OJnrn^U Slatu i>rlynnl Sitbraty Cornell university Library KF9016.G561896 The law of receivers of corporaU^^^^^ 3 1924 020 200 915 DATE DUE ( ' \ ■ j .1 : CAVt-ORO rillNTBOINU.t.A. . The original of tiiis book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924020200915 THE LAW RECEIVERS OF CORPORATIONS INCLUDING NATIONAL BANKS ILLUSTRATED BT A.B8TRACTS OF THE PACTS OF AND EXCERPTS FROM THE OPINIONS IN LEADING CASES JAMES ERASER ^JiCK and AUGUST BECKER. SECOND EDITION. NEW YORK AND ALBANY : BANKS & BROTHERS, LAW PUBLISHERS. 1896. Entered according to Act of Congress, in the year 1891, By JAMES FRASEE GLUCK and AUGUST BECKER, in the office of the Librarian of Congress, at Washington, D. C. Entered according to Act of Congress, in the year 1896, By JAMES ERASER GLUCK and AUGUST BECKER, in the office of the Librarian of Congress, at Washington, D. C. PREFACE. No attempt has been made in this volume to treat broadly of the subject of Keceivers. The treatise is strictly limited to the presentation of the law relating to a particular class, viz. : the Receivers of Corporations, including those of National Banks. By thus limiting the scope of the work we believe there will be found a fuller and more satisfactory exposition of the subject herein discussed than, up to this time, has been offered by any other publication in this country. The plan upon which the work has been prepared differs, in some respects, from that of the ordinary text-book. An ear- nest effort has been made to state the general principles re- lating to the subject in the most succinct form consistent with clearness and exactitude. Much labor has been expended in the preparation of the statements of the facts involved in the various cases cited to confirm the text ; and in quite a number of instances, where it was deemed necessary, excerpts have been given from opinions. The purpose aimed at has been to present to the practicing lawyer the result which usually he attains only by his own labor. A lawyer is not, as a rule, seri- ously in doubt concerning the general principles of a sub- ject. His chief anxiety is to discover precedents in which the general principles he urges have been clearly applied, and to find eases in which the facts involved so closely resemble those in the pending controversy that they relieve the mind of the Court of any doubt, and justify, on its part, a prompt and favorable decision. The mere citation in a foot-note of the titles of a large number of cases throws no light on such a quest. Much time and serious labor must, thereafter, necessarily be expended in ascertaining exactly what the facts and legal con- clusions are in such cases. If a lawyer, in the necessarily hurried examination which in a large and diversified practice he is able to devote to a single case, can have presented to him, IV PEEPACE. in compact shape, the general principles relating to the subject under investigation, in almost the exact language of the best authorities, and in addition thereto — without a laborious search therefor on his part through many volumes — carefully prepared statements of the essential facts of the cases cited, it is be- lieved that the effort herein made so to do — if well done — will meet with commendation. In a few cases we have felt it necessary to criticise the con- elusions arrived at by various courts, and where the decisions of the courts have appeared to be in conflict we have indicated our preference by adopting as our text the conclusions reached in the line of decisions regarded as correctly enunciating the law ; yet we have endeavored also, in all cases, to present the fuU facts, and to cite with impartiality those cases which have not commended themselves as of equal validity with those adopted as the text. Especial care has been expended in the effort to make the Index as complete as possible ; and even though it be regarded as diffuse, this fact will perhaps not be considered a serious fault. In the Index we have also included a list of Cases Annotated, in which either the facts involved in the cases or citations from the opinions, or both, have been given. We believe this will be found a useful feature. In conclusion, it is only proper to state that no case has been cited without a careful perusal of the entire case, and no citation has been made without subsequent verification of such citation. Yet, notwithstanding this labor, mistakes wiU probably be found. Amid the duties and responsibilities inci- dent to the active practice of a laborious profession, it is not always possible to