiver in the home federal district. McGraw v. Mott, 179 Fed. 646, 103 C. C. A. 204. An ancillary receiver, appointed by a federal court in Massachu- setts, M'ith all the powers granted to the domiciliary receiver, may use, in a Massachusetts court, to recover from one W'ho had acted as trustee of the corporation, prof- its wrongfully made by him in the execution of his trust, when the order of original appointment au- thorized the receiver to sue in any court to recover assets of the cor- poration. Bay State Gas Co. v. Rogers, 147 Fed. 557. Title to the local personal assets of a corporation vests in an ancil- lary receiver appointed in New York where the order of appoint- ment of the domiciliary receiver vested title to the corporate assets in that official. Smith v. Eighth Ward Bank, 31 App. DIv. 6, 52 N. Y. Supp. 290. Where an action had been com- menced in New York by a foreign corporation to recover unpaid as- sessments on capital stock it was proper for an ancillary receiver appointed in that state to continue the action in the company's name, under the New York statute relat- ing to the effect of a transfer of interest upon a pending action. Sigua Iron Co. v. Brown, 171 N. Y. 488, 64 N. E. 194. PRIVATE CORPORATIONS. 977 lL(;m anJ not uiuler the control of the domiciliary court; and the former courts, before permitting the assets col- lected in their jurisdictions to be sent to the domiciliary court for distribution will provide, in such ways as may be necessary, for the due protection of local creditors.^ 2Thornley v. J. C. Walsh Co., 200 Mass. 179, 86 N. E. 355; Brun- Tier V. York B. Co., 78 W. Va. 702, 90 S. E. 233. The New York statutes relating to the duties of a receiver of an insolvent corporation do not apply to an ancillary receiver; and while such a receiver is amenable to the orders of the court appointing him and may seek instructions from such court as to his proper course in the details of his administration, his accounts will not be sur- charged, if they have been sub- mitted to and approved by the domiciliary court, simply because he has failed to seek the counsel of the local court if his conduct otherwise has been proper and due regard to the rights of local cred- itors has been shown. Strauss v. Casey Machine, etc., Co., 68 Misc. Rep. 474, 124 N. Y. Supp. 32. When a domiciliary receiver, having been appointed ancillary receiver, attacks as invalid an at- tachment levied upon assets in the ancillary jurisdiction subsequent to the domiciliary but prior to the ancillary appointment, on the ground that the corporation was dissolved at the time of the levy, the attack is derogatory to the receiver's own ancillary title, and a motion to vacate the attachment on that ground will be denied. Hammond v. National Life Assn., 58 App. Div. 453, 69 N. Y. Supp. 585; appeal dismissed, 168 N. Y. 262, 61 N. E. 244. II Rec— 62 A foreign receiver of a corpora- tion having been appointed and having collected the local assets, and having turned them over to an ancillary bankruptcy receiver, after the latter had been appointed trustee by the primary bankruptcy court, the ancillary proceedings having been made necessary by the fact that the assets were in the possession, not of the bank- rupt, but of the state court at the time of the adjudication, and notwithstanding that the trustee, under the bankruptcy law, was vested with title, it was the duty of the ancillary court to hold the local fund subject to statutory preferred claims of local creditors. "The object of bestowing ancillary jurisdiction would naturally be to invest the tribunal, whose aid is once invoked, with power itself to control the agencies coming within its territorial jurisdiction, and likewise the property found and sought to be recovered therein on behalf of the bank- rupt's estate. It would be an an- omalous proceeding which would suffer an ancillary receiver or a trustee in bankruptcy at his op- tion to withdraw property recov- ered through the aid of the ancil- lary tribunal and regardless alike of the tribunal itself and resident suitors there appearing and claim- ing priorities or liens against the property. This would be to make the ancillary tribunal a mere in- strument of the official instituting 978 LAW OF RECEIVERS. § 371. Eflfect of Various Statutes Making Receiver an Assignee or Quasi-Assignee of Estate. Legislatures liave devised another method for over- coming the territorial limitations attaching to a chancery- receiver's powers to marshal the assets of a receivership corporation. Statutes have been enacted giving courts power to appoint receivers in whom, upon their appoint- ment, shall vest the title to all of the corporate assets wherever they may be situated. At least as far as per- sonal property is concerned, such property being gener- ally considered as having no situs of its owm and as fol- lowing the person of its owner, such statutory provision effectually bars any objection to the receiver's being accorded the privilege of suing extra-territorially on the score of danger to the defendant from liability to a sec- ond suit, and we find it frequently stated to be the general rule that such a statutory receiver may sue in any juris- the action, since it would deny to the tribunal power to pass upon the rights of adverse claimants and even of a person found in possession of the property. Such a proceeding would hardly square with due process of law; it would savor rather of violence. . . . Ancillary jurisdiction, it is true, signifies power to aid primary jurisdiction. But the power in an ancillary tribunal to take posses- sion of property at all is founded on the interest therein of the per- son or estate in whose right the proceeding is maintained; and' this interest can not, in the nature of things, be ascertained without passing upon such adverse inter- ests as may be claimed by others in the property. When, therefore, an ancillary tribunal takes posses- sion, whether with or without op- position, such possession draws to that tribunal power, indeed, im- poses a duty, to determine all questions of priorities and liens affecting the property. This ap- plies with especial force to the rights of resident adverse claim- ants." Emerson v. Castor, 236 Fed. 29, 149 C. C. A. 239. In New York it has been held that an ancillary receiver is a final receiver as to property of a for- eign corporation in the state, and thus within its general statute. Mubon v. Ongley Electric Co., 156 N. Y. 196, 50 N. E. 805. Creditors residing outside of the jurisdiction of the court appointing an ancillary receiver are not al- lowed to intervene in its proceed- ings and present their claims since their remedy is participation. Sands v. E. S. Greeley & Co., 80 Fed. 195. PRIVATE CORPORATIONS. 979 diction.* It is not necessary that the statute should de- clare the corporate title to be vested in the receiver; it is sufficient if the statute provides that the receiver may 1 Bernheimer v. Converse, 206 U. S. 516, 51 L. Ed. 1163, 27 Sup. Ct. 755; Converse v. Hamilton, 224 U. S. 243, Ann. Cas. 1913D, 1292, 56 L. Ed. 749, 32 Sup. Ct. 415; Goss v. Carter, 156 Fed. 746, 84 C. C. A. 402; Mottinger v. Hendricks, 208 Fed. 824; Ballard v. Audubon, etc., Bank, 222 Fed. 57, 137 C. C. A. 595; Strout v. United Shoe M, Co., 195 Fed. 313; Lyon v. Russell, 41 App. Cas. (D. C.) 554; Howarth v. Lombard, 175 Mass. 570, 49 L. R. A. 301, 56 N. E. 888; Wamsley v. H. L. Horton & Co., 153 N. Y. 687, 48 N. E. 1107, affirming 42 N. Y. Supp. 767, 12 App. Div. 312; Royal Trust Co. V. Harding, 155 App. Div. 104, 140 N. Y. Supp. 9, affirming order, 78 Misc. Rep. 309, 137 N. Y. Supp. 1101; In re People's Surety Co. of New York, 82 Misc. Rep. 518, 144 N. Y. Supp. 131; Van Tuyl v. Carpenter, 135 Tenn. 629, 188 S. W. 234; Hardee v. Wilson, 129 Tenn. 511, 167 S. W. 475; Oilman v. Ketcham, 84 Wis. 60, 36 Am. St. Rep. 899, 23 L. R. A. 52, 54 N. W. 395; Parker v. Stoughton Mill Co., 91 Wis. 174, 51 Am. St. Rep. 881, 64 N. W. 751. A statute of Missouri provided that the State Superintendent of Insurance might institute proceed- ings looking toward the dissolu- tion of an insurance company and that, if a decree of dissolution was made, all of the corporate assets should vest "in fee-simple and ab- solutely" in the superintendent to be disposed of for the benefit of all interested persons. A Judgment for a very large sum having been rendered in Missouri against a Missouri insurance corporation, the insurance superintendent in- stituted proceedings under the statute and a temporary receiver was appointed. Thereupon certain policyholders in Louisiana com- menced an action in a Louisiana state court against the company, the temporary receiver, the local agent holding certain local assets, and others, "the object of which was to have the assets in Louisi- ana declared a trust fund and ap- plied to the payment of the claims of Louisiana policyholders and creditors in preference to others," and a receiver of the local assets was appointed. The company hav- ing been subsequently dissolved, the state superintendent was, on his own motion, made a party to the Louisiana action, and filed a petition to have the case trans- ferred to the federal circuit court for the district of Louisiana on the ground of diversity of citizen- ship. The state receiver moved to have the case remanded to the state court on the ground that the Missouri superintendent, being sim- ply an officer of that state, was without capacity to sue in Louis- iana. From an order granting this motion an appeal was taken to the United States Supreme Court. In the course of its opinion the Su- preme Court argued as follows: "The entire controversy is be- tween the appellees, representing the Louisiana creditors and policy, holders on the one side, and . the statutory representative of the 980 LAW OF RECEIVERS. sue or may he authorized to sue extra-territorially.- The question as to the receiver's right to sue is determined by the interpretation jjlaced upon the statute by the courts of the state in which it was enacted.^ The rii^ht corporation and its property on the other, as to their respective rights to what the appellees claim are Louisiana assets belonging primarily to Louisiana creditors. The superintendent is not an officer of the Missouri state court, but the person designated by law to take the property of any dis- solved life insurance corporation of that state. . . . We are aware that, except by virtue of some statutory authority, an adminis- trator appointed in one state can not generally sue in another, and that a receiver appointed by a state court has no extra-territorial power; but a corporation is the creature of legislation and may be endowed with such powers as its creator sees fit to give it. Neces- sarily it must act through agents, and the state which creates it may say who those agents shall be. One may be its representa- tive when in active operation and in full possession of all its powers, and another if it has forfeited its charter and has no lawful exis- tence, except to wind up its affairs. . . . [The superintendent], there- fore, became, by operation of law, the successor of the corporation in the litigation these appellees insti- tuted in Louisiana." The order re- manding was reversed. Relfe v. Rundle, 103 U. S. 222, 26 L. Ed. 337. 2 Irvine v. Baker, 225 Fed. 834. 3 Sterrett v. Second Nat. Bank, 246 Fed. 753, 159 C. C. A. 55. See Harris-Woodbury Lumber Co. v. Coffin, 179 Fed. 257. In Kelly v. Dolan, 218 Fed. 966, the court in drawing attention to the distinction between the pow- ers of chancery and statutory re- ceiver in this respect, said: ■'The sound principle would seem to be that it is denied only the right to do the things which the court of its appointment has prohibited ft from doing. If that court sanctions the exercise of the right, it would further seem that the court of another jur- isdiction should permit it to do (if no other reason exists for refusal) what the court of its appointment would permit to be done there. This view, al- though in conflict with Harper v. News Co. (C. C), 128 Fed 979, would seems to be in accord with Porter v. Sabin, 149 U. S. 479, 37 L. Ed. 815, 13 Sup. Ct. 1008. Har- per V. News Co., moreover, was the case of a chancery receivership, and the present case is being con- sidered as one of a statutory re- ceiver, upon whom has devolved the title to the chose in action. Such a receiver, because he has the legal title, may assert his right of action anywhere, on the prin- ciple that title under the law of the situs is a good title every^ where. As the title is thus in the receiver, and in him alone, it would logically follow that no one else, and therefore no stockholder, could maintain the action. PRIVATE CORPORATIONS. 981 of the receiver to sue extra-territorially must be alleged and proved.^ However, sucli recognition of this statutory, or invol- untary, transfer of title to the receiver is only a matter of comity among the jurisdictions and is not accorded in opposition to any law or policy of a jurisdiction designed to protect its own residents, or citizens. This proposition was pointed out in the case of Booth v. Clark, above referred to. It was there pointed out that, although England, contrary to an earlier policy, and some other nations of Europe had adopted a policy of recognizing '•If this were an action at law, this result would surely follow. Inasmuch, however, as it is a pro- ceeding in equity, it may be that it can be sustained as a proceeding for the redress of an injury to the corporation to which the receiver is a necessary party, because he has succeeded to the rights of the corporation, and to which the stockholder is also a party, be- cause required to be one in order to meet the terms of the permis- sion to sue granted by the court of the receiver's appointment, and in order that the stockholder may be made answerable for the costs. This would further appear to ac- cord with the requirements of the real situation. If injury has been done to the corporation, the wrong should be redressed. Whether the Injury has been done can only be determined by an action. The ac- tion might be brought by the re- ceiver. The court could require its receiver to bring the action. Permitting it to be brought for the benefit of the corporation and of the receiver by a stockholder would seem to be in effect the same thing. As it is clear the cor- poration could not maintain an ac- tion, application to it would be futile. The other objections to a stockholder being ordinarily per- mitted to maintain an action do not apply, when the action can be brought only when it has the sanc- tion of the court. As the question here involved will remain in the case until final decree, it is not necessary for us now to go fur- ther than to decline to dismiss the bill at this time on this ground." ■i Royal Trust Co. v. Harding, affirming 78 Misc. Rep. 309, 137 N. Y. Supp. 1101; order affirmed 155 App. Div. 104, 140 N. Y. Supp. 9. Where a domiciliary receiver sues extra-territorially, the full faith and credit clause of the United States constitution does not preclude inquiry by the for- eign court as to whether or not the appointing court had jurisdic- tion of the subject-matter and the parties. The presumption in favor of the domiciliary court, as a court of general jurisdiction, is dispu- table, especially where it acts by virtue of statutory authority and not in the exercise of its inherent power. Folger v. Columbian Ins. Co., 99 Mass. 267, 96 Am. Dec. 747. 982 LAW OF RECEIVERS. the title placed in bankruptcy trustees by tlie statutes of other countries, such policy had not yet been adopted by the federal courts and some of the state courts of the United States.^ The domiciliary receiver may not be permitted to dispossess a foreign receiver who had been appointed and taken possession of the local assets before the domiciliary receiver had taken any steps to reduce them to possession; although he may be permitted to intervene in the local proceedings, which may thereafter be considered of an ancillary character, or given such other recognition as may not be inconsistent with a due regard to the rights of local creditors.^ Liens obtained upon the local assets may, under the local laws and policy, be valid against any claim of the domiciliary re- ceiver, though acquired after his appointment. In a New York case'^ this proposition was stated as follows: 5 Booth V. Clark, 58 U. S. 322, 15 L. Ed. 164. In this connection the court said: "In New York, 'the ubiquity of the operation of the bankrupt law, as respects personal prop- erty,' was denied in Abraham v. Plestoro, 3 Wend. (N. Y.) 538, 20 Am. Dec. 738. Chancellor Kent considers it to be a settled part of the jurisprudence of the United States, that a prior assignment under a foreign law will not be permitted to prevail against a sub- sequent attachment of the bank- rupt's effects found in the United States. The courts of the United States will not subject their citi- zens to the inconvenience of seek- ing their dividends abroad, when they have the means to satisfy them under their own control. We think that it would prejudice the rights of the citizens of the states to admit a contrary rule. The rule, as it is well affords an admitted exception to the universality of the rule that personal property has no locality and follows the domicile of the owner. This court, in Og- den V. Saunders, 12 Wheat. (U. S.) 213, 6 L. Ed. 606, disclaimed the English doctrine upon this sub- ject; and in Harrison v. Sterry, 5 Cranch (U. S.), 289, 3 L. Ed. 104, this court declared that the bank- rupt law of a foreign country is incapable of operating a legal transfer of property in the United States." 6 Barley v. Gittings, 15 App. Cas. (D. C.) 427; State ex rel. American Bankers' Assur. Co. v. McQuillin, 260 Mo. 164, 168 S. W. 924; Ameri- can & B. Mfg. Co. V. International P. Co., 173 App. Div. 319, 159 N. Y. Supp. 582; People v. Granite State Provident Assn., 161 N. Y. 492, 55 N. E. 1053, affirming 41 App. Div. 257, 58 N. Y. Supp. 510; Irwin v. Granite State Provident Assn., 56 N. J. Eq. 244, 38 Atl. 680. 7 McNelus V. Stillman, 172 App. Div, 307, 158 N. Y. Supp. 428. The PRIVATE CORPORATIONS. 983 ''So far as it was competent for the Legislature of New Jersey to transfer the property of the corporation to the receiver, owing to the insolvent condition of the company, quotation in the text is from an opinion in proceedings had to en- force an attachment. An assignee of a foreign creditor of a New Jer- sey corporation commenced an ac- tion against the corporation in New York and attached, or gar- nished, an unpaid stock subscrip- tion of a resident stockholder. A domiciliary receiver had been ap- pointed before the action was com- menced, but, although the domicil- iary court levied an assessment upon stockholders on their unpaid subscriptions, it does not appear that the domiciliary receiver had ever taken any steps in New York. After judgment against the corpo- ration had been obtained, proceed- ings to enforce the attachment were had. The defense was inter- posed that only the receiver had a right to collect the subscriptions. See Choctaw Coal & Mining Co. V. Williams-Echols Dry Goods Co., 75 Ark. 365, 87 S. W. 632; Hum- phreys V. Hopkins, 81 Cal. 553, 15 Am. St. Rep. 76, 6 L. R. A, 792, 22 Pac. 892; Stockbridge v. Beckwith, 6 Del. Ch. 72, 33 Atl. 620; Corn Exchange Bank v. Rockwell, 58 111. App. 506; Holbrook v. Ford, 153 111. 633, 46 Am. St. Rep. 917, 27 L. R. A. 324, 39 N. E. 1091; Gray V. Covert, 25 Ind. App. 561, 81 Am, St. Rep, 117. 58 N. E. 731; Shloss V. Metropolitan Surety Co., 149 Iowa 382, 128 N. W. 384; Zacher v. Fidelity Trust, etc., Co., 109 Ky. 441, 59 S. W. 493; Buswell v. Su- preme Sitting, etc., 161 Mass. 224, 23 L. R. A. 846, 36 N. E. 1065; Stevens v. Tilden, 122 Minn. 250, 142 N. W. 315; Tompkins v. Bla- key, 70 N. H. 584, 49 Atl. Ill; Petersen v. Chemical Bank, 32 N. Y. 21, 88 Am, Dec, 298; Howarth v. Angle, 162 N. Y. 179, 47 L. R. A. 725, 56 N. E. 489, affirming 39 App. Div. 151, 57 N. Y. Supp. 187; Fil- kins V. Nunnemacher, 81 Wis. 91 51 N. W. 79. A domiciliary receiver having sued to recover certain assets in a foreign jurisdiction, having com- promised the claim sued upon, re- ceived part of the money due in settlement of the compromise, and having had the money received distributed by the domiciliary court, it was too late for creditors in the foreign jurisdiction to have the compromise set aside in order that they might attach or garnish the asset. Seminole Securities Co. V. Southern Life Ins. Co., 182 Fed. 85. A domiciliary receiver may move in the courts of New York to va- cate an attachment on the ground that it has been unlawfully issued, and that no right has been ac- quired thereunder by the attach- ing creditor. Hammond v. Na- tional Life Assn., 58 App. Div. 453. 69 N. Y. Supp. 585, affirming 31 Misc. Rep. 182, 65 N. Y. Supp. 407. A domiciliary receiver appointed by a state court may defend an action instituted in a federal court of a foreign jurisdiction against the receivership corporation. Rust V. United W. Co., 70 Fed. 129, 17 C. C. A. 16, The comity that is extended by a foreign state court to a domicil- 984 LAW OF RECEIVERS. there can be no doubt but that such is the effect of the New Jersey statute. The cause of action, however, on the stock subscription against a resident of this state, was, for the purposes of our attachment law, a debt due and owing to the corporation here; and by the express provisions of said section 646 of the Code of Civil Pro- cedure, it was subject to levy under an attachment, and with respect to creditors of the corporation pursuing their legal remedies in the courts of this state effect is not given here to the involuntary transfer of the property of the debtor by virtue of foreign statutory law. Ham- mond V. Nat. Life Ass'n, 58 App. Div. 453, 69 N. Y. Supp. 585, appeal dismissed 168 N. Y. 262, 61 N. E. 244 Hibernia Bank v. La combe, 84 N. Y. 367, 384, 38 Am Rep. 518; Barth v. Backus, 140 N. Y. 230, 35 N. E. 425 23 L. R. A. 47, 37 Am. St. Rep. 545 ; Nat. Park Bank v Clark, 92 App. Div. 262, 87 N. Y. Supp. 185. See, also Mabon v. Ongley Electric Co., 156 N. Y. 196, 50 N. E. 805 ; and Hallenborg v. Greene, 66 App. Div. 590, 597, 599, 73 N. Y. Supp. 403. ''In the view we take of the case, as herein indicated, it is unnecessary to consider whether, if the contentions made in behalf of the respondents were tenable, they could be effectually interposed now, after the recovery of judgment on tlie debt owing to appellant by the corpora- iary receiver is not affected by the valid against foreign creditors, fact that he was appointed by a Ward v. Connecticut P. M. Co., 71 federal court. Stevens v. Tilden, Conn. 345, 71 Am. St. Rep. 207, 42 122 Minn. 250, 142 N. W. 315. L. R. A. 706, 41 Atl. 1057. Where a corporation was dis- A corporation having been dis- solved and a domiciliary receiver solved and a receiver appointed at ^^^^,.^^ ^^^^ appointed, and a con- the instance of a very large ma- yeyance of real estate in a for- jority of its stockholders, a con- gign jurisdiction having been veyance of the corporate assets made to the receiver, title to the made to the receiver by the proper real estate vested in the receiver corporate officers pursuant to an either by virtue of his appoint- order of the court will be regarded ment or the conveyance. Sayre v. as a voluntary conveyance and Sage, 47 Colo. 559, 108 Pac. 160. PRIVATE CORPORATIONS 985 tion, with the attachment remaining .tnvacated and that judgment remaining in full force aii.f effect. We express no opinion with respect to the effec'r the dissolution of the Steel Company might have oi? plaintiff's judgment against it (see Sinnott v. Hanan, 214 N. Y. 454, 108 N. E. 858; and Rodgers v. Ins. Co., 148 N. Y. 34, 42 N. E. 515)^ for it does not appear that it has been dissolved, and the point has not been presented. ''We are asked on grounds of comity to remit the creditor of the corporation to the jurisdiction of the courts of New Jersey, where he would be permitted to participate with the other creditors of the corporation in any of its assets; but the question of comity was not overlooked in the decisions above cited, and it has long been the established rule in this state that, where the invoUmtary transfer has taken place here, the right of creditors, whether domestic or foreign, to pursue legal remedies and acquire by attachment in foreign jurisdic- tions a lien on the property of the debtor superior to the title previously acquired by the involuntary transfer here, is recognized. Warner v. Jaff'ray, 96 N.^ Y. 248, 48 Am. Rep. 616; Barth v. Backus, supra. These prece- dents are controlling, and this court is not at liberty to consider the question de novo. In Wulff v. Roseville Trust Co., 164 App. Div. 399, 149 N. Y. Supp. 683, we were able to distinguish them, and on motion of the assignee of the assets of a New Jersey trust company, the affairs of which had been liquidated, we vacated an attachment obtained here by the assignee of a depositor with the insolvent trust company; but we so decided on the ground that the deposit was made subject to the laws of New Jersey, by which, in case of insolvency, the assets became a trust fund for the benefit of all creditors. We do not consider that our decision in that case is applicable here, and evidently counsel for respondents does not, for it has not been cited. So far as appears, it is immaterial to respondents to whom they respond on the liability of 986 LAW OF RECEIVERS. their testator, and there can be no doubt but that a recov- ery and satisfaction in this action will fully protect them. ' ' The policy of refusing to recognize the rights of a statutory domiciliary receiver is usually limited in favor of the citizens of the jurisdiction; it may, however, be extended to residents, even though they are not citizens, but is usually not extended to citizens of the domiciliary jurisdiction.^ The differences among jurisdictions in respect to their policy in this matter and changes, from time to time, in the policy of a particular jurisdiction will explain many seeming divergences among court decisions respecting the rights of receivers with refer- ence to assets located in jurisdictions other than the appointing jurisdictions. It is to be remembered also that the decisions of federal courts are frequently con- trolled by the policy of states by whose laws they are guided. A domiciliary receiver may sue a non-resident debtor of the corporation or a non-resident party claiming ad- versely to the corporation just as a private person may sue a non-resident, subject to the same limitations as to obtaining a judgment in personam against a party who is not personally served with process and who does not voluntarily appear in an action f or he may, if he obtains a domestic judgment against a party, sue, as a judgment sRhawn v. Pearce, 110 111. 350, A foreign creditor may not by 51 Am. Rep. 691; Heyer v. Alexan- assigning his claim to a resident, der, 108 111. 385; May v. First Nat. or citizen, obtain advantages ac- Bank, 122 111. 551, 13 N. E. 806; corded to a resident or citizen Juillard v. May, 130 111. 87, 22 N. E. creditor. Receivers of State Bank 477; Townsend v. Coxe, 151 111. 62, v. First Nat. Bank, 34 N. J. Eq. 37 N. E. 689; Linville v. Hadden, 450. 88 Md. 594, 43 L. R. A. 222, 41 Atl. 9 State Nat. Bank v. Syndicate 1097; Long v. Girdwood, 150 Pa. Co., 178 Fed. 359; Lanning v. 413, 23 L. R. A. 33, 24 Atl. 711; Twining, 71 N. J. Eq. 573, 64 Atl. Cook v. Van Horn, 81 Wis. 291, 50 466. N. W. 893. PRIVATE CORPORATIONS. 987 creditor, on the judgment in a foreign jurisdiction, just as a private person might. ^^ §372. Effect of Conveyance of Property to Receiver by In- solvent Corporation. In some instances the corporation voluntarily or pur- suant to an order of court executes an assignment or conveyance of all of its property to the receiver. Under such circumstances the receiver naturally occupies a dif- ferent position than that arising from being- a mere chan- cery receiver. If the corporation is solvent the transac- tion would be considered in the same light as any ordi- nary transaction. While the laws of a foreign state have no force as such in the state, still the courts will uphold the title of a for- eign receiver or assignee upon the principle of comity. If the title is by virtue of a voluntary conveyance or transfer, it is sustained as against all, including even domestic creditors, but if it depends on a foreign statute or judgment, it is sustained against all except domestic creditors. Subject to their superior rights, the plaintiff can reduce to possession all the property of the defendant in the state and can bring replevin for that purpose, or trover to recover damages for conversion. Notes and accounts may be collected by the usual proceedings in the courts, which regards a foreign receiver as representing the original owner, and open their doors to him as they do to a domestic receiver. ^ In one case where a corpora- tion, pursuant to the direction of the court, after the ap- pointment of a receiver over it made a general assign- ment to him of its property, it was held that the deed operated as a general voluntary assignment.^ And in loV^ilkinson v. Culver, 25 Fed. 71 Conn. 345, 71 Am. St. Rep. 207 639, 23 Blatchf. 416. 42 L. R. A. 706, 41 Atl. 1057. ' 1 Mabon v. Ongley Electric Co., Where, after the appointment of 156 N. Y. 196, 50 N. E. 805. a receiver, the corporation exe- 2 Ward V. Connecticut, etc., Co. cutes a conveyance of all of its 988 LAW OF RECEIVERS. Kentucky, undor a similar assigninont in anotlicr juris- diction by a corporation which was insolvent, it was held that it would be considered operative only to the extent which the Kentucky courts chose to respect it.^ §373. Creditor of Foreign State Suing Corporation Under Receivership in Another Foreign State. A non-resident of a foreign state in which a corpora- tion has property ma}^ sue it in such state notwithstand- ing a receiver has been appointed over it in the state of its domicile. Thus it has been held that a creditor of a Connecticut corporation residing in New York may attach property of the corporation located in Maryland, although a receiver has been appointed for the corporation in Con- necticut and notwithstanding that he has filed his claim in the receivership proceeding.^ § 374. Whether Residents of Jurisdiction of Receivership Are Precluded from Suing Elsewhere. Where a court appointing a receiver for a corporation of its own state enjoins creditors from prosecuting suits against the corporation, a resident of that state can not by a suit and attachment in another state obtain a prefer- ence. But in several instances suits by such creditors who are residents of the receivership jurisdiction have been brought and allowed.^ property to him in his official extent which they choose to re- capacity, such a conveyance is in spect it. Zacher v. Fidelity Trust, effect an assignment for the bene- etc., Co., 106 Fed. 593, 45 C. C. A. fit of creditors, and as such oper- 480, followed the decisions on ates only upon property within the principles of comity. state. Huntington v. Chesapeake, i Linville v. Hadden, 88 Md. 594, etc., Ry. Co., 98 Fed. 459. 43 L. R. A. 222, 41 Atl. 1097; Gil- 3 In Zacher v. Fidelity Trust, man v. Ketcham, 84 Wis. 60, 36 etc., Co., 109 Ky. 441, 59 S. W. 493, Am. St. Rep. 899, 23 L. R. A. 52, It was held that a general convey- 54 N. W. 395; Chicago, etc., Ry. ance by an insolvent corporation Co. v. Keokuk, etc., Co., 108 111. to its receiver would, as . far as 317, 48 Am. Rep. 557. the Kentucky courts are con- i Although the courts of Ohio cerned, be operative only to the have appointed a receiver of a PRIVATE CORPORATIONS. 