reach one's ideal in a work of this character. But the attempt so to do has been made, laboriously and thor- oughly, and, under such circumstances, if errors are found, the indulgence of the profession wiU, we trust, be generously bestowed. Bdfpalo, May 3, 1891. PREFACE TO SECOND EDITION. The rapid sale of the first edition of this work and the continuous demands for a second have been, to the authors, the highest incentive for increased care and effort in the preparation of the edition now presented to the profession. The plan adopted in the first edition and referred to in the preface therein, has been followed in the present volume. • New sections and parts of sections have been necessarily- added. An earnest attempt has been made to add to the clearness and brevity of the text. The number of new cita- tions, embracing, it is believed, every case of any importance decided in our courts since the first edition was issued, is very- large. A statement of the reports examined wiU be found at the end of the index herein. The index has been entirely rewritten and it is hoped may be found more complete and satisfactory than the index to the first edition. Should imperfections and omissions present themselves, as doubtless wiU be the case notwithstanding the care bestowed to prevent them, it would be highly appreciated if they were called to the attention of the authors. BUPPALO, February, 1896. TABLE OF CONTENTS. CHAPTER 1. Op the Appointment and Status op the Rkcbiter. Paob. Sec. 1. Definition of the term 1 2. Of the appointment of the Receiver and herein 3 (a) Of the appointing power 3 (6) How the appointment may he proved 5 3. Of the order appointing the Receiver — generally 7 4. Incidents and effects of the order appointing the Receiver . 7 (a) Upon corporate existence 7 (6) Upon corporate functions and liabilities 8 (c) Upon the title to corporate property 15 {d) Upon prior liens of creditors 19 (e) Upon pending suits 32 (/) When the appointment may not be attacked collat- erally 30 {g) When the appointment may be attacked collaterally 32 5. The status of the Receiver 33 (a) Within the jurisdiction of the Court appointing him . . , 33 (6) Outside of the jurisdiction of the Court appointing him 84 CHAPTER II. When a Receiver will be Appointed. Sec. 6. Upon an ex parte application 46 7. Upon corporate insolvency 47 8. Upon default in mortgage obligations 49 9. Upon the misconduct of directors 53 10. Upon application of judgment creditors 58 11. Upon the absence of persons authorized to manage the corporate property 59 12. Of foreign corporations 59 13. Of National Banks 60 14. Under special circumstances as stated 68 15. Of the respective rights of State and Federal Courts to appoint Receivers 64 Vlll CONTENTS. CHAPTER III. When a Receiver will not be Appointed. Pasi. Sec. 16. Upon an ex parte application 65- 17. Upon the insolvency of a corporation 66 18. Upon default in mortgage obligations 68 19. Upon wrongful conduct of oflBcers 71 20. Upon the application of general creditors 74 21. Upon the dissolution of a corporation 79 22. Under special circumstances as stated 80 CHAPTER IV. Who mat and who mat not be Appointed Receiver. Sec. 23. Who may be appointed 84 24. Who may not be appointed 86 CHAPTER V. Of the Jurisdiction and Power op Various Courts over Receivers. (A.) Of the Jurisdiction of Courts. Sec. 25. Of the jurisdiction of the Court first acquiring control. . . 88 26. Where a Federal Court will retain exclusive control 97 27. Where a State Court will retain exclusive control 100 28. Matters and claims of which the Court will not take jurisdiction , 101 {B.) Of the Power of Courts over Becemers. 29. The Court will protect the possegsion of the Receiver 102 30. The Court may authorize the Receiver to conduct the business 109 31. The Court may restrain litigation against the Receiver ... 110 32. The Court may direct litigation by the Receiver 120 33. The Court may create liens prior to mortgage indebtedness 120 34. Over the Receiver's executory contracts 143 35. Over and upon the sale of the property 146 36. Upon the transfer of title 152 37. Over the time for filing claims 154 38. To punish Receivers for contempt 156 39. Over Receivers of National Banks 159 CHAPTER VI. Op the Powbhs, RiflHTS and Duties op Receivers. Sec. 40. Date of their inception, and how defined 162 41. The character and extent of their possession of the prop- erty of the corporation 165 CONTENTS. IX PA8B. Sec. 43. In respect to corporate rights generally 173 43. When acting for creditors only 177 44. To compel restitution of corporate property ISl 45. Against delinquent officers and stockholders 186 46. To sue in their own names after leave granted 196 47. To employ counsel ; and the limitations thereof 201 48. To compromise disputed claims 202 49. When entitled to receive rents and profits in foreclosure actions 203 50. Of insurance companies to enforce payment of deposit notes 204 51. Of railroad companies in their management and operation 214 52. In a foreign jurisdiction 222 53. Of purely statutory Receivers in a foreign jurisdiction. . . . 