989 § 375. Whether Foreign Creditor Can Attach Receivership Property Temporarily Brought in His Jurisdiction by Receiver. Where a receiver lias once obtained rig-litful possession of personal property situated within the jurisdiction of his appointment and which he was directed by the court to take charge of, he will not be deprived of its posses- sion, even though in the performance of his duty he takes it into a foreign jurisdiction. Creditors of the corpora- tion over which he has appointed receiver residing in such foreign jurisdiction can not take it by attachment or otherwise. Thus where a receiver appointed in New Jersey took possession of the assets of the corporation and for the purpose of completing a bridge which it had contracted to build in Connecticut, purchased iron with funds of the receivership estate and sent it to that state, creditors re- siding there can not attach it.^ § 376. Independent Foreign Receiver of a Foreign Corporation. As has been shown in a previous part of this chapter,^ statutes frequently exist under which a receiver may be appointed over the property of a foreign corporation doing business in the state under various circumstances corporation organized in its own ceiver has been appointed over its jurisdiction, it will not prevent a property there, a citizen of Mexico resident of Ohio from attaching is not thereby prevented from property of the corporation in suing the corporation in Texas for Tennessee. Commercial Nat. Bank breach of contract. American V. Motherwell Iron, etc., Co., 95 Well Works v. De Agnayo (Tex. Tenn. 172, 29 L. R. A. 164, 31 S. W. Civ.), 53 S. W. 350. 1002. The same rule was applied i See sections 328 et seq., supra, in Cole v. Oil Well Supply Co., 57 But in this connection see Blake Fed. 534, where the receiver was v. McClung, 172 U. S. 239, 43 L. Ed. appointed by a federal court. 432, 19 Sup. Ct. 165, as to how far 1 Pond V. Cooke, 45 Conn. 126, statutes of this character may go. 29 Am. Rep. 668. They can not deprive non-resident W^here an Illinois corporation creditors from participation on 1 as property in Mexico and a re- equal terms with its own citizens. 990 LAW OF RECEIVERS. tending to the hurt of creditors of the state in wliich tlio corporation is doing business Where such a receiver is appointed over a foreign corporation, the receivership is for purposes within the state considered as a primary one with all the rights which flow from such a receiver- ship.2 And where such a receiver is appointed at the instance of the board of directors of the corporation and the court has thereby acquired jurisdiction over the cor- poration and its directors, it may compel the transfer to the corporation of real property situated in another state and thereby prevent the corporation from thereafter encumbering it.^ An interesting question was determined in the case of McCague v. Dodge,* by the Supreme Court of Colorado respecting the rights of a foreign receiver in the domi- ciliary jurisdiction of the corporation. In that case the domicile of the corporation was in Colorado, while the receiver was appointed by a court of the State of Nebraska. The court of the latter state directed its r<^ceiver to collect assessments for unpaid stock in the 2 The receiver of a forei^ cor- was in the federal court for the poration appointed within the district of Pennsylvania. "The state is custodian of the property property of a foreign corporation within the state, and as such cus- within this state is subject to the todian has authority to defend an Jurisdiction of the courts of the action to foreclose a mortgage on ^^^te." The court appointed a receiver of a foreign corporation having property within the state, although no charge of fraud or gage. Jenkins v. John Good Cord- mismanagement was made. The age & Machine Co., 56 App. Div. pj-der of appointment was collater- 573, 68 N. Y. Supp. 239. Motion ally attacked as void, but the to dismiss appeal denied, 167 N. Y. court held that it had jurisdiction 616, 60 N. E. 1113; and judgment to make the appointment. Hills- affirmed, 168 N. Y. 679, 61 N. E. borough Grocery Co. v. Ingalls, 60 1130. Fla. 105, 53 So. 930. In Scattergood v. Am. Pipe & s Roberts v. W. H. Hughes Co., Const. Co., 249 Fed. 23, 161 C. C. 86 Vt. 76, 83 Atl. 807. A. 83, the corporation was a New 4 McCague v. Dodge, 50 Colo. Jersey one and the receivership 205, 114 Pac. 648. the corporation property based on an assumed lien under the mort- PRIVATE CORPORATIONS. 991 corporation by a suit and rendered a judgment purport- ing to levy an assessment upon such stock. The defen- dant stockholders residing in Colorado who were sued were not parties to the Nebraska suit. The defendant stockholders demurred to the complaint, which demurrer was sustained. The Supreme Court, speaking through Mr. Justice Gabbert, in holding that the suit was not maintainable in the Colorado courts by the foreign re ceiver, said: *'The relation between the stockholders and the fence company in this respect can only be deter- mined and established by a court having jurisdiction in Colorado, where it was created, for it is only by the laws ot this state that the liability of the stockholders upon their unpaid stock subscriptions can be ascertained, loung V. Farwell, 139 111. 326, 28 N. E. 845; Stockley v Thomas, 89 Md. 663, 43 Atl. 766. So that, under the facts ot this case, the judgment of the Nebraska tribunal could extend no further than to affect the tangible property of «ie fence company in the State of Nebraska. Acken v Coughlm, 103 App. Div. 1, 92 N. Y. Supp. 700. Conse- quently the case falls within the rule to the effect that a receiver of a corporation having no other rights or titlft to the corporation's assets than that derived from the order of the court appointing him, has no power to sue m the courts of a foreign jurisdiction to recover such property or assets of the corporation. Booth v Clark 17 How. 322, 15 L. Ed. 164; Great Western M. & M Co' V. Harris, 198 U. S. 561, 25 Sup. Ct. 770, 49 L. Ed 1163- fn'n^^noT!'' ^^- ^•^' ^^^ ^^^- ^35; Wigton v. Bosler' (C. C), 102 Fed. 70; Hazard v. Durant (C. C ) 19 Fed 471; Hale v. Hardon (C. C), 89 Fed. 283. ''The principal contention on the part of counsel for plaintiff is that under the doctrine of comity between states, the receiver appointed by a court of one state may go into another jurisdiction and pursue resi- dents of the latter upon their stock liability, unless the 992 LAW OF RECEIVERS. liability sought to Ijc onforcocl is against tlio public policy of the state wliei'e the enforcement is sought, or unless local creditors will suffer. This contention is wliolly inapplicable to the case at bar, for the reason that tho Nebraska court was without authority by its judgment or order only to vest the receiver in the first instance with any control over the assets of a Colorado corporation in the shape of unpaid stock subscriptions, or to levy an assessment thereon. In other words, the doctrine of comity does not apply where the plaintiff' fails to state a cause of action. ''The controlling feature of the case under considera- tion is well illustrated by the last case cited by counsel for plaintiffs— Goss v. Carter, 156 Fed. 746, 84 C. C. A. 402. In that case the receiver of an insolvent Nebraska corporation appointed by the district court of the Fourth District of that state was permitted to maintain an action against a stockholder of the corporation in Texas, but upon the ground that the title to the trust fund to which the stockholder w^as required to contribute was vested in the receiver by operation of law. For this reason the court distinguishes the case from Booth v. Clark, supra, to which reference was made. Having reached the con- clusion that the receiver is without authority to maintain his action, it is unnecessary to discuss the other questions argued by respective counsel.'* § 377. Marshaling of Assets in a Foreign Jurisdiction and Creditor's Right of General Participation. The foregoing considerations have to do with the mar- shaling in the first instance of the foreign assets of a receivership corporation under the control of some au- thority having power to administer the estate. Where this preliminary marshaling is not done directly under the authority of the domiciliary receiver or court, the process, as we have seen, is fundamentally controlled by the principle that each jurisdiction has the right to pro- PRIVATE CORPORATIONS. 993 tect its domestic creditors in such way and to sncli extent as It may deem proper. In the United States, however as affecting the respective rights of creditors residino- in' or citizens of, different states, another principle opemtes alter tlie prehmmary marshaling has been done This principle is based upon and held to be the result of a cer- tain provision of the United States constitution, section 2 of Ai^icle ly. That the principle, as applied to the ad- mmistration of the estate of a receivership corporation, IS a logical corollary of the constitutional provision has been declared by the federal Supreme Court ' In the case before the court the question involved was the con- stitutionality of a statute of Tennessee relating to the right of certain classes of foreign corporations to do business within the state and providing that resident creditors should have priority over all non-resident gen- eral creditors and mortgage or judgment creditors whose mortgages were recorded or judgments rendered after credit had been extended by residents of the state The conflict was between general creditors resident of Ohio and domestic general creditors, the former claiming that by the statutory provision they were denied equal im- munities and privileges with the latter. The court upheld this contention and ruled that the complainants were en- tit ed to share in the assets of the estate on an equal basis ^^ith^ the domestic creditors. There was a dissenting opinion by two members of the court, including the Chief Justice. Both factions of the court, however, recognized extensive rights in the states to declare the conditions 1 When the general property and can not be denied equality of ri<^ht assets o a private corporation simply because they do not r Me lawfully doing business in a state in that state but are citizens re are m course of administration by siding in another state. Blake v the courts of said state, creditors McClung, 172 U S 239 43 i Ed' who are citizens of other states 432. 19 Sup. Ct. 165- 'idem ' 17fi are entitled, under the federal con- U. S. 59, 44 L. Ed 371* 20 Sun ct stitution. to stand upon the same 307 ' ' plane with creditors of a like class People v. Granite State Provi- ZnecZeT"""" "' '"'' ''"'"' '"' '""' ^^^"- ''' N- Y. 492. 55 N. E. 994 LAW OF RECEIVERS. under which foreign corporations might do business within their respective boundaries. Both declared that a state might exclude foreign corporations entirely; and also that it was valid state legislation to provide, as a condition precedent to a foreign corporation's doing business in the state, that there should be deposited, under the state control, some definite sum to be available exclusively for domestic creditors in case of a receiver- ship, and to be distributed by a local court rather than the domiciliary court.^ The difference betw^een the two divisions was in respect to the reasonableness of the par- ticular statute under consideration. The majority held it to be unreasonable because of the extreme inconven- ience that it put non-residents to in knowing the condi- tions under which they were dealing with the corpora- tion; the minority held that, at least as far as persons dealing with the corporation while the statute was in force were concerned, it was not unreasonable and was simply in the nature of a statutory blanket mortgage, covering all the local assets of the company.^ Taking 1053, 1054; Wilson v. Keels, 54 2 Such legislation has elsewhere S. C. 545, 71 Am. St. Rep. 816, 32 been held valid. People v. Granite g j3 'JQ2 State, etc., Assn., 41 App. Div. 257, ''.,*, , ... . „ 58 N. Y. Supp. 510; affirmed in 161 Resident general creditors of a ^ r « defunct foreign corporation not N. Y. 492, 55 N. E. 1053; Lewis v American S. & L. Assn., 98 Wis. having previously obtained liens 203 73 N W 793 upon its property are not entitled 3',^^^^ majority of the court laid to any priority or preference over gj-^at stress upon the word "citi- non-resident creditors in the dis- zens" as used in the constitutional tribution of the funds derived from section under consideration. It such assets by the local or ancil- held that, since a corporation is lary receiver. All creditors of not a citizen in the sense in which such a corporation of the same the word is there used, the state class are on principles of equity statute was valid as far as non- entitled to share ratably in the resident corporation creditors were distribution of the whole estate of concerned; and further that, as far such corporation regardless of as such creditors were concerned, their places of residence. Brunner the statute was not obnoxious to V. York Bridge Co., 78 W. Va. 702, the Fourteenth Amendment of the 90 S. E. 233. United States constitution. PRIVATE CORPORATIONS. 995 into account the two opinions in the case, and remember- ing that whenever a decision turns on the question of the reasonableness or unreasonableness of a particular stat- utory provision there is likely to occur a difference of opinion among authorities, it may be stated to be the rule that, except when there is in existence at the time credit is extended to a corporation valid statutory provisions establishing a preferential right to local assets in favor of local creditors, all resident citizens of the United States are entitled to share equally in the assets of a corporation domiciled therein. Since the domiciliary court is the only court qualified and equipped to distribute the estate in accordance with this principle, it is necessary that assets marshaled in a foreign jurisdiction by an ancillary or a foreign indepen- dent receiver shall be placed under the jurisdiction of the domiciliary court. Accordingly, it is the general rule for such receivers to turn such assets as come into their pos- session over to the possession of the domiciliary receiver with or without a bond from the latter for the protection of local creditors, although possession may be retained by the marshaling receiver until local creditors have re- ceived their share under a decree of distribution made by the domiciliary court.'* On this same principle it was held that where the assets of a New Jersey corporation consisted of the controlling ownership of stock in a New York corporation, the stock should be voted by the domiciliary receiver rather than the receiver appointed in New York, though the latter 4 People V. Granite State, etc., expenses of administration, has Assn., 41 App. Div. 257, 58 N. Y. distributed the proceeds collected Supp. 510, affirmed 161 N. Y. 492, among all intervening creditors, 55 N. E. 1053; American & B. both resident and non-resident, Mfg. Co. V. International P. Co., and a balance remains, it should 173 App. Div. 319, 159 N. Y. Supp. be directed to be delivered to an 582. intervening foreign receiver. Bar- Where a receiver of a foreign ley v. Gittings, 15 App. Cas. (D. C.) corporation, after deducting the 427. 996 LAW OF RECEIVERS. was held to have the title and allowed to retain possession of the certificates.^ The matter was stated as follows: "In the view that I take of this case it is unnecessary to decide whether the domiciliary receiver, with title to this stock, is entitled as a matter of law to vote the same under section 23 of the General Corporation Law (Consol. Laws, c. 23). The New York receiver can not hold this property for the exclusive benefit of the New York cred- itors. It will be an unseemly administration of the law in different states if the receivers appointed in those dif- ferent states were to contend for the possession of the assets for distribution among the creditors existing in their respective states, and, furthermore, the constitution of the United States requires equality in the distribution of the assets. Blake v. McClung, 172 U. S. 239, 19 Sup. Ct. 165, 43 L. Ed. 432; People v. Granite State Provident Association, 161 N. Y. 492, 55 N. E. 1053. Moreover, as these questions have arisen presenting apparent conflict between receivers of the different states, a comity has arisen recognized by the courts, whereby the receiver of the home state, with title to the assets, is given a primary right, and the receivers in states foreign to the home of the corporation are given only such power as may be necessary to secure to the creditors in their respective states a just distribution of the assets of the corporation. See People v. Granite State Provident Association,- 41 App. Div. 266, 267, 58 N. Y. Supp. 510, wdiere the respec- tive rights of the domiciliary receiver and the receiver in other states is considered. See, also, Sands v. E. S. Greeley & Co., 88 Fed. 130, 31 C. C. A. 424. Under this rule of comity our courts might well have compelled the New York receiver to transfer to the appellant this stock upon the giving by the appellant of a bond to pay to the New York creditors their just share in the distribution of the assets. On the other hand^ as the plaintiff is a domes- 5 American & B. M. Co. v. International F> t^^ supra 377. PRIVATE CORPORATIONS. 997 tic corporation, the court has deemed it wiser that the possession of the stock should remain in the New York receiver. It was not decided, however, upon the motion to transfer the stock to the appellant, that the New York receiver should have full power to control the corpora- tion, and thus practically to take out of the hands of the domiciliary receiver the closing up of the insolvent cor- poration. By the rule of comity adopted every power should be given to the domiciliary receiver, subject to instruction from the Chancery Court of that state, except such power as is necessary for the protection of the New York creditors. Within this rule of law the control of the insolvent corporation and of its assets, including its con- trolling interest in the plaintiff corporation, should vest in the home receiver. ... If necessary to the protec- tion of New York creditors, a bond could be required, as suggested by Justice CuUen in People v. Granite State Provident Association, 41 App. Div. 257, 58 N. Y. Supp. 510. No facts are here presented, however, which sug- gest the necessity of such a bond." Discussing this same principle, the Supreme Court of South Carolina said: ''There is no doubt that it is the duty of the courts of this state to protect the interests and rights of domestic creditors concerning assets of a foreign corporation in this state, but there is a vast dif- ference between protecting domestic creditors and seques- trating to them exclusively assets which ought in justice and right be administered for the benefit of all creditors. If so construed as to exclude non-resident citizens, who are creditors, from participating in the assets in this state of a foreign corporation, a grave question as to the constitutionality of the act might be raised. Blake v. McClung, 172 U. S. 239, wherein the Supreme Court of the United States recently decided that while a state may, through judicial proceedings, take possession of the assets of an insolvent foreign corporation within its lim- its, and distribute them and their proceeds among cred- 998 LAW OF RECEIVERS. itors according to their respective rights, yet it can not, •under Article IV, section 2, of the constitution of the United States, deny the right of citizens of other states to participate in such distribution on equal terms with its own citizens. Moreover, the act in question was passed after the foreign corporation involved here had ceased to do business, and whose property had already been placed in the hands of a receiver ; hence such act is not applicable to this case. It thus appears that plaintiff and the cred- itors of the said bank in this state have, by their appear- ance in the jurisdiction of the court of the domicile receiver, already secured the right to participate in the equal distribution of the assets of the foreign corpora- tion, all that they have a right to do. Thus, no interest of domestic creditors intervenes to prevent the exercise of that comity which should induce the courts of this state to recognize the claim of the foreign receiver to collect for equal distribution the particular assets in question. Nor do we know of any established policy or statute in this state which prevents the exercise of such comity. "« Since the liability of stockholders on unpaid stock sub- scriptions is usually enforced in favor of and only to the extent necessary to protect creditors, it is a liability that may not be enforced by a foreign receiver, even in his own jurisdiction, but is enforcible only under the control of the domiciliary court through the domiciliary or an ancillary receiver.'' Where a corporation did business in a foreign juris- diction under a name different from that used in its 6 Wilson V. Keels, 54 S. C. 545, Cague v. Dodge, 50 Colo. 205, 114 71 Am. St. Rep. 816, 32 S. E. 702. Pac 648. A receiver of a Colorado corpo- A receiver appointed to take charge of the assets of a foreign ration appointed in a Nebraska ^^^.j^^ration situated within the court in a creditor's suit against ^^^^^ ^^^ ^^^^ compel the stock- the corporation is not entitled as holders residing in that state to a matter of right to sue in Colo- pay their unpaid stock subscrip- rado for unpaid stock subscrip- tions. Pacific Coast Coal Co. v. tions levied by sucn court. Mc- Esary, 85 Wash. 448, 148 Pac. 579. PRIVATE CORPORATIONS. 999 domicile and in receivership proceedings had in the for- eign jurisdiction, only creditors doing business with it under the foreign name were allowed to participate in the proceedings, such creditors could not be barred from proceedings in the domicile of the corporation, but they could be barred from such participation unless they first paid into the domiciliary estate the amounts they had received in the foreign jurisdiction.* 8 Lake Charles Nat, Bank v. J. I. Campbell Co., 57 Tex. Civ. App. 362, 122 S. W. 601. In Ward v. Connecticut, etc., Co., 71 Conn. 345, 71 Am, St. Rep. 207, 42 L. R. A. 706, 41 Atl. 1057, a New York creditor of a Connecticut corporation was permitted to re- ceive a dividend from the receiver- ship after deducting the value of certain property in New York which he had attached and sold with knowledge of the receiver- ship, and after a conveyance had been made to the receiver by order of the court. See, also, Zacher v. Fidelity Trust, etc., Co., 106 Fed. 593, 45 C. C. A. 480. CHAPTER XIV. EAILEOADS AND OTHER PUBLIC UTILITY CORPORATIONS. 1. General Scope of the Subject and Principles Applicable. § 378. The Peculiar and Distinguishing Features Pertaining to Such Receiverships. The reports of the federal courts of the United States have been full, in recent years, of cases involving cor- poration receiverships of railroads and other public utili- ties. As far as the underlying equity principles upon which these receiverships were created are concerned we have a very frank statement by District Judge Dickinson in one of the late cases. ^ The matter came before the court on a motion made by minority stockholders to vacate a decree appointing a receiver. The judge said: ''The considerations which lead to the disposition to be made of this motion are of the very broadest and most general character. Everj^ legal controversy of sufficient importance to be taken seriously presents two phases. It has its practical side, invohdng very practical conse- quences, and its legal side, involving the formulation of legal principles and their application, and these may be approached through forms of procedure, and raise ques- tions of the appropriateness of the special remedy in- voked. These purely professional or legal considerations are also of importance because they directly affect or indirectly influence the development of the science of the law and enter into the building up of our system of laws. In this molding process the legal profession, as well as the courts, cannot avoid having a part and are expected to have a part. The profession can make its 1 Scattergood v. American Pipe & Construction Co., 247 Fed. 712. (1000) RAIJ.ro ADS — PUBLIC UTILITY CORPORATIONS. 1001 influence felt only through the courts, and the courts must stop short of any invasion of the proper domain of the Legislature. Even when the power of the Legis- lature is not in question, wisdom would dictate that there should be no purely arbitrary interference on its part with the natural growth and development of the remedial side of the law along proper and approved lines. This freedom to grow and develop is one of the many claims to merit which the so-called common-law system pos- sesses. To it we are indebted for many of our most effective and efficient legal and equitable remedies. The possession of this judicial power has led, it is true, to the courts being subjected to general criticism for being overconservative, and in notable specific instances to the charge of usurpation of power. On the whole, however, it has worked to the common good, and as the Legis- lature has amply adequate defensive power at its com- mand there is little practical danger of permanent harm from judicial action. ''All this seems very academic, but these considera- tions are really intensely practical, and the practice of the courts in appointing receivers for corporations, which has grown almost literally by leaps and bounds, affords a good illustration of the thought intended to be ex- pressed. If bills under which such receivers have been appointed were listed and analyzed, the growth and de- velopment of this branch of remedial law would be dis- closed. It would doubtless be found that of all of them, from the beginning, at least 80 per cent resulted in the making of a decree which has nothing more or less than the declaring of a moratorium against creditors, and of the proceedings in late years, 95 per cent of the bills had this more or less veiled end in view. It is difficult for a solicitor devoted to old-established principles of chan- cery practice to understand how the courts can protect a corporation, w^hich is in financial straits, against suits 1002 LAW OF RECEIVERS. by its creditors, when it would not protect an individual under like circumstances, and yet so widespread and gen- eral a recognition and acceptance of the assertion of the power has been accorded its assertion that in at least two notable instances in Pennsylvania it was even attempted to be extended, and, until halted by the Su- preme Court, actually was extended to indi\adual debtors. We do not need to search far for reasons for this acqui- escence. The end reached was a good end and the rem- edy applied justified itself in practical results. The law- yer who advised his clients, who were interested in such a corporation, that no such remedy could be had through a bill in equity would have found himself supplanted by other counsel who promptly had the needed remedy applied through just such a bill. Such an analysis would disclose two other things. One is that in the earlier cases the solicitor who filed the bill resorted to the subterfuge of formally averring something of no real importance for the sole purpose of presenting technical grounds of equitable jurisdiction ; in the later cases such subterfuges are abandoned. The other is that the early cases dis- close a reluctance on the part of the courts to appoint receivers, and a refusal in many instances to appoint them; the later cases disclose appointments made evi- dently almost as a matter of course. It will further be observed that this change came about by gradual ap- proaches. It doubtless had its beginning in the resort to receiverships by corporations having public functions to perform, but the practical need to conserve the assets of other corporations was so real and so urgent that the courts yielded to it to the extent of naming a tem- porary receiver with leave to move to vacate, and a rec- ognition of this same practical need prevented any such motion being made. Indeed, the history of this very case discloses precisely that condition — not a single creditor has appeared to avail himself of this right, leave to assert which was invited by the decree. . . . RAII-ROADS — PUBLIC UTILITY CORPORATIONS. 1003 "Our conclusion is that these precedents establish the jurisdiction and power of the court to appoint receivers in proceedings such as the instant one, and that the chal- lenge of such jurisdiction cannot be deemed ground to vacate the decree. Our view being that the jurisdiction having been authoritatively found to exist, we are bound to uphold it. There is no occasion to vindicate the ruling by bringing it into accord with accepted principles of chancery practice. The duty is best left to counsel. If we sought to support it, we might choose different grounds from those selected by counsel. Established precedent is in itself a sufficient ground. This disposes of the present motion to dismiss, so far as it is based upon absence of jurisdiction." In another case,^ on an application for the appoint- ment of a permanent receiver and in reply to a conten- tion on the part of minority stockholders that the suit was collusive between the plaintiff creditor and the directors of the company, the court, having made a find- ing of fact to the effect that no fraud on the part of the directors had been shown, the court said : "In order to be ready for emergencies, a bill of com- plaint, praying for the appointment of receivers, had 2 Intercontinental Rubber Co. v. Appointment of a receiver for a Boston & M. R. R., 245 Fed. 122. railway may be had at the in- In Moore v. Donahoo, 217 Fed. stance of the carrier com])any 177, 133 C. C. A. 171. a receiver for ^^^^^ *^^ ^"^^ brought by it is of the Ocean Shore Ry. Co. was ap- pointed with the consent of the railroad company at the instance such a character as to be of an equitable character and the receiv- ership is an incident thereto. Bras- sey v. N. Y. & N. E. Ry., 19 Fed. 663 ; of an unsecured creditor in a rep- Quincy, etc., Ry. Co. v. Humph- resentative suit. j-eyg^ 145 u. s. 82, 36 L. Ed. 632, The Wabash system of railroads 12 Sup. Ct. 787; Wabash, St. L. & was placed under a receivership P. Ry. v. Central Trust Co., 22 at the instance of the railroad Fed. 138; But contra: See Kim- company itself. Central Trust Co. ball v. Goodburn, 32 Mich. 10; V. Wabash, St. L. & P. Ry, Co., 29 State ex rel. Merriam v. Ross, 122 Fed. 618. Mo. 435, 25 S. W. 947. 1004 LAW OF RECEIVERS. been prepared by counsel for the company in conference with Hon. Marcus P. Knowlton, the chairman of the fed- eral trustees, and had lain in the files of the company. In August, 1916, this bill was taken from the files, the figures in it were brought up to date, and it was in other ways perfected and made ready for filing in court. The Intercontinental Rubber Company was requested to be- come complainant in the bill and to file it. It did so, upon the understanding that it would not be put to sub- stantial expense by reason thereof. The request to the complainant was made with the knowledge and assent of the respondent's counsel, but no vote authorizing it was ever passed by the board of directors. The directors believed that a receivership was unavoidable, and those of them who were familiar with legal matters supposed that it would be brought about by a friendly suit filed in this court by a creditor residing outside of Massa- chusetts. The course taken was similar to that fre- quently, if not generally, adopted in receivership pro- ceedings. It accords with the 'silent practice of the court' (Illinois Central R. R. Co. v. Turrill, 110 U. S. 304, 4 Sup. Ct. 5, 28 L. Ed. 154), and was approved in the Metropolitan Railway Receivership Case, 208 U. S. 90, at page 110, 28 Sup. Ct. 219, 52 L. Ed. 403. It is objected to by the parties represented by Mr. French, but I see nothing to criticize in it. The directors of the respondent company unanimously voted that an answer be filed, admitting the allegations in the bill. The Rubber Company is a bona fide creditor of the respondent, as stated in the bill, upon notes held by it since 1913, which were not acquired with any view to their use in proceed- ings of this character. Upon this bill and answer a tem- porary receiver was appointed on August 29, 1916." It then appears from the opinion that after the appoint- ment of the temporary receiver the conduct of the di- rectors in the matter was reviewed at a meeting of the stockholders and received the approval of that body by RAILROADS— PUBLIC UTILITY CORPORATIONS. 