231 CHAPTER VII. Of the Powers and Rights of Receivers of National Banks. Sec. 54. Their powers in general 238 55. To avoid unlawful preferences and assert the hank's rights 240 56. Against stockholders 246 CHAPTER VIII. Limitations upon the Powers op Reckivbrs. Sec. 57. To avoid lawful acts of the corporation 255 58. When the Receiver can assert only the rights of the cor- poration 258 59. In prosecuting and defending actions 271 60. In remedies 275 61. When appointed, pendente lite in foreclosure proceedings 279 62. To sell and dispose of property 282 68. To contract debts and create liens 286 64. In the management and operation of railroads 287 65. When acting outside of their jurisdiction and beyond the scope of their authority 298 66. Of National Banks 302 CHAPTER IX. Liability of Rbcbiveks. Sec. 67. For torts and breaches of contract accruing prior to their appointment 314 68. Upon leases made by the corporation 319 69. For trust funds misapplied by the corporation 331 70. Of insurance companies to policy holders 343 X CONTENTS. Page. Skc. 71. For Bervices rendered by attorneys of the corporation or of other parties interested, before and after the ap- pointment of the Receiver 353 73. Upon contracts made in the execution of their trusts 358 73. Upon contracts authorized by the Court 368 74. For taxes imposed by the State 370 75. For rents and profits accruing the different mortgages. . . . 376 76. For interest and profits earned upon funds in their hands 383 77. For costs in actions prosecuted or defended by them 386 78. When personally liable in the operation of railroads for the negligence of their subordinates 389 79. When officially liable in the operation of railroads for the negligence of their subordinates 397 80. Under a void or voidable appointment 409 81. For negligence or misconduct in the performance of their duties 412 82. After discharge, for acts done in the performance of their duties 420 83. Upon their bonds 438 CHAPTER X. Remedies against Rbcbivkrs. Sec. 84. To enforce equitable and legal rights in property in possession of Receivers 439 85. By parties having claims against them as such 442 86. By landlord to enforce payment of rent 453 87. For acts done outside the scope of their authority 454 88. Upon fraudulent sale of trust property 458 89. Of the right to set-off 461 90. By creditors holding collateral security 477 91. When they refuse to prosecute corporate officers for neglect of duty 484 92. In the Federal Courts upon appeal 486 93. After discharge and sale of the property for debts and liabilities arising during the Receivership 487 94. Of National Banks 498 CHAPTER XI. Receivers' Ckktifioates. Sec. 95. General character — not commercial paper 513 96. When the Court will order them issued 5>0 97. Parties affected by the Court's order making them a prior lien on the property 525 CONTENTS. XI CHAPTEE XII. COMPBNSATION OF RECEIVERS. Page. Sec. 98. Fixed by the Court, generally 535 99. When not allowed on account of misconduct 539 100. By whom it should be paid 540 101. Of Railroads in the Federal Courts 545 102. In New York 547 103. By percentage ; upon what the same will be based 553 104. Who resign ; and of their successors ; how computed .... 554 CHAPTER XIII. Receivers' Accounts. Sec. 105. When and to what Court Receivers must render their accounts 556 106. What will be allowed the Receiver as expenses 661 107. What will be allowed for payments made in another capacity — of corporate debts 566 108. Right of appeal from determination charging him with liability on the settlement of his account 567 CHAPTER XIV. Removal and Discharge op Receivers. Sec 109. Of the power of removal and discharge by the Court 569 110. When a Receiver will be discharged 573 111. When a Receiver will be removed for cause 575 TABLE OF CASES. Pass. Abbey v. Receivers 5 Tex. Civ. Rep. 261 105 Abbott V. Baltimore & Bappahan-) . .,, „, „,„ _„_ nock Steam Packet Co. \ ^ ^^- ^^- ^^^ 537 Abbott V. Jewett 35 Hun (N. Y.), 603 490 Ackerman v. Halsey 37 N. J. Eq. 356 246, 484 Ackerman v. Moore 81 Qa. 688 443 Adams v. Howard 32 Fed. Eep. 656 16 Adams v. Mercantile Trust Co 66 Fed. Rep. 617 89 Adams v. Woods 8 Cal. 306 358, 562 Adams v Woods 15 Cal. 206 565 Addison v. Lewis 75 Va. 701 121, 137, 130 Adler v. Milwaukee Patent Brick) ^„ ■,„• an eo Mfg. Co. p3Wis.57 58 Akers v. Veal 66 Ga. 302 568 Akin V. Jones 93 Tenn. 353 335 ^ Loar& Trust'^Co''- '"'■ " ^'"'"*°" f '' ^'^- ««P- '^ ^30 Albany City Bank v. Schermerhorn. . .9 Paige (N. T.), 372 104 Albany City Bank v. Schermerhorn. . . 