1005 the vote of an overwlielming majority. The court then further says : "From the foregoing- statement it is clear that the receivership proceedings were in reality brought about by the respondent itself. Its representatives, in doing so, acted after careful consideration, in entire good faith, and in the belief that a receivership was the best, if not the only, course open to the respondent in the circumstances in which it was placed ; and their action was approved by the stockholders. ... It is still true that, even if the directors and the majority of the stock- holders acted in good faith and, as they believed, for the best interests of the corporation, the court is not abso- lutely bound to appoint a receiver as prayed for. It might, in the exercise of its discretionary power, refuse to do so, if confident that there was no real necessity for such action, and that the application was improvi- dently and unwisely made. The facts above stated suffi- ciently indicate that this is not such a case. Upon the facts as they appear, a receiver for the purposes of the bill ought to be appointed." While it thus appears that the question of the under- lying equitable grounds upon which the jurisdiction to create these corporation receiverships became a matter of secondary consideration to the courts, it is still true that the underl>dng practical reason for appointing the receivers was always kept prominently in view In the Scattergood Case,^ the one from which we made our first quotation, the court, in the portion of the opinion quoted, was answering an argument directed against the jurisdiction of the court in equity to appoint a receiver ihe jurisdiction of the court was also attacked on an- other ground. The action had been instituted in a federal district m Pennsylvania, in which the defendant cor- poration had had its principal business. It was how- ever, a New Jersey corporation. It was pointed out 3 Scattergood v. American Pipe, etc., Co., 247 Fed. 712. 1006 LAW OF RECEIVERS. that, because of its insolvency, the corporation, under the law of its home state, was liable to an action, in a court having jurisdiction in that state, looking toward its dissolution and the appointment of a receiver to accomplish that purpose; and it was claimed that inas- much as the jurisdiction of the court of the corpora- tion's domicile in such an action would be superior to that of the foreign court in the action then before it, it was not advisable to appoint a receiver, who would probably be shortly ousted from possession of the prop- erty by an officer of another court. To this argument the court replied, in part, as follows: ''The other basis grows out of this state of facts. The defendant is a New Jersey corporation. All its acti\dties are, however, here displayed, aiul here it admittedly can be and was served with process. In addition to this, it had appeared and voluntarily submitted itself to the jurisdiction of this court, and is in no sense contesting such jurisdic- tion. So far as jurisdiction is of the parties as distin- guished from the subject-matter, it is therefore not de- nied. The intervening stockliolder has, however, moved to dismiss both on the ground of what may be called want of jurisdiction of the subject-matter of the bill, and on the further ground that exclusive jurisdiction of the real subject-matter of the bill is vested in the court in and for the district of New Jersey in which a bill for the appointment of a receiver is now pending. The substantial thought (although counsel doubtless prefer their own mode of expressing it) is that a condition in which the defendant corporation, as disclosed by this bill, is one of insolvency, and calls for the winding up of its affairs, its dissolution, and the distribution of its assets equitably among its creditors, such dissolution, to seize one of these elements of its condition, is to be decreed by a court having power to apply the laws of the state of its creation and is to be affected in con- formity with such laws which point out the mode and RAILROADS — PUBLIC UTILITY CORPORATIONS. 1007 manner and by decree of what tribunals it shall be done. The corporation, which is the creature, is bound by the laws of its creation, and can be dissolved only as its creator has decreed. The laws of New Jersey prescribe what shall be the effect of the insolvency of a New Jersey corporation, and provides a remedy and a mode of pro- cedure in all such cases. As this act of Assembly, at least so far as it is a procedure act and gives a remedy, has no extraterritorial force, the proceeding to which resort must be had must be sought where it can be found. It is the same thought upon which is based the like prin- ciple of disclaiming jurisdiction to decide controversies over internal management. Abundant support for this position is found in the following rulings, among many others which might be cited: Madden v. Penn. Co 181 Pa. 617, 37 Atl. 817, 38 L. R. A. 638; McCloskey v. Snow- den, 212 Pa. 249, 61 Atl. 796, 108 Am. St. Rep. 867; Ma- guire v. Mortgage Co., 203 Fed. 858, 122 C. C. A. 83. ''If the purpose of the bill here pending were such as is predicated in this argument, the convincing power of the argument could not be denied. We do not, however, so view the bill. It has not the purpose, nor does it have in view either the dissolution of the corporation or a winding up of its affairs. Its evident and real, in the sense of its practical, purpose is just the opposite of this. The purpose is to have the business of the corporation continue without interruption and the aid of the court is invoked to prevent such interruption by the act of others." In the latter part of 1907 one of the most noted of these federal receiverships was instituted. It involved the affairs of a corporation that had been operating practically all of the street car system of the city of New York. A statute of New York provided that when a corporation had continued insolvent for more than a year the Attorney General might institute an action to 1008 LAW OF RECEIVERS. have tlie corporation dissolved and to have its affairs wound up by a receiver. Shortly after the federal re- ceiver was appointed, the Attorney General did com- mence an action under this statute.^ In this action it was claimed that the federal receivership had been obtained by a fraudulent collusion between the plaintiff creditor and the defendant corporation. A state receiver was appointed and he was instructed to apply to the federal court for an order directing its receiver to relin- quish possession of the company's property to the officer of the state court. In replying to such an application, subsequently made, the federal court clearly set forth the fact that its controlling purpose was, not to dissolve or wind up the affairs of the railway corporation, but to keep the street car system of New York in operation for the benefit of the public. As to the application of the state receiver the ruling w^as that the proceedings in the state court had not developed sufficiently to show whether or not it was proper or necessary for the fed- eral court to relinquish jurisdiction over the property in favor of the state court and that the decision of the matter should be postponed until events threw more light on the subject.^ This receivership met with the approval of the United States Supreme Court in an opinion in which that court mentioned the necessity for continuing the service to the public as one of its reasons for conceding the propriety of the remedy.^ The administration of this estate occu- ■i People V. New York City Ry. tributed in another, the business Co., 57 Misc. Rep. 114, 107 N. Y. will be regarded by the courts in Supp. 247. receivership proceedings as an in- 5 Pennsylvania Steel Co. v. New tegral indivisible unit. Kansas York City Ry. Co., 160 Fed. 224. City Pipe Line Co. v. Fidelity Title Where a public utility is per- & Trust Co., 217 Fed. 187, 133 forming a service which requires C. C. A. 181. the holding of property in several 6 In re Reisenberg (Re Metro- states, such as the transportation politan Ry. Receivership), 208 and distribution of natural gas IT. S. 90, 52 L. Ed. 403, 28 Sup. Ct. produced in one state and dis- 219. RAILROADS — PUBLIC UTILITY CORPORATIONS. 1009 pied the attention of tlie court for a period of eight or nine years and during that time appeared, in one phase or another, in almost every volume of the Federal Re- ports. During this history the court frequently reiterated the statement that the underlying purpose of the receiver- ship was to serve the public. "The District Court's primary purpose from the beginning was to preserve the system of transportation as a going concern for the benefit of the public. "^ " The paramount intention, how- ever, to administer the property of these insolvent com- panies primarily for the benefit of the public by main- taining the operation of the system, and secondarily for preserving the interests of all concerned in accordance with their respective rights and priorities is unmis- takable. "» It may be remarked that there is contained in such statements as the one just quoted an analogy between these public utility receiverships and those created to preserve and protect the property of other corporations, sometimes distinguishingly spoken of as commercial cor- porations. It was pointed out in the preceding chapter that one of the situations that commonly give cause for the appointment of a corporation receiver of an ordinary corporation is its insolvency or approaching insolvency; and it was stated that, to warrant the ap- pointment, the situation must be so serious as to threaten the discontinuance of the business of the corporation.^ So, in the cases now under consideration, the fact is always presented to the court that the public utility com- pany is threatened with a deluge of financial trouble that will inevitably seriously discommode, if not altogether stop, its service to the public. Another analogy between the two classes of receiverships is also sometimes spoken 7 Pennsylvania Steel Co. v. New York City Ry. Co., 225 Fed. 734, York City Ry. Co., 216 Fed. 458, 735, 141 C. C. A. 6. 132 C. C. A. 518. 9 See §§ 293, 296. 8 Pennsylvania Steel Co. v. New II Rec— 64 1010 LAW OF RECEIVERS. of in tlie public utility cases. It was pointed out in the former chapter that the distinguishing feature of cor- poration receiverships is that they are extended to cover all of the assets of the corporation and that the estates are administered for the benetit of all persons inter- ested therein, creditors and stockholders alike. ^*^ So, in the public utility cases, all of the assets are taken into the receivership and, as far as the distribution is con- cerned, they are administered for the benefit of all inter- ested persons. We find it stated that : * ' The present ex- tension of equitable jurisdiction over corporations would be wholly unjustifiable if it were for the benefit of a particular class of creditors. "^^ The problem of stating formally and scientifically a recognized equitable ground, or basis, to warrant the court's assuming the management of the affairs of public utility corporations having disappeared, other problems liave arisen to engage the consideration of the court. These problems are connected with the administration of the estates. Of course the estates have themselves, as a rule, been much more extensive than those of com- mercial corporations, and this fact would have thrown a greater volume of work upon the courts ; but this situa- tion alone would not necessarily have made the work of their administration any more difficult nor perplexing in principle than the management of the affairs of other corporations. The presence, however, of the public interest, of what the courts have considered to be the public's necessities, has been the complicating and per- plexing element in the public utility cases. The courts 10 See § 293, supra. way, and perform its public du- By "insolvency" of a railroad ties. — Intercontinental Rubber Co. company is meant inability to v. Boston & M. R. R., 245 Fed. 122. meet its obligations as they ma- ii Pennsylvania Steel Co. v. ture in the ordinary course of busi- New York City Ry. Co., 198 Fed. ness, and at the same time to 721, 117 C. C. A. 503. carry on its business in proper RAILROADS — PUBLIC UTILITY CORPORATIONS. 1011 have assumed the duty not only of furnishing, during the course of the receivership, an uninterrupted con- tinuance of the service to the public to which it had become accustomed and which to it had become a neces- sity; but also of preserving, as far as possible, the unity and integrity of the great body of the estate, directly connected with the service to the public, so that the service might continue uninterruptedly after the receiver- ship has terminated. The performance of this duty has necessarily created problems that were not present when the court had simply the duty of managing an ordinary estate of a commercial corporation so as to create the largest possible dividends for creditors and stockholders if possible. This latter duty still devolves upon the court. It is only secondary, however, and in important particu. lars is affected by rules and principles made necessary, in equity, by the proper attention to the court's primary duty in the premises. It is to these rules and principles, connected directly with the management of the property and the distribution of its proceeds to creditors and stockholders, but directly due, also, to the need of prop- erly providing a service to the public that the particular interest, or importance, of public utility corporation receiverships attaches as distinguished from receiver- ships of other corporations. These are the matters that it is the purpose of this chapter to present. § 379. Receiverships for Purposes Common to Individuals and Ordinary Corporations. It is not to be understood that all of the cases of receivers of property owned by public utility corpora- tions are found among the federal cases above referred to. As was stated to be the case with reference to corporations in general, ^ receivers are appointed over special property of such public utility corporations for special purposes without regard to the fact that they 1 See § 293, supra. 1012 LAW OF RECEIVERS. are public utility corporations, and, for that matter, without regard to the fact that ihej are corporations or in any Avise of a character different from an indi- vidual person. Thus, where a public utility, pending an action brought to contest the validity of rates to be collected from the public in accordance wdth a resolution of a rate-fixing body, is collecting rates higher than those ordered and, under the order of the court, is depositing the excess collections in a bank, to be preserved awaiting the outcome of the action, the bank is, technically, a receiver.- The principles that apply to the appointment of receivers over property held by individuals as joint tenants, when disputes arise among them, will apply to public utility corporations under like circumstances — at least a possibility of a receivership may be foreseen if necessary to protect the rights of one w^hose rights are not recognized.^ In England, w^hen a creditor holding debentures pledging the tolls and revenues of a public utility as security for a debt sues to foreclose, the action will, if necessary, be aided by the appointment of a receiver of the tolls and revenues.^ As showing the special position occupied by such a receiver it may be remarked that even while he is receiving the tolls and revenues of a canal company, a w^rit of elegit may issue in aid of a judgment creditor of the company if it can be so framed to be of any service in view of the provision of the special act creating the company to the effect that the property must be used for no other purpose than that of a canal and that the canal shall always be open to the service of the public.