10 Paige (N. T.), 263 105 Alexander v. Belfe 74 Mo. 495 183 Allen V. Central E. of Iowa 42 la. 683 23, 112 Allen V. Dallas & Wichita B. Co 3 Woods (U. S. C. C), 816. . .49, 64 Allen V. Danielson 15 R. I. 480 483 Allen V. Dillingham 60 Fed. Rep. 176 405 American Construction Co. v. Jack-) ~a -w ^ -o non iae sonville, etc., R. Co. \ ^^ ^«^- ^^P- ^^^ ^°5 ^TweTt R.°Co * '^™'* ^' ^' ^"'^ \ ^« ^^^- ^^P- 1°1 ^28 ^T&Tr °Co * '^'"'* ^' ^' '^''^^'^° \ 29 F« a^a onn one onn, T, p \ 35 Fed. Rep. 444 330, 325, 839 Brown v. Wabash Ry. Co 96 111. 297 403, 447, 491 Bruce v. Manchester & K. R. Co 19 Fed. Rep. 343 101 Bruns v. Stewart Mfg. Co 81 Hun (N. Y.), 195 570 Brush V. Jay 118 N. Y. 482 148 Buck V. Insurance Co 4 Hughes, 415 48 ^"ing'co.^"^"" ^°' ^' °°°"' ^'■''^" [ 4V Fed. Rep. 6 78 Buckley v. George 71 Miss. 580 411 Buckley v. Harrison 10 Misc. (N. Y.), 683 260 Bufialo Chemical Works v. Bank of ) „„ ,, rvn .^,. Commerce. ^ 79 Hun. 93 116 Bundy v. Cooke 138 U. S. 135 249 Burdonv. Massachusetts Safety Fund) ,,„ ,., „.. iggn ^ ^ 147 Mass. 360 350 Burgwyn Tobacco Co. v. Bentley 90 Ga. 508 70 Burk V. Muskegon, etc., Co 98 Mich. 614 150 Burke v. Smith 16 Wall. (U. S.), 395 190 Burlingame v. Parce 13 Hun (N. Y.), 144 52 Burlington, Cedar Rapids & N. R. Co. V. Verry. [ 48 la. 458 494 TABLE OF CASES. XIX Paob. Burnham v. Bowen Ill U. S. 776 132, 493 Burton v. Burley 9 Bissell, ^53 305 Buswell V. Order of Iron Hall 161 Mass. 224 19, 237 Butterworth v. O'Brien 38 Barb. 187 ; 33 N. Y. 375 ... . 368 Butler V. Eaton 141 U. S. 340 347 Butler V. Poole 44 Fed. Rep. 586 308 Butler V. Sprague 66 N. Y. 392 335 Butts V. Wood 33 Barb. (N. Y.), 188 181 c Cadle V. Baker 30 Wallace, 650 339 Cadle V. Tracy 11 BlatcU. 101 161, 344 Cagill V. Wooldridge 8 Baxt. (Tenn.), 580 34, 230 Caillard v. Caillard 35 Beav. (Bng.), 513 65 Caldwell v. McWhorter 84 Ky. 130 281 Calhoun v. St. Louis & Southeastern ) „ bj„„ oon i oi R. Co. ) Cammack v. Johnson 1 Green's Ch. 163 1 65 Camp V. Barney 4 Hun (N. Y.), 373 112 Campbell v. Adams 38 Barb. 132 207 Campbell v. Cook 86 Tex. 630 403 Campbell v. Spratt 5 N. Y. Week. Dig. 25 570 Cardot v. Barney 63 N. Y. 281 9, 399 Carr v. Hamilton 139 U. S. 252 468 Carr v. Houser 46 Ga. 477 385 Carr v. Union Mut. Life Ins. Co 33 Mo. App. 291 350, 351 Carr's Admr. v. Morris 85 Va. 31 ; 6 S. E. Rep. 613 413 Carley v. Graves 85 Mich. 483 332 Carolina National Bank, Ex parte 18 S. C. 289 215 Cartwright's Case 114 Mass. 230 157, 158 Cartwright v. Dickinson 88 Tenn. 476 190 Case V. Berwin 23 La. An. 321 239 Case V. Citizens' Bank of La 2 Woods, 23 342 Case V. Marchand 33 La. An. 60 339 Case V. Small 4 Woods, 78 161 Case V. Terrell 11 Wall. (U. S.), 199 305 Casey v. Galli 94 tJ. S. 673 247, 249, 250 ^ Mier""' ^* ^°°'^*^ ^^ ^'^^" ^°' \ 2 ^°'"^«' '^'^ ^^^' ^"2 Catlin V, Wilcox Silver Plate Co 123 Ind. 477 43 Caviu V. Gleason 105 N. Y. 356 333 Central Nat. Bank v. Hazard 30 Fed. Rep. 484 513, 530 Central Nat. Bank v. Hazard 49 Fed. Rep. 393 97 Central Railroad & B. Co. v. Pettus. . .113 U. S. 116 355 ^ T'"co'^''"^* ^°' ^' ^^"'°"^' ^- * ^- f 65 Fed. Rep. 257 140 *^'I!'r Co™'* ^°' ^' ^''"^""^ ^- * j 65 Fed. Rep. 264 335 XX TABLE OF CASES. Pagb. Central Trust Co. v. Chattanooga, ) g2 j.^^ ^ ggp 90 etc., E. Co. ) Central Trust Co. v. Cincinnati, J- & j. 53 peA. Rep. 500 546 M. B. Co. S ^ Central Trust Co. v. East Tenn. "V. &) gQ j.^^ -^ ggg ^qO, 140, 449 G. R. Co. ) Central Trust Co. v. East Tenn. V. &) gg j.^^ g 533 Hg Q. R. Co. S Central Trust Co. v. Marietta & N. ) g^ j.^^ ^ jg 31g Q. R. Co. J Central Trust Co. v. New York City) ^^q jj y ggg ;^q_ ;^^g^ 374 & Northern R. Co. ) ' ' Central Trust Co. v. Ohio Central K. |. 23 Am & Ens. R. Cas. 666. .217, 369 Co. i Central Trust Co. v. Seasongood 130 U. S. 482 527 Central Trust Co. v. Sheffield & B. ) ^ p^^ ^ ggg g30 Coal, Iron & H. Co. ) Central Trust Co. v. South Atlantic ) g™ j.