^ 2 Spring Valley Water Co. v. Co., L. R. 2 Ch. Appeal Cases, 201; City and County of San Francisco, Potts v. Warwick «6; B. Canal Co., 225 Fed. 728, 140 C. C. A. 209. Kay's Report, 142; Furness v. 3 Delaware, L. & W. R. R. Co. v. Caterham Ry. Co., 25 Beavan 614. Erie Ry. Co., 21 N. J. Eq. 298. See 5 Potts v. Warwick & B. Canal Midland R. Co. v. Ambergate U. & Co., Kay's Rep. 142. B. & E. J. R. Co., 10 Hare 359. See. also, Furness v. The Cater- 4 Gardner v. London C. & D. Ry. ham Ry. Co., supra, where a re- RAILROADS — PUBLIC UTILITY CORPORATIONS. 1013 Ordinary foreclosure receivers may be appointed for public utility corporations just as they are appointed for other corporations or for individual debtors. Not all of the cases of corporation receivers of public utility corporations, even in the federal courts, belong to the class mentioned in the preceding section. Special cir- cumstances, such as the utter inability to re-finance the system, may make it impossible or undesirable to man- age the estate according to the rules and principles that control in that class of cases. Public utility corpora- tions may be amenable to state statutes concerning the appointment of receivers of corporations in general or of public utility corporations in particular. Many ques- tions may arise in public utility receivership cases that will be determined in accordance with the rules and principles that control in the ordinary case. It may happen that the appointment of a corporation receiver of a public utility will be refused because not sufficient necessity for the appointment is shown or because some less drastic remedy is available.® ceiver of tolls was appointed to being considered siiiBcient at least relieve a holder of debentures and for the time being, judgment creditor from the bur- In Gardner v. London C. & D. den of accounting while holding Ry. Co., L. R. 2 Ch. App. Cases under a writ of elegit and it was 201, the lower court appointed a also suggested that, if necessary, managing receiver, but on appeal the court would find some way the order was modified and a re- to make the land available to the ceiver of tolls directed. The ac- creditor, tion was to foreclose debenture In England, in the case of liens and the ruling on appeal was Trip V. Chard R. W. Co., 21 L. & based on the fact that the deben- Eq. 53, it was held that in a mort- tures were secured not by the gage foreclosure suit a managing corpus of the company's property, receiver of a railroad company but by the tolls alone. It is stated might be appointed, such a re- in the opinion that a managing ceiver being analogous to one ap- receiver of a corporation is ap- pointed to manage a mine owned pointed simply to sell the prop- and operated in common by con- erty as a unit, and as the property tending factions; however, on a of a going concern; and it was preliminary hearing a receiver of held that, since an order of sale tolls was appointed, that remedy could not be made in the case, the 1014 LAW OF RECEIVERS. appointment of a managing re- ceiver was improper. There is dictum in the opinion to the effect that a managing receiver of a rail- road corporation could never be appointed. In considering corpo- ration receivership cases in Eng- land there must be borne in mind the fact that there corporations have for the most part been cre- ated by special acts of Parliament and that many of these acts, es- pecially those creating public util- ity corporations, have specified in quite minute details rules and reg- ulations for controlling the cor- porate business. Since 1867 the matter of railroad receiverships has been largely governed by statute. In a suit to foreclose a vendor's lien on railroad property the ap- pointment of a receiver is not proper until after judgment. Lat- imer V. Aylesbury & B. R. Co.. L. R. 9 Ch. Div. 385 The receivership on the fore- closure of a railroad mortgage should be confined to the property covered by the mortgage, and the receiver has no authority to con- tract for municipal aid in the con- struction by him, as receiver, of an unfinished portion of a branch road. Smith v. McCuUough, 104 U. S. 25, 26 L. Ed. 637. Where in a suit to foreclose a railroad mortgage an order Is made with the consent of the mortgagor appointing a receiver of all the property whatsoever kind and description belonging to the mortgagor and authorizing him to take possession of the same and institute suits for its protection, the order will not be subject to collateral attack on the ground that the order was not limited to the property covered by the mortgage. Vallery v. Den- ver & R. G. R. Co., 236 Fed. 176. The rule that a mortgagee is not entitled to the income of the mortgaged property, even when the mortgage pledges the income, until he takes proper steps in re- ceivership proceedings to have the income empounded for his benefit applies to utility mortgages; un- der an Idaho statute to the effect that there is but one action, namely, foreclosure, available to a mortgagee, entitle a mortgagee in a foreclosure action to share, on behalf of a deficiency judg- ment, with general creditors in such part of the income as has not been empounded for his bene- fit. Westinghouse Electric & M. Co. V. Idaho Ry. L. & P. Co., 228 Fed. 972. After long negotiations a rail- road company agreed to settle a claim for death for a certain sum. On the very eve of payment a general receiver of its affairs was appointed. It was held that, since the court had the right to grant the receivership on terms and since it would, in such a case, have been only equitable to make the con- dition that the receiver should pay this claim, an order directing the receiver to pay it was proper. It was pointed out that the order was made by the same judge who appointed the receiver; the com- plaint and the answer were filed and the receiver appointed be- tween the hours of 9 a. m. and 11.15 a. m. on the day on which the money was to have been paid by the company. Harmon v. Blackwell, 232 Fed. 440, 146 C. C. A. 434. The order appointing the re- RAILROADS — PUBLIC UTILITY CORPORATIONS. 1015 •ieiver contained a clause to the effect that "any party in interest may apply to this court for fur- ther directions with reference to the property and business afore- said." This clause in itself was sufficient warrant for ordering the payment of the claim; but inde- pendent of this clause "the court was not foreclosed by the order of appointment from considering and determining, equitably, whether there were still further claims or liabilities that should have been provided for in the original order." Citing: Louisville, etc., R. R. Co. V. Wilson, 138 U. S. 501, 34 L. Ed. 1023, 11 Sup. Ct. 405; Union Trust Co. V. Illinois Midland R. Co., 117 U. S. 434, 29 L. Ed. 963, 6 Sup. Ct. 809. The holder of bonds secured by a railroad mortgage and of over- due aind unpaid interest coupons may, when the company is in financial straits and unable to complete its road, for the purpose of protecting his security, insti- tute an action whose purpose is •'to secure the completion and op- eration of a railroad line for pub- lic use and benefit by means of receiver's certificates to be issued by consent of the bondholders, and to enable it to perform a contract made by it with another com- pany." Jackson v. Parkersburg & O. V. Electric Ry. Co., 233 Fed. 784. In an action by certain stock- holders of a railroad company to recover possession for their com- pany of its road alleged to be wrongfully in possession of the de- fendant, another railroad com- pany, a claim, on the part of defendant, that it is in possession as receiver of a state court, raises an issue that must be tried just as any other issue. Dwight v. Central Vt. R. R. Co., 9 Fed. 785, 20 Blatchf. 200. Where circumstances make it necessary a receiver will be au- thorized to dismantle a road and sell the property independent of the right of way. Royal Trust Co. V. Washburn, B. & I. R. Co., 113 Fed. 531; State v. Jack, 145 Fed 281, 76 C. C. A. 165. A receiver will not be appointed for a telegraph company where it has no outstanding debts except that of the plaintiff with a possible claim for advances on the part of a railroad company. Baltimore & O. Tel. Co. V. Interstate Tel. Co., 54 Fed. 50, 4 C. C. A. 184. The holder of a judgment of $16,000, the lien of which is con- tested against a railroad company owning 95 miles of road and re- ceiving a revenue of $800,000 a year should enforce payment of the judgment in the usual way and is not entitled to a receiver. Mil- waukee & Minn. R. R. Co. v. Soutter, 2 Wall. (U. S.) 510, 17 L. Ed. 9X)0. In a mortgage foreclosure suit against a public utility corporation over whose property a corporation receiver has been appointed, cred- itors of the company, who have had their claims established in the receivership proceedings are en- titled to intervene and contest the validity of the mortgage. Equi- table Trust Co. of N. Y. v. Great Shoshone & Twin Falls Water Power Co., 245 Fed. 697, 158 C. C. A. 99. In an action to foreclose a rail- road mortgage, the receiver oper- ated the road for a time at a loss; then on a showing that the road 1016 LAW OF RECEIVERS. had never paid and that it was in a dangerous condition for laclc of repairs, operation was discon- tinued; thereafter the state, on relation of citizens petitioned to have operations renewed, showing the need of the locality for the road, that the necessary repairs could be made at a small cost, and that former failures were due to an unskillful and unsympathetic management; the former receiver was a banker and a non-resident; the court appointed an additional receiver, a railroad man and one acquainted with the territory through which the road ran, and ordered operations to be renewed. Central Bank & Trust Co. v. Greenville & W. R. Co., 248 Fed. 350. When a water company has been deprived of the right to maintain and operate its plant, a mortgagee is entitled to have a receiver appointed to protect the property against waste and impair- ment of value, even though there has been no default in payment of interest or principal. Farmers' Loan & Trust Co. v. Meridian Waterworks Co., 139 Fed. 661. In the foreclosure of a public utility mortgage a receiver will be appointed over the property even though it is in the possession of one claiming the legal title, un- contested by the company, where it appears that the legal title is a tax title obtained by one who held a fiduciary relationship to the company and whose title and pos- session is allowed to stand through collusion on the part of the com- pany. Appleton Waterworks Co. V. Central Trust Co. of N. Y., 93 Fed. 286, 35 C. C. A. 302. Heavy default in interest and serious disputes in regard to the management of the company be- tween contending factions furnish ground for the appointment of a receiver in the foreclosure of a railroad mortgage. Mercantile Trust Co. V. Missouri K. & T. R. Co., 36 Fed. 221, 1 L. R. A. 397. A receiver may be appointed to prevent the lapsing of a land grant. Kennedy v. St. Paul & P. R. Co., 2 Dill 448, Fed. Cas. No. 7706, 5 Dill 519, Fed. Cas. No. 7707. A receiver may be appointed to insure the supplying of a city with water after the company has been dissolved by judicial decree and pending the winding up of its af- fairs. Weatherly v. Capital City Water Co., 115 Ala. 156, 22 So. 140. An unreasonable order of a railroad commission directing a company to run a certain number of its trains over its road will be enjoined; if the company is neg- lecting its statutory duty to run trains the public interest can be protected in an action brought by the Attorney General to have its charter forfeited and a receiver appointed. Railroad Commission of Arkansas (Rowland) v. Saline River Ry. Co., 119 Ark. 239, 177 S. W. 896. When a receiver has been im- properly appointed over a public utility corporation the expenses of the receivership should be paid by the applicant. West Riverside, etc.. Water Co. v. Rogers, 16 Cal. App. 262, 116 Pac. 683. A receiver of a water company will be appointed on a showing that the company is insolvent, that the payment of interest on bonds leaves no margin of income for repairs and betterment, that RAILROADS— PUBLIC UTILITY CORPORATIONS. 1017 the property is in need of repairs, and that the city is liable to be left without an adequate water supply. Thoroughgood v. George- town Water Co., 9 Del. Ch. 330, 82 Atl. 689. A company was organized to construct an irrigation plant for a certain territory and supply prop- erty owners with water; the com- nany contracted with the owners to construct the plant and furnish water; the owners made an initial payment and contracted to pay the balance in installments after the project was completed. The company failed before the work was finished. Holders of these contracts were entitled to have a receiver appointed to collect the installments called for by the con- tracts and to expend the money on the completion of the plant. Childs V. Neitzel, 26 Ida. 116, 141 Pac. 77. When an irrigation company is insolvent and unable to comply with its contracts for furnishing water a receiver may be appointed to operate the plant. Idaho Fruit Land Co. v. Great Western Beet Sugar Co., 17 Idaho 273, 105 Pac 562. To warrant the appointment of a receiver the complaint must state facts, not conclusions. Wa- bash Ry. Co. V. Dykeman, 133 Ind. 56, 32 N. E. 823. A showing of a very serious financial embarrassment that had continued for more than three years, coupled with the fact that the company had no rolling stock and did not own its rails, war- ranted the appointment of a re- ceiver. Chicago & S. E. Ry. Co. V. Kenney, 159 Ind. 72, 62 N. E. 26. The fact that a road is not suffi- ciently equipped to be operated does not militate against the ap- pointment of a receiver. Ball v. Maysville, etc., R. R. Co., 102 Ky. 486, 80 Am. St. Rep. 362, 43 S W 731. As against a lessee, a receiver will be appointed at the instance of a creditor who holds a lien su- perior to the lease. Ball v. Mays- ville, etc., R. R. Co., supra. A lessee holding property under a lease made prior to a mortgage can not be ousted by a foreclosure receiver. Louisville & U. R. Co. v. Eakins, 100 Ky. 745, 39 S w' 416. In an emergency created by the inability of the lessor and the re- fusal of the lessee to operate a road, a creditor may have a re- ceiver appointed on an ex parte application. Louisville & N. R. Co. V. Schmidt, 21 Ky. Law Rep. 556, 52 S. W. 835. When, pending an action for personal injuries, the defendant company sells its property to an- other company, the purchaser agreeing to pay the judgment, and thereafter the buyer abandons most of the road and allows it to deteriorate, and both companies are insolvent, a receiver will be appointed, under a statute provid- ing that a receiver may be ap- pointed when property is in dan- ger of being lost or materially injured. Ingram v. Cincinnati F. & S. E. R. Co., 32 Ky. Law Rep. 849, 107 S. W. 239. Under a statute relating to trus- teeship, mortgages, foreclosure of mortgages and giving the court jurisdiction, in equity, of disputes concerning them, the court has jurisdiction to appoint a fore- closure receiver. Chalmers v. 1018 LAW OF RECEIVERS. Littlefield, 103 Me. 271, 69 Atl. 100. In order to save the forfeiture of a company's franchise through failure to pay a tax, a mortgagee, who is ready to pay the tax, al- though not entitled to foreclosure, may have a receiver appointed to preserve the property for the ben- efit of all interested. Union St. Ry. Co., etc., v. City of Saginaw, 115 Mich. 300, 73 N. W. 243. In order to administer the en- tire estate, a receiver of all of the property of a company may be ap- pointed in an action to foreclose a mortgage that does not cover all of the property, when the com- pany has a large floating indebt- edness. Rumsey v. People's Ry. Co., 91 Mo. App. 202. With the consent of the receiv- ership court an independent ac- tion to foreclose a mortgage may be instituted. Massey v. Camden & T. Ry. Co., 75 N. J. Eq. 1, 71 Atl. 241. A railroad company is amenable to a statute providing for an ac- tion to dissolve a corporation and to appoint a receiver therein. Knickerbocker T. Co. v. Tarry- town W. P. & M. Ry. Co., 133 App. Div, 285, 117 N. Y. Supp. 871. That part of an order appointing a foreclosure receiver that author- izes the receiver to take posses- sion of property not covered by the mortgage is void. Joseph v. Nelson (Man v. New York & S. B. Ry. Co.), 63 App. Div. 401, 71 N. Y. Supp. 913. Where a mortgage covered the property of a company that was subsequently taken into a merger company, the properties of all the companies being united and oper- ated as a single system, and the mortgage contract provided spe- cific methods for its enforcement, an order directing the receiver to sell the entire merger system as a whole and thereby depriving the mortgagee of the specific remedies of his contract, impairs the obliga- tions of a contract and is void. Philadelphia Trust Co. v. North- umberland County Traction Co., 258 Pa. St. 152, 101 Atl. 970. In an action brought by the state to forfeit the charter of a railroad company for violation of state statutes regulating the con- duct of railroad business, the state is not interested in the financial condition of the company and can not on the basis of show- ing a seriously embarrassed finan- cial condition claim the existence of an emergency warranting an ex parte appointment of a re- ceiver. Texas Mexican Ry. Co. v. State (Tex. Civ. App.), 174 S. W. 298. Bondholders, on a default in payment of interest, and on a showing of insolvency and a wrongful diversion of earnings, may have a foreclosure receiver appointed. United States & Mex- ican Trust Co. V. Delaware W Const. Co. (Tex. Civ.), 112 S. W. 447. While a railroad's property is in the hands of a foreclosure re- ceiver, the company may execute encumbrances junior to those for which the property is being admin- istered. United States & Mex. T. Co. V. Delaware W. C. Co, (Tex.), supra. Though a railroad's property is being administered by a foreclos- ure receiver, the railroad commis- sion may authorize the company to issue additional bonds and stock. RAILROADS — PUBLIC UTILITY CORPORATIONS. 