^^ g g 90 & 0. R. Co. ) ' ^ Central Trust Co. v. St. liOuis, A. & T. ) ^g p^^ jj 435 II7 R. Co. ) Central Trust Co. v. St. Louis, A. &) ^^ p^^ ^ ggj 130 T. E. Co. S Central Trust Co. v. St. Louis, A. & ) gg p^^ ^ ggg 49I T. B. Co. S Central Trust Co. v. Tappan 6 N. Y. Supp. 919 125 Central Trust Co. v. Valley Ry. Co 55 Fed. Rep. 903 358 Central Trust Co. v. Wabash, St. ) 33 p^^ ^ ggg g2g Louis & Pacific R. Co. ) Central Trust Co. v. Wabash, St.) ggy^^ ^ -^3 3,^2, 407 Louis & Pacific R. Co. ) Central Trust Co v Wabash, St. ) gg ped. Rep. 871 139 Louis & Pacific R. Co. ) Central Trust Co v Wabash, St. ) gg p^^^ ^ g^g ^^^ Louis & Pacific R. Co. ) Central Trust Co r Wabash, St. ) 33 p^^ ^ ^g,^ 545 Louis & Pacific R. Co. ) '^ Central Trust Co. v Wabash, St. ) 34 p^^ g 359 334 Louis & Pacific R. Co. J '^ Central Trust Co y^ Wabash. St. ) ^g p^^ g gg 32g Louis & Pacific R. Co. ) ^ Chaffee v. Quidnick Company 13 R. I. 443 106 Chamberlain, Ex parte 55 Fed. Rep. 704 371 Chamberlain v. Rochester, etc. , Ves- 1 7 jiv, „ /tj v- n 557 laa sel Co. i ^ ■ ''' ' Chambers v. McDougal 43 Fed. Rep. 694 200 Chandler v. Brown 77 111. 333 187, 189 Chandler v. Siddle 3 Dillon, 477 186, 188, 223 Chapin v. Wabash Mfg. Co 43 111. App. 446 332 Chase y. Petroleum Bank 66 Pa. St. 169 331, 462 Chautauqua County Bank v. Risley . . .19 N. Y. 369 16, 166 TABLE OF CASES. XXI Faqe. Cheener v. Rutland R. Co 39 Vt. 653 51 Chemical Nat. Bank v. Armstrong 59 Fed. Rep. 373 480 Chemical Nat. Bank v. Bailey 13 Blatchf. 480 500 Chesapeake, Ohio & Southwestern R. Co. V. Griest. Chicago Deposit Vault Co. v. Mc-) ,ko tt u >--t nni Nulla. p53U. B. 5o4 291 'Nati°nafZr'"' '°- " ^"' f "5 111. 481 239 Chicago, Milwaukee & St. Paul R. Co. ) ^ no tii qi rr oon V. Keokuk North'n Line Packet Co. p"'' ^'^' ^^^ ' ^^^ I 85 Ky. 619 492 66 Chicago & Southeastern R. Co. v. ) -oo t„j ^q Cason. f Chittenden v. Brewster 2 Wallace, 191 89 Chouteau v. Allen 70 Mo. 290 182 Christian Jensen Co., Matter of 128 N. Y. 550 Ill, 163 Cincinnati, Sandusky & Cleveland) oi rw.- a^ . ».,« R. Co. v. Sloan. [ 31 Ohio St. 1 572 Citizens' Bank v. Bank of Greenville. .71 Miss. 271 385 Citizens' Bank of Paris v. Patterson ... 79 Ky. 291 480, Citizens' Savings Bank v. Person 98 Mich. 173 116, 447 City Ins. Co. v. Commercial Bank 68 111. 348 18, 33, 41, 301 City of Boston v. Real l^^^fd.R.ls.'l ''' City of Brooklyn v. Jourdan 7 Abb. N. C. (N. Y.), 23 109 Cit^yoJJortDodgev.Minn.&St.L.Jg,^j^3gg ' gg City of Rochester v. Bronson 41 How. Pr. (N. Y.), 78. . .9, 48, 81 City Pottery Co. v. Yates 37 N. J. Eq. 1 67 Clapp V. Interstate St. Ry. Co 61 Fed. Rep. 537 80, 82 ( 49 Hun (N. Y.), 195 ; 27 ) 412, 416 Clapp V. Clapp I N. Y. St. Rep. 185 ;[■ 540, 557 ( 7 N. Y. Supp. 495. ) 563, 568 Clark V. Bininger 75 N. Y. 344 157, 158 Clark V. Brookway 3 Keyes (N. Y.), 13 475 Clark V. Central R. & Banking Co 54 Fed. Rep. 556 142 Clark V. Central R. & Banking Co 66 Fed. Rep. 803 132, 136 Clark V. Central R. & Banking Co 66 Fed. Rep. 16 218 Clark V. Dyer 81 Tex. 339 15 Clark V. Hawkins 5 R. I. 219 471 Clark V. Manufacturers Mut. Fire Ins. ) H on T_ J oon 213 Clarke v. Thomas 34 Ohio St. 46 186, 188, 194 Clyde V. Richmond & D. R. Co 56 Fed. Rep. 539 23, 100 Clyde V. Richmond & D. R. Co 63 Fed. Rep. 21 326 Coburn v. Boston Papier, etc., Co 10 Gray (Mass.), 243 7, 9 Coe V. N. J. Midland Ry. Co 37 N. J. Eq. 37 321 Coe V. N. J. Midland Ry. Co 30 N. J. Eq. 21 331 Coe V. N. J. Midland Ry. Co 31 N. J. Eq. 105 139 Cohen and Jones, Ex parte Harr. Ch. (Mich.), 494 3 £xii TABLE OF CASES. Pass. Cole V. Cunningham 133 U. S. 107 44 Cole V. Oil Well Supply Co 57 Fed. Kep. 584 20 Colgate V. Michigan Lake Shore K. ) gg Mich 288 573 Co. ) Collier v. Munn 41 N. Y. 147 , 563 Colt V. Brown 12 Gjay (Mass.), 338 462, 470 Columbian Book Co. v. De Golyer 115 Mass. 67 102, 167 Columbian Ins. Co., In Matter of 80 Hun (N. Y.), 842 560 Columbian Ins. Co., In Matter of Re-) 3 Abb. N. Y. Court of) ceivership of. f Appeals Dec. 239. f Columbian Ins. Co. v. Stevens 37 N. Y. 536 . _. 387, 388 Colvin, Matter of 8 Md. Ch. 303' 563, 569, 571 Col well V. Garfield National Bank. . . .119 N. Y. 408 3, 82, 802, 574 Comer v. Bray 88 Ala. 217 81, 197 Comer v. Felton 61 Fed. Rep. 781 22, 116 Commercial Bank of Pa. v. Arm- ) ^ ig tj S 50 S'5'i strong. ) Commercial and Farmers' Nat. Bank ) ^^g jq- „ „„„ „„ V. Davis. S Commercial Nat. Bank v. Armstrong -j i^g^U^ s'^lSO^^*' [ ^'"' Commercial Nat. Bank v. Burch 141 111. 319 31, 183, 260 Commonwealth v. Eagle Fire Ins. Co. .96 Mass. 344 888, 416 ^XTe^'^r^*^ ^"^ ^°'' ^°" ^ '^^\ 32 Hun (N. Y.), 78 585, 562 '^TZe^oT^^^ ^"^ ^°'' ^"^ ' ^"^ ^''^ [ 24 Hun (N. Y.), 78 383 Commonwealth v. Franklin Ins. Co. . . 