1019 United States & Mex. T. Co. v. Delaware W. C. Co. (Tex.), supra. A railroad company may take advantage of a statute authorizing the voluntary dissolution of a cor- poration. Moore v. Lewisburg, etc., Ry. Co., 80 W, Va. 653, 93 S. E. 762. See, also. Jack v. Williams, 113 Fed. 823; Fellows v. City of Los Angeles, 151 Cal. 52, 90 Pac. 137; State V. Dodge City, etc., Ry. Co., 53 Kan. 329, 24 L. R. A. 564, 36 Pac. 755; Commonwealth v. Fitchburg Ry. Co., 12 Gray (Mass.) ISO; Sherwood v. Atlantic, etc., Ry. Co., 94 Va. 291, 26 S. E. 943. A sugar central in Porto Rico may be viewed as a public utility from many points of view con- nected with receivership proceed- ings. Berwind White, etc., Co. v. Barinquen Sugar Co., 6 Porto Rico Fed. 567. The case just cited may be noted as one extending the line of what are commonly known as pub- lic utilities. Non-resident directors of a pub- lic utility may manage the busi- ness efficiently through local agents; the fact that the directors are non-residents and keep the books out of the state does not warrant a receivership. Thorough- good V. Georgetown Water Co., 9 Del. Ch. 84, 77 Atl. 720. A corporation furnishing water to the inhabitants of a town, and to the town itself for municipal purposes, and occupying the streets of the town with its con- duits, though the corporation has not been given the right of emi- nent domain, or any other right usually accorded to quasi public corporations, is a "corporation for public improvement," within the statute providing that the act au- thorizing the appointment of a re- ceiver of an insolvent corporation shall not apply to a corporation for public improvement. Thor- oughgood V. Georgetown Water Co., 9 Del. Ch, 84, 77 Atl. 720. The use of a large excess of in- come over operating expenses for the purpose of paying interest on bonds instead of in repair of the plant, is not ground for a receiver- ship in the absence of a showing that the plant is badly in need of repair. Thoroughgood v. George- town Water Co. (Del, Ch.), supra. The appointment of a public utility corporation receiver on an ex parte application is erroneous in the absence of a showing of an emergency requiring such action. Butts V. Davis (Tex. Civ.), 146 S. W. 1015, A receiver of an irrigation com- pany will not be appointed in the absence of a showing that a re- ceiver would have greater facili- ties for acquiring funds to operate the plant than the company has. Grandfalls Mut, Irr. Co. v. White, 62 Tex. Civ. App. 182, 131 S W. 233. The expenses of a receivership improvidently created should be taxed against the applicant; claims given a statutory prefer- ence out of earnings can not be paid out of the corpus when there are no earnings; expenses of run- ning the business pending the re- ceivership have preference over all liens; the mortgagee referred to in a statute giving certain claimants preference over the mortgagee, is a mortgagee at whose instance a receiver is ap- pointed, not one who opposes the appointment. Gulf Pipe Line Co. 1020 LAW OF RECEIVERS. §380. Receivership in Case of Violation of Anti-Trust Law. The same general rules which apply to corporations in general apply to public utility corporations respecting violations on its part of anti-trust laws. This subject was considered in its general aspects as applical)le to corpo- rations in general in a previous subdivision.^ The courts^ as was shown in our discussion of the subject, are reluc- tant to appoint a receiver except as a last resort. The leading case upon the subject as far as public utility receiverships are concerned is that of the Union Pacific Railroad Company Case.- In that case the court stated that in applying the general rules as to the relief to be afforded, the court must deal with each case as it finds it. The court in rejecting a plan for the distribution of the stock held by the dominating company, said : * * So far as is consistent with this purpose a court of equity dealing with such combinations should conserve the property V. Lasater (Tex. Civ. App.), 193 S. W. 773. In an action by a creditor against a public utility receiver, a company contract will be held valid if possible; and if a certain contract, construed under the laws of one state is valid, but under the laws of another state is invalid, it will be construed under the former unless it is clearly made to appear that the intention of the parties was to the contrary. Crawford v. Seattle R. & S. Ry. Co., 86 Wash. G28, L. R. A. 1916D, 732. Where the receiver of a railroad has been operating the road at practically no profit, the issuance of certificates will not be ordered, against the wish of bondholders, for the purpose of raising money to pay interest so as to forestall foreclosure and permit the fur- ther operation of the road. Town- send V. Oneonta, C. & R. S. Ry. Co., 88 App. Div. 208, 84 N. Y. Supp. 427. • In United Electric Securities Co. V. Louisiana Electric Light Co., 68 Fed. 673, it is held that a court will not take the management of a corporation out of the hands of its directors on the ground of mis- management if full relief can be obtained by injunction. 1 See § 320 et seq., supra. 2 United States v. Union Pac. R. Co., 226 U. S. 61, 57 L. Ed. 124, 33 Sup. Ct. 53. The above case discussed very thoroughly the plan of unmerging employed in the Northern Securi- ties Case, 193 U. S. 197, 48 L. Ed. 679, 24 Sup. Ct. 436, and the Standard Oil Company Case, 221 U. S. 1, Ann. Cas. 1912D, 734, 34 L. R. A. (N. S.) 834, 55 L, Ed. 619, 31 Sup. Ct. 502. RAILROADS — PUBLIC UTILITY CORPORATIONSJ. 1021 intorcsts involved but never in such wise as to sacrifice the object and purpose of the statute. The decree of the courts must be faithfully executed and no form of dis- solution be permitted that in substance or effect amounts to restoring the combination which it was the purpose of this decree to terminate." The court, however, in finally dealing with the case, enjoined a right to vote the stock in the ownership of the dominating corporation while held by it and enjoined the payment of dividends upon such stock while thus held, except to a receiver to be appointed by the lower court to collect and hold such dividends until disposed of by the decree of that court. And the court directed that plans be presented to the lower court within a certain time to accomplish the pur- pose of the court and that if plans were not submitted, or if the plans submitted were rejected by the court, the lower court should proceed by receivership and sale, if necessary, to dispose of the stock in such a way as to dissolve the unlawful combination. The court in discussing the effect of consolidations of railroad systems in violation of the anti-trust law,^ said : ''The consolidation of two great competing systems of railroads engaged in interstate commerce by a transfer to one of a dominating stock interest in the other creates a combination which restrains interstate commerce within the meaning of the statute, because, in destroying or greatly abridging the free operation of competition there- tofore existing, it tends to higher rates." It might, however, be noted that the present govern^ mental control of the transportation systems of the country is somewhat difl'erent in policy as to the desir- ability of retaining competition between the different sys- tems as stated by the court in the above quotation. It is not, however, to be expected that the policy of the courts will be different than heretofore shown by the state- 3 United States v. Union Pac. R. Co., supra. 1022 LAW OP RECEIVERS. ments in tlieir decisions on this subject in the absence of any changes in the terms of the anti-trust law. §381. Effect of War Time Government Control of Public Utilities. We have not observed any recorded conflict of authority between receivers and those in control of the operation of the public utilities under what is commonly known as the Federal Control Act. In Dooley v. Pennsylvania Railroad Company,^ in describing the nature of the con- trol of the public utilities assumed by the government under the act, Judge Booth, said : ' * It needs no argument to show that it was necessary, in order that these powers be made effective, that the possession, the control, and the utilization of the property should be exclusive, and not subject to interference by private parties.'* The status of the governmental operation was also dis- cussed by Judge Ray, as follows:^ ''Neither the United States, nor the President, nor the Director General, is doing this as agent for the railroads or the transportation companies. The United States, through its officers and agents, is doing all this on its own account, and to accom- plish its own purposes, including service to and for the general public. The United States is not in partnership with these transportation or railroad systems. The earn- ings for the time being, and until such time as these prop- erties are turned back to the possession and control of the corporations owning them, belong to the United States. He who steals such earnings steals the money of the United States. The property received by those in 1 Dooley v. Pennsylvania Rail- possession and control of the road Co., 250 Fed. 142. railroads, the right to fix both 2 United States v. Kambeitz, 256 inter and intrastate rates was im- Fed. 247. The above case related pliedly included. Northern Pac. to an express company. Ry, Co. v. State of North Dakota Under the Federal Control Act, (U. S.), 63 L. Ed., 39 Sup. Ct. 502. giving the government complete RAILROADS — PUBLIC UTILITY CORPORATIONS. 1023 charge of these transportation systems for transporta- tion is received by the United States, to be transported by the United States, and is in the custody and under the protection of the United States as bailee and carrier, and the United States has a property therein." The courts, as a matter of public information, know that the railroad companies have, under the administra- tion of the Federal Control Act, been entirely excluded from participation in the operation of their properties, and that they have no voice in the employment and dis- charge of men employed in the upkeep and repair of their roads and rolling stock and the operation of trains, and that the exclusive control of all such matters is placed under the Director General.^ The United States Supreme Court, in the very recent case of Northern Pacific v. North Dakota,^ in holding that complete possession and control was given to the United States of such public utilities under the Federal Control Act, said: ''No elaboration could make clearer than does the act of Congress of 1916, the proclamation of the President exerting the powers given, and the act of 1918 dealing with the situation created by the exercise of such author- ity, that no divided but a complete possession and control were given the United States for all purposes as to the railroads in question. But if it be conceded that despite the absolute clarity of the provisions concerning the con- trol given the United States, and the all-embracing scope of that control, there is room for some doubt, the consid- eration of the general context completely dispels hesi- tancy. How can any other conclusion be reached if consideration be given the comprehensive provisions con- cerning the administration by the United States of the 3 Hatcher & Snyder v. Atchison, T. & S. F. Ry, Co., 258 Fed. 952. 4 Northern Pacific Ry, Co. v. State of North Dakota (U. S.), 39 Sup Ct. 502. 1024 LAW OF RECEIVERS. X^roperty wliicli it was aiitliorized to take, tlie financial obligations under which it came and all the other duties and exactions which the act imposed, contemplating one control, one administration, one power for the accom- plishment of the one purpose, the complete possession by governmental authority to replace for the period pro- vided the private ownership theretofor existing." But the Federal Control Act did not give the Director General of Railroads the power to take possession of land or other property belonging to a railroad but not used by it in its business as a carrier. Such non-operative prop- erty still remains under the control of the public utility corporation and is subject to its debts. ^ The carriers do not lose their rights as legal entities, capable of suing or being sued in the courts, because of the Federal Control Act.*^ But judgments may be ren- dered against the company, while under federal control, although no process may be levied on any property under such federal control/ 5 United States R. R. Adminis- ' Co., 106 Misc. Rep. 58, 174 N. Y. tration v. Burch, 254 Fed. 140. Sup. 60. The railroad corporations own- Under the Federal Control Act Ing the carrier properties were the carriers are subject to all the not taken over by the govern- existing obligations of a common ment under the Federal Control carrier and actions may be Act. They were allowed to con- brought against them, the substi- tinue their functions as corpora- tution of the Director General by tions in all respects other than in way of amendment is permissive the operation of their carrier sys- only. Johnson v. McAdoo, 257 terns. Nash v. Southern Pac. Co.. Fed. 757; Jensen v. Lehigh Val- 260 Fed. 280. ley R. Co., 255 Fed. 795; El Paso c McGregor v. Great Northern & S. W. R. Co. v. Lovick (Tex. Ry. Co. (N. D.), 172 N. W. 841. Civ.), 210 S. W. 283; Vaughn v. .The Acts of Aug. 29, 1916, and State (Ala. App.), 81 So. 417; Le March 21, 1918, do not give the Clair v. Montpelier & W. R. R. President the right to make an Co. (Vt.), 106 Atl. 587. order extinguishing a right of ac- " Postal Telegraph Cable Co. v. tion already existing or affecting Call, 255 Fed. 850; Dahn v. Mc- the jurisdiction of the state courts Adoo, 256 Fed. 549. of such actions. Benjamin Moore In Dickens v. Bransford Realty & Co. V. Atchison, T. & S. F. Ry. Co. (Tenn.), 210 S. W. 644, the RAILROADS — PUBLIC UTILITY CORPORATIOXS. 1025 Any suit wMcli involves the right of the Director Gen- eral of Railroads to direct and control the operation of the road is not permitted under the Federal Control Act.« Under the Federal Control Act (40 Stat. 451 c 25 Comp. St. 1918, § 31153/4a to 31153/4p) it is provided that the President may, through contract with the owners, provide for their just compensation for the use of their operative railroad properties and that any income de- rived from their operation in excess of such just com- pensation ''shall remain tlie property of the United States." It also appropriated $500,000,000 as ''a re- volving fund for the purpose of paying the expenses of the federal control. ' '" court said: "While it is true Public Act No. 107 of the Sixty- fifth Congress above referred to, very broadly authorized suits against such common carriers, still their liability to suit is not greater than that of the various municipal corporations of this state. Such liability, however, should be confined to their own creditors. Since it is the settled policy of this state to hold im- mune from garnishments all mu- nicipalities and other govern- mental agencies, we think such protection must be accorded to de- fendant Nashville Terminals, as it is now operated. "Moreover, section 10 of the Act of Congress above referred to (U. S. Comp. St. 1918, § 3115%j), expressly provides that "no pro- cess, mesne or final, shall be levied against any property under such federal control," and this would doubtless preclude proceed- ings by attachment and garnish- ment. "We have not had occasion to consider in this opinion the effect II Rec— 65 of General Order No. 43, promul- gated by the Director General of Railroads September 5, 19ir, which undertook to exempt car- riers under federal control from proceedings by garnishment; how- ever, as stated heretofore under our previous decisions, we think such carriers so operated are freed from such process." s Nueces Valley Townsite Co. v. McAdoo, 257 Fed. 143. The federal control acts do not prohibit state courts from assum- ing jurisdiction where it otherwise existed. L. N. Dantzler Lumber Co. v. Texas & Pac. Ry. Co. (Miss.), 80 So. 770. Under the acts authorizing the federal governmental control of the railroads during war, suits against the carriers, during the period of such control, not arising out of the operation as a carrier, may be commenced under the state laws. Friesen v. Chicago, R. I. & P. R3^ Co., 254 Fed. 875. 9 Nash V. Southern Pac. Co , 260 Fed. 280. 1026 LAW OF RECEIVERS. The rights and liabilities arising out of the situation of federal control of public utilities under the war-time act are not at this time fully ascertained and necessarily will give rise to various interpretations based to some extent upon the theory held by the courts as to the analogy of the position of the Director General of Rail- roads to the public utility operative properties and of the carrier corporation as compared to other managing con- trols under legislative or judicial sanction. In one case the position of the Director General was re- garded by the court as analagous to that of a receiver of a railway company conducting its carrier operations on the theory that such a receiver has been regarded as a carrier.^" Undoubtedly there are many points of simi- larity between the duties of the Director General and that of a receiver but the origin and extent of his powers in respect to the operative property is quite different from that of a receivership. In another case^^ the Director General was regarded as a general in command of the 10 Rutherford v. Union Pac. R. they are mere agents of the gov- Co., 254 Fed. 880, citing United ernment, and, if liability for their States V. Nixon, 235 U. S. 231, 234. torts and the torts of their em- 59 L. Ed. 207, 35 Sup. Ct. 49; ployees exists, it is against the United States v. Ramsey, 197 Fed. government and not the carrier, 144, 146, 42 L. R. A. (N. S.) 1031, and therefore actions for such 116 C. C. A. 568, to the effect that torts should be against the Direc- such a receiver is a common car- tor General of Railroads and not rier. against the carrier. It is only on Under the federal control acts this theory that the Director Gen- the railroads are regarded as eral was to have even colorable agencies or instrumentalities of authority to interfere with a suit the federal government. Dickens against a transportation company, V. Bransford Realty Co. (Tenn.), and this theory undoubtedly con- 210 S. W. 644. flicts with the principles above 11 Vaughn v. State (Ala. App.), stated. The only authority for 81 So. 417. suing a carrier while under fed- In the above case. Presiding eral control must be rested upon Judge Brown said: "The appar- the act of Congress which sub- ent theory of General Order No. jects them 'to all laws and liabil- 50 is that, while the carriers are ities as common carriers, whether operating under federal control, arising under state or federal RAILROADS — PUBLIC UTILITY CORPORATIONS. 1027 army of transportation on the theory that the comman- deering of the railroads is based upon the same inherent authority as that of the Selective Draft Act. The clearest statement of the nature and character of the control exer- cised by the government over the railroads under the Federal Control Act, which we have observed, has been by Judge Van Fleet in a recent case^^ j^ which he said ; *'In the first place, the act, as expressly declared, is an emergency measure to meet extraordinary conditions growing out of an actual state of war, and calling for an exertion of the most extreme and drastic powers of laws or at common law,' with certain exceptions, and provides that — " 'Actions at law or suits in equity may be brought by and against such carriers and judg- ments rendered as now provided by law,' etc. U. S. Comp. Stat. 1918, pp. 456-458. "And the validity of this statute is sustainable on no other theory than that the transportation com- panies are operating their respec- tive systems under federal control. If such companies are in no way connected with the operation of their respective transportation systems, we submit that it would not be within the power of Con- gress to subject them to liability and suits thereon for the torts, miscarriages, and defaults of the employees of the federal govern- ment. Such an act would be an arbitrary exercise of legislative power contrary to the established principles of private rights and distributive justice and tanta- mount to a denial of due process of law. Zeigler v. South & N. A. R. R. Co., 58 Ala. 594; Mobile Light & R. R. Co. V. Copeland & Sons, 15 Ala. App. 235, 73 South. 131; Bank of Columbia v. Okley, 4 Wheat. 235, 4 L. Ed. 559; Hur- tado V. California, 110 U. S. 516, 28 L. Ed. 232, 4 Sup. Ct. Ill, 292; Dent V. West Virginia, 129 U. S. 114, 32 L. Ed. 623, 9 Sup. Ct. 231; Leeper v. Texas, 139 U, S. 462, 35 L. Ed. 225, 11 Sup. Ct. 577; Giozza V. Tiernan, 148 U. S. 657. 37 L. Ed. 599, 13 Sup. Ct. 721; Jones V. Brim, 165 U. S. 180, 41 L. Ed. 677, 17 Sup. Ct. 282; Max- well V. Dow, 176 U. S. 581, 44 L. Ed. 597, 20 Sup. Ct. 448, 494; 6 Rul. Cas. Law, pp. 433-446, em- bracing paragraphs 430 to 442, on Constitutional Law. "On the other hand, if the car- riers are operating under federal control and are agencies of the government, the authority of Con- gress to impose liability on the carriers for the torts of their em- ployees is clearly sustainable on the theory that such responsibil- ity encourages caution on the part of the carriers and their em- ployees promotes efficiency, and safeguards the interests of the government and the general pub- lic." 12 Nash V. Southern Pac. Co., 260 Fed. 280. 1028 LAW OF RECEIVERS. government to meet those conditions. It is accordingly to be construed, not with that meticulous nicety which might be dictated by other circumstances, but in a broad spirit of liberality, in keeping with the purpose intended to be accomplished and having in view its emergency character. ''As the terms of the act at once disclose, it w^as the purpose and intent of Congress that the possession and control of the systems of transportation taken over in whole or in part by the President was to be an exclusive one, to no extent shared in by the ow^ners. If the latter or their officers were retained as operators, they were to act merely as servants and under pay of the government; and while the owners were to be compensated for the use of their properties, everything earned or accruing from their operation in excess of such compensation was to be the property of the government. Such a taking in- volved in the sense the element of agency by the govern- ment for the owners. Agency implies a consentual or contractual relation, but this was not such. It was more nearly analagous or akin to a taking by the sovereign in the right of eminent domain ; and the result of such taking The Act of March 21, 1918, pro- complained of, a consideration has viding for the federal control of arisen of which the court is jus- railroads during the war and tified in taking judicial notice, authorizing the President to make The country is now in a state of ... ., f . „,;i.r,- (.!,„ war, and the government of the regulations therefor, is within the ^ ^ „. . United States has assumed con- war powers of Congress. Warn- ^ , ^, ^. ^ ^, trol over the operation of the rail- Wright V. Pennsylvania R. Co., 253 ^^^^^ ^^^^^ .^ ^ deficiency in b ed. 459. motive power and cars, and a In the case of Marshall v. Bush, shortage of men. To take the 102 Neb. 279, L. R. A. 1918E, 385, necessary engines and rolling 167 N. W. 59, the Supreme Court stock to operate this train may de- of Nebraska, in annulling an order crease to that extent the facilities of the Railroad Commission of that of defendant for the patriotic duty state requiring Bush, as receiver which is imposed upon him of of the Missouri Pacific Railroad doing everything possible to meet Company, to place in service an the demands in the transportation extra train, said: ^gld imposed by the new condi- "Since the rendition of the order tions." RAILROADS — PUBLIC UTILITY CORPORATIONS. 1029 was necessarily to relieve the owners of systems so taken from any legal responsibility to the public arising out of their operation, and quite as necessarily an assumption of such responsibility by the government. And this, as is clearly shown by the whole framework of the act, was what Congress desired to accomplish. The conditions to be met in the emergency presented were deemed such that the administration of this vital instrumentality for suc- cessfully carrying on the war was to be freed for the time from any hazard arising through a bonded control or responsibility. And as Congress could not in the nature of things foresee the many exigencies and necessi- ties that might arise for prompt, free and unrestrained action by the executive, in the practical administration of this great trust, the President was clothed with the broad- est and most plenary powers and authority to deal with the problems as they might arise and in such manner as his judgment should dictate ; and this not only as between the government and the owners, but as between the gov- ernment and the general public, with express power to make all orders and regulations essential to carrying out the purpose of Congress." The powers conferred by the Federal Control Act were held not to have been affected by the signing of the Armis- tice since an armistice merely suspends military opera- tions and does not terminate a war.^^ Aside from the Federal Control Act it has been held that when the government purchases or owns all of the capital stock of a railway company and operates it as a public utility, it is deemed to have abandoned its sover- eignty and is to be treated in the same manner as any other public utility.^^ 13 Commercial Coal Co. V. Burle- 14 Ballaine v. Alaska Northern son, 255 Fed. 99; State v. North- Ry Co., 5 Alaska 694; Panama R. ern Pac. Ry. Co. (N. D.), 172 N. W. Co. v. Curran, 256 Fed. 768. 324. 1030 LAW OF RECEIVERS. § 382. Who Will Be Selected As Receiver. The same general rules applicable to the question of selecting a receiver for a private corporation are also applicable to public utility receiverships.^ In applying the rules in respect to selecting a person particularly qualified for the position, the range of selection in respect to a public utility receivership may be somewhat limited on account of the small body of men with the practical experience for such management. A court in appointing a receiver experienced in rail- road management to operate a railroad and preserve the property pending a sale does so to relieve itself from the details of administration and management. His instruc- tions are always general in character and he is expected to apply to the court from time to time whenever special instructions are deemed necessary. The very nature of his relations not only to the court but to the creditors and others entitle him to the largest degree of discretion pos- sible in the discharge of his duties. This discretion in the management will not be interfered with except in the case of abuse or manifest wrong.^ A person who is interested in another railroad with which the receivership railway is in litigation should not be selected as receiver.^ The fact that the person selected as receiver is an officer of the receivership railway will not be deemed an objection if he is otherwise satisfac- tory,^ nor will the fact that he is related to certain large 1 See § 343, supra, for discus- cient cause for appointing an ad- sion of the general qualifications ditional receiver.— Central Trust of the person selected as receiver Co. of New York v. Missouri, K. of a corporation. ^ T. Ry. Co., 246 Fed. 154. 2 Continental Trust Co. v. Toledo, etc., R. Co., 59 Fed. 514. 3 Commonwealth v. North Shore R. Co., 259 Pa. St. 155, 102 Atl. 568. The fact that a railroad receiver 4 Ti^e president of the corpora- had expressed his views in regard tion was appointed in one case at to those engaged in formulating a the instance of the mortgagee, plan of reorganization is not suffi- who was foreclosing the mortgage. RAILROADS — PUBLIC UTILITY CORPORATIONS. 1031 stockliolders and bondholders be an objection wliere lie is specially fitted for the position by reason of his familiar- ity with the property and its affairs and his selection is favored by substantially all of the parties interested and no charges are made against his integrity.^ It is not necessary that the receiver be familiar with the mechani- cal details of operation.^ In the absence of any statutory objection, a non-resident may be selected.'^ In several of the earlier cases, one railroad company was appointed as receiver of another one but the receivership was the re- sult of close business relationship between them which did not appear to be hostile in character.^ Where the duties to be performed in the receivership are of a large operative property, the court frequently appoints two receivers but not where it is quite clear that one alone will be able to perform properly the functions. The practice in this respect was well set forth by Judge Lacombe in an oral opinion in a receivership case'' aris- ing in a mortgage foreclosure proceeding, in which he said : ' ' That there should be two receivers appointed at Ralston v. Washington, etc., Ry. Commonwealth v. North Shore R. Co., 65 Fed. 557. Co., 259 Pa. St. 155, 102 Atl. 568. "Unless in cases of imperative I" Westinghouse, etc., Mfg. Co. .„ . „ V. Binghamton Ry. Co., 255 Fed. necessity, no person will be ap- . ' 378, a business man not connected pointed receiver of a railroad com- ^.^^ ^^^ ^^^^^^ ^^.^^^^ ^^^ ^p^ pany who is a party to or of coun- pointed receiver. sel in the cause, or who has been ^ Farmers' Loan & T. Co. v. an officer in, or an official of, the ^^^^ p^^^.^ ^^^^ j^ ^^^ g2 Fed. insolvent corporation." Finance g^g Co. V. Charleston, etc., R. Co., 45 g Langdon v. Vermont, etc.,R.R. ^^