115 Mass. 378 316, 319 Commonwealth v. Gould 118 Mass. 800 434, 437 ^"iT cT^"'"" ^' ^'^^ ^"^ ^^^'''^'' [ ^^8 ^"^^^ ^^5 102 Commonwealth v. Lancaster Savings i ^^g ^^^^ ^gg _ Bank. ) Commonwealth v. Mass. Mut. Firei ^^g ^^^^ ^g ins. Co. ) Commonwealth v. Mechanics' Ins. Co. . . 122 Mass. 431 357 Commonwealth y. Phoenix Bank. . . . [ ^^ M«*- (^ass,), 129. .461, 464,^ ^^^ Commonwealth v. Bunk 36 Pa. St. 235 371 Commonwealth v. Shoe and Leather ) ...m,, ,„., DealersIns.Co [ 113 Mass. 181 462 Commonwealth v. Suffolk Trust Co. . .161 Mass. 550 268 Comstock V. Frederickson 51 Minn. 350 42 Conkling v. Butler 4 Bissell, 33 100, 556 Coulee Lumber Co. V. Eipon Lumber) flo ,„. ,„, Qg y m Wis 481 133 Conley & Harrison v. Dere 11 Lea (Teun.), 274 277 Conro V. Gray 4 How. Pr. 166 48, 58 Conshohocken Tube Co. v. Iron Car ) , „_ „ ,^„„ Co. \ 167 Pa. 592 120 TABLE OF CASES. XXIU Page. Continental Trust Co. V. Toledo, etc., I en w j n iha o fj ' ' [^ 59 Fed. Eep. 514 318, 319 Converse v. Dimook 6 Am. & Bng. Cor. Cas. 418. ... 73 Cook V. Citizens' Nat. Bank 73 Ind. 356 107 Cook V. Cole 55 la. 70 164, 463, 467 Cook County Nat. Bank v. United I io7 U. S. 405 503, 503 States. ) Cook V. Detroit, etc., R. Co 45 Mich. 453 65 Cooke V. Town of Orange 48 Conn. 401 238 Cooke V. Warner 56 Conn. 384 171, 365 Coombs V. Smith 78 Mo. 83 315 Cooper V. Corbin 105 111. 224 498 Copper Hill Mining Company v. ) ^g ^.^j ^j ^ ^^g Spencer. ) Corey v. Long | ^n.^yI' 4^3. [ 561,563, 564 Corn Exchange Bank v. Blye 101 N. Y. 303 306, 503 Corrigan v. Trenton Delaware Falls } 3 g^j^^ (N. J.), 489 480 Corser v. Russell 30 Abb. N. C. (N. Y.), 316 423 Cotton Mills V. Cotton Mills 115 N. C. 476 541 64 Covington Drawbridge Co. v. Shep- ) „^ tj -i -iq 58 herd. ) ' ' Cowdrey v. Galveston, H. & H. R. ) gg ^ g ggg 287, 289, 354, 402 Co. ) „ , TJ ■, J n (1 Woods,) 315,220,559, Cowdrey v. Railroad Co | 33^^ 335 ' ^ ggg' ggg' g^g Cowles V. Cromwell 25 Barb. (N. Y.), 414 261 Cragie v. Hadley 99 N. Y. 131 504 Crane v. Ford Hopk. (N. Y.), 114 147 Crane v. McCoy 1 Bond, 422 46 Cirapo V. Kelly 16 Wallace, 610 327 •Crawford v. Ross 39 Qa. 44 569, 573 Credit Co. v. Arkansas R. Co 15 Fed. Rep. 46 534 Crocker v. Marine Nat. Bank 101 Mass. 240 160 Crombie v. Order of Solon 157 Pa. St. 588 73 Crosby, Receiver, v. Day 81 N. Y. 342 115 Croton Ins. Co., In the Matter of 3 Barb. Ch. 642 202 Crowder v. Moore 52 Ala. 330 65 Cumberland Coal, etc., Co. v. Parish . .43 Md. 598 183 Cumming v. Egerton 9 Bosworth, 684 301 €urran v. Craig 32 Fed. Rep. 101 456 Cnrran v. State of Arkansas 15 Howard, 304 19 Curtis v. Leavitt 15 N. Y. 9, 13, 227.. 2, 174, 256, 268 Curtis V. Mollhenny 5 Jones Eq. 290 30 Catting V. Damarel 88 N. Y. 410 363 Cutting V. Marlor 78 N. Y. 454 264 Cuykendall v. Corning 88 N. Y. 139 443 xxiv TABLE OF CASES. D Page. Dale Y.Cook 4 Johns. Ch. (N. T.), 11 474 Dann Mfg. Co. v. Parkhurst 125 Ind. 317 20 Davenport v. Receiver of Alabama & ) 3 Woods, 519 : 139 Chattanooga R. Co. ) Davis V. Bay State League 158 Mass. 434 355 ( 19 Fed. Rep. 478. . .13, 399, 424, Davis V. Duncan -j 447^ 492, 573 Davis V. Gemmell 73 Md. 530 79 ( 16 Wallace, 203. .3, 7, 102, 165. Davis V. Gray | 169, 197 Davis V. Industrial Mfg. Co 114 N. C. 331 465, 471, 473 Davis V. Ladoga Creamery Co 138 Ind. 322 10, 198 Davis V. Parcher, etc., Co 83 Wis. 488 209, 212 Davis V. Railroad Co 1 Woods, 661 98 Davis V. Snead 33 Gratt. (Va.), 705 198 Davis V. Stevens 17 Blatchf. 259 353 Davis v. Stone 16 Abb. N. S. (N. Y.), 255 360 Davis V. Stover 58 N. Y. 473 ; 16 Abb, N. S. 325. . 463 Davis V. Talbot 137 Ind. 335 198 Davis V. United States Electric Power ) »„ jj^ gg gg gg ^3 & Light Co. i ' Davis V. Weed 44 Conn. 569 353 Dawson Manufacturing Co. v. Bruns- ) gi q^. 136 330, 325 wick & Albany R. Co. S Dawson v. Raynes 3 Russ. (Eng.), 467 438 Day-Benson, Receiver, In the Matter) g^ ,ypjg g2g -^Qg ^^^ of i Day V. Croft 2 Beav. (Eng.), 488 535 Day V. Postal Telegraph Co 66 Md. 354 298 Dayton v. Borst 1 ?^BoswortS^'l5 [ ^^' 4^' ^^^ Dean v. Biggs 35 Hun (N. Y.), 133 187 Dean and Sons' Appeal 98 Pa. St. 101 350 Decker v. Gardner 124 N. Y. 334 315 DeGroot v. Jay 30 Barb. (N. Y.), 483 115 Delano v. Butler 118 U. S. 634 251 Delaware Bay & Cape May R. Vo. v. ) ^g j^ j g jgg 4 Markley. ) ' ' ^' Delaware, Lack. & W. R. Co. v. Erie) 31 ^ j gq 298 46 76, 81 R. Co. 1 ^ Deming v. N. Y. Marble Co 12 Abb. Pr. (N. Y.), 66 163 Denike v. N. Y. & R. Line, etc., Co . . .80 N. Y. 599 5, 48 Denniston v. Chicago, Alton & St. ) ^ g.^^ ^^^ ^2g ^^^ Louis R. Co. ) ' Des Moines Gas Co. v. West 44 la. 23 51 De Peyster v. American Fire Ins. Co. . .6 Paige (N. Y.), 486 31 Devendorf v. Beardsley 33 Barb. 656 205, 309 Devendorf v. Dickinson 21 How. Pr. 375 388 TABLE or CASES. XXV Paoe. Devissee v. Blackstone 6 Blatchf. 235 147 Dewey v. Davis 82 Wis. 500 351 De Winton v. Mayor of Brecon 26 Beav. (Eng.), 583 50 De Winton v. Mayor of Brecon 28 Beav. (Eng.), 200 102, 556 Dexterville Mfg. & Boom Co. v. Case. .4 Fed. Rep. 873 139 Dick V. Struthers 25 Fed. Rep. 103 198 Digener v. Stiles 6 N. T. Supp. 474 70 Dillingham v. Anthony 11 S. W. Rep. 139 117 Dillingham v. Hawks 60 Fed. Rep. 494 120 Doane v. Corhin 44 111. App. 463 355 Doane v. Millville Mut. Ins. Co 43 N. J. Eq. 523 350 Dobson V. Simonton 78 N. C. 63 59 Doe V. Northwest Coal & Trans. Co . . .64 Fed. Rep. 928 54 Dougherty v. Jones 37 Ga. 848 570 Douglas V. Cline 13 Bush (Ky.), 609 128 Dow V. Memphis & Little Rock R. Co. .30 Fed. Rep. 360 . . .50, 51, 131, 140 Dow V. Memphis & Little Rock R. Co. .124 U. S. 658 377 Dowd V. Stephenson 105 N. C. 467 240 Downes v. Hammond 47 Ind. 131 207, 308 Downing v. Dunlap Coal Co 93 Tenn. 331 73 Drake v. Goodridge 5 Blatchf. 531 415 Dreverv.Maudesley 'j ^' ^^V„°gt 4^3 [ ^20 Drury v. Cross 7 Wallace (U. S.), 299 181 Dudley v. Price 10 B. Mon. (Ky.), 84 19 Duffy V. Casey 7 Robt. (N. Y.), 79 282 Dugger V. Collins 69 Ala. 334 166, 443 Dumville v. Ashbrooke 8 Rues. (Eng.), 99 51 Duncan v. Trustees of Chesapeake.) n a~ t)„ -a^^ /tr^ \ oca ioq etc., R. R. Co. ^ '\9 Am. Ry.Rep. (Va.), 368 138 Dunham v. Railway Co 1 Wallace, 354 126 Dunlop V. Paterson Fire Ins. Co 12 Hun, 637; 74 N. T. 145. . .21, 301 Dutcher v. Importers' and Traders') ^n xr v k ioo Nat. Bank. ^ 59 JN. 1. 5 18^ Dutcher v. Marine Nat. Bank 12 Blatchf. 435 266 E Eagle Iron Works, In Matter of 8 Paige (N. Y.), 380 7, 85, 162 Eames v Doris 103 111. 850 267 East Tenn., etc., R. Co., v. Atlanta & ) ^g ^^^ ^ g^g g^ r . K. Co. ) Eastern Bank v. Capron 22 Conn. 639 177 Eastern Jownship Bank v. Vermont ) 33 gj^^^j^^ _ ^gg 3^3 Cent. Nat. Bank. ) Eaton & Hamilton R. Co. v. Varnum . . 10 Ohio St. 622 5 Easton v. Houston & T. C. Ry. Co 40 Fed. Rep, 189 546 Easton v. Houston & T. C. Ry. Co 38 Fed. Rep. 784 326 xxvi TABLE OF CASES. Page. Baston v. Houston & T. C. Ry. Co 38 Fed. Bep. 12 140 E. B. F. & R. Co. V. Hubbard 10 Allen (Mass.), 459 9 Eddy V. Lafayette 49 Fed. Rep. 807 117 Edison v. Edison United Pbonograph I 52 N J Eq 620 67 73 Co. i • • H Edre v. Stumk 35 Neb.. 307 199, 411 Edrington v. Pridbam 65 Tex. 612 31, 107 Edwards v. Norton 55 Tex. 405 166, 441 Einstein v. Rosenfeld, etc. , Mills 38 N. J. Eq. 809 81 Elkbart Car Works v. Ellis 113 Ind. 215 115 Ellicott V. Barnes 31 Kan. 170 332 EUicott V. United States Ins. Co 7 Gill (Md.), 307 24, 168 Ellicott V. Warford 4 Md. 80 3 Ellis V. Boston H. & E. R. Co 107 Mass. 1 16, 288, 316 Ellis V. Little 27 Kan. 707 238, 306 Ellis V. Water Co 86 Tex. 109 121, 167, 525 Ellison T. Moses 95 Ala. 221 109 Elmira Iron and Steel Rolling Co. ''^- 1 of; -w j Rq 284 Sfi() Erie Railway Co. ) Elmira Savings Bank v. Davis 142 N. Y. 590*. 511 Elwood V. First Nat. B'k of Qreenleaf -. .41 Kan. 475 63 Embree v. SMdeler 36 Ind. 423 208, 210 Emmons v. Davis& Dowd Pottery Co. .16 At. Rep. (N. J.), 157 201 Empire City Bank, Matter of 10 How. Pr. (N. Y.), 498 .. . .84, 87 Empire City Bank, Matter of 18 N. Y. 199 193 Ensign, Matter of 95 N. Y. 664 443 E. Remington & Sons v. Samana Bay ) ^^^ jj^^^ ^g^ gg Co. ) Erie Railway Co. v. Heatli 8 Blatcbf. 536 103 Erricson v. Brown 38 Barb. (N. Y.), 390 133 Erwin v. Davenport 9 Heisk. (Tenn.), 44 400 Eskridge V. Ruahnutb 3 Cal. Ct. App. 562 109, 565 European & N. A. R. Co. v. Poor 59 Me. 277 181 Evans v.Trimountain Mut. Fire Ins. ) n ,,, ,1,^ , onn an* )■ Q Allen (Mass.), 329 274 Everett & Dilley v. McCaig & Perry. . .28 Md. 190 272 Ex parte Benson & Co 18 S. C. 38 320 Ex parte Brown 58 Ala. 536 53 Ex parte Brown and wife 15 S. C. 518 402, 408 Ex parte Carolina Nat. Bank 18 S. C. 289 121, 215 Ex parte Chamberlain 55 Fed. Rep. 704 371 Ex parte Cohen & Jones Harr. Ch. (Mich.), 494 3, 32 Ex parte Importers & Traders' Bank. .45 Hun (N. Y.), 347 115 Ex parte Mitchell 12 S. C. 83 121 Ex parte Norwood 3 Bissell, 504 233 Ex parte Williams .., 17 S. C. 396 ...!!!."!.!.!.!... b61 Express Comp'y v. Railroad Comp'y . .99 U. S. 191 319 TABLE OF CASES. XXVU Paqe. '^ k'^Co^" ^*' ^*"^' '"'""■ ^ *^*°''°^^ } 4 McCrary, 138 299 Fanners' Bank v. Little 7 Watts & S. fPa.), 207 25 Farmers' B'k of Delaware v. Beaston . . 7 G. & J. (Md.), 421 163, 167 Farmers' Deposit Bank v. Penn Bank .. 133 Pa. St. 283 471 Farmers' Loan & Trust Co 129 U. S. 306 486, 487 Farmers' Loan & Trust Co. v. Bank- ) „„ „„„ -^r v \ Kan loo ers' Tel. Co. \ ^^ ^"^^ (^- ^••'' ^°" ^^^ Farmers' Loan & Trust Co. v. Bank-) nn w v ic ^an ers' & Merchants' Tel. Co. j- 119 N. Y. 15 460 Farmers' Loan & Trust Co. v. Central ) 7 Fed. Eep. 537 ; ) -go 401 R. of Iowa. j 2 MoCrary, 181 ; f '*'*''' ^•"■ Farmers' Loan & Trust Co. v. Central ) 8 Fed. Kep. 60 ; ) ^oa kar K. of Iowa. (■ 2 McCrary, 318 S °'^^' ^^^ Farmers' Loan & Trust Co. T. Central ) in -n, j t> nno Aon R. of Iowa. \ "Fed. Rep. 758 487 Farmers' Loan & Trust Co. v. Central ) 3 Fed. Rep. 751 ; ) _,„ R. of Iowa. y 1 McCrary, 352 f ''^" Farmers' Loan & Trust Co. v. Chicago I 37 ped. Rep. 146 48 & A. Ry. Co. ) '^ ^ feT'^Ry^Co'' * '^''"'* ^°' ^' ^''''*^° t *^ ^^^- ^^P- ^ ^3^' ^^^ Farmers' Loan & Trust Co. v Grape ) g^ ^^ ^ ^g^ gg Creek Coal Co. ) ^ Farmers' Loan & Trust Co. v. Hoff- man House. Farmers' Loan & Trust Co. v. Minn. 7 Misc. (N. Y.), 358 273 Engine & Machine Works. '( 35 Minn. 543 168 Farmers' Loan&Trust Co. v.Newman.. 127 U. S. 649 458 Farmers' Loan & Trust Co. v. North- ) gg ^^^ ^ ^g,,, g^g ^^^ ern Pacific R. Co. ) Farmers' Loan & Trust Co. v. North- Uo Fed. Rep. 803 319 ern Pacific K. Co. ) "^ Farmers' Loan & Trust Co. V. Winona) t-o t3,„ -, t>„„ anry ki &S.W.R.CO. ^ 59 Fed. Rep. 957 51 Farmers & Mechanics' Bank v. Jenks. .7 Met. (Mass.), 593 193 Farmers & Merchants' Ins. Co. v. ( gg jj^ ^^ 33 jgg 33^ Needles. ) Farnsworth v. West. Union Tel. Co. . .6 N. Y. Supp. 735 .. . .101, 171, 201 Farusworth v. Wood 91 N. Y. 3U8 366 Farnum v. Boutelle 18 Met. (Mass.), 150 480 Fay V. Erie & Kalamazoo Railroad ) ^^^^ (,^_ (Mich.), 194 574 Bank. ) Ferguson v. Dent 47 Fed. Rep. 88 543 Ferris v. Receivers of Railroad Co 115 N. C. 600 117 IT Tj 1 ^»n * iwv ■ (15How. Pr. (N. Y), 445..9, 47, Ferry v. Bank of Central N. Y < ggo g»g Fichtenkfl,mm v. Gambs 68 Mo. 289 272 ^IheLd^oahVonV^'"" '^^ " [ ^2 Fed. Rep. 372 515 XXVlll TABLE OF CASES. Pase. fidelity Ins. T. & S. D. Co. v. Shen- ) „ a w d -rcn in» ,„„ andoah VaUey B. Co. j- ^ S. E. Rep. 759 137, 139 ^ ArmTtr^ong ^^^'"'* ^ '^"''* ^°" ^' \ ^^ ^^^- ^^P- ^^^ 320 ^Se^sretTc? ^''''' ^°- " } 5« F«^- R^P- 6«^ ^05 Field V. Jones 11 Ga. 413 167, 574 Fifth National Bank v. Armstrong 40 Fed. Rep. 46 507 Fifth National Bank v. Pittsburg &} -t ■e' j t> mn e ewi Castle Shannon B. Co. p Fed. Rep. 190 5, 571 Fifty-four First Mortgage Bonds, Lg g (..304 293 390 In re. ) ' ^'a & C.^R. Co ^^"°' ^' ^'''''^''*°° [ 45 Fed. Rep. 436 84, 87 ^ cTc.^R. Co.^'"°' ^' ^^'^^^^""^ \ 46 Fed. Rep. 508 315 ^ cTc ^R Co ^^°°' ""' ^''^'■'^'*°" [ 49 Fed. Rep. 693 181 . ^TTc^R. Co.^^"°' " ^''*'''''°° [ 53 Fed. Rep. 526, 678 127 ^ 'r & C^R Co ^^°°' ^' ^^^'^^^°'' [ 63 Fed. Rep. 205 133 Findlay v. Hosmer 2 Conn. 350 480 First National Bank v. Armstrong 39 Fed. Rep. 231 340 First National Bank V. Barnum Wire ) „„ ,,. . .an q e.r,R ftlron Works. ^ 60 Mich. 487 3,575 First National Bank v. B. T. Barnum ) -q ,,. v q. r 1 an Wire & Iron Works. \ ^^ ^"'^- ^^^ ^^" First National Bank v. United States ) ^Qg j^^ 337 30 First National Bank of Cleveland v. ) joi TT S 74 147 486 ^ Kii^an°°°'^ ^^"^ °^ "^"^^^ '^^'^ ''• [ 42 N. J. Eq. 107 415 First National Bank of Montgomery ) oa -i^ a -c an Kne V.Armstrong. -^ ^ 36 Fed. Rep. 59 506 First National Bank of Richmond v. Davis. First National Bank of St. Albans j- 114 N.C. 343 335 irst National Bank of St. Albans, .m:' j t> ,on o.ir. In re f 49 ^^^- ^*P- 120 249 First National Bank of Wellston v. ,„ „ , „ ,.„ Armstrong. \ 43 Fed. Rep. 198 507 Fish & Green v. Potts 4 Halst. (N. J.), 277 480 Fischer v. Superior Court 98 Cal. 67 4, 109 Fisher V. Anderson 37 Hun (N. T.). 176 .484 Fisher v. Concord R. Co 50 N. H. 300 56, 57 Fisher V. Yoder 53 Ped. Rep. 565 . .......... . .' 160 Fitch V. Wetherbee 110 111. 475 37O Fleischauer v. DittenhcefEer 49 N. Y. Supr. Ot. 311. .314, 815, 447 Flint & Pere Marq. R. Co. v. Dewey. . .14 Mich. 477 182 Florida Central R. Co. v. Bisbee 18 Fla. 60 ..!!.'..!... .^ ^ !! 356 Florida v. Jacksonville, etc., R. Co. ... 15 Fla. 201 !!!.!!!. ! 33 TABLE OP CASES. XXIX Pass. Florida Land & Imp. Co. v. Merrill . . .52 Fed. Bep. 77 339 Fluker v. City Ry. Co 48 Kan. 577 73 Fogg V. Order of the Golden Lion 159 Mass. 9 156, 851 Foland v. Dayton 40 Hun (N. T.), 563 361 Folger V. Chase 18 Pick. (Mass.), 66 15 Folger V. Columbian Ins. Co 99 Mass. 267 28, 81, 82, 85 Folsom V. Evans 5 Minn. 418 3, 572 Fortes V. Memphis, El Paso & P. R. U Woods (U. S. C. C), 823 57 Ford V. Plankinton Bank 87 Wis. 363 20 Fordyce v. Dixon 70 Tex. 694 448 Fordyce & Swanson v. Beecher 2 Tex. Civ. Rep. 29 424 Forker v. Brown 10 Misc. (N. Y.), 161 260 Fort Wayne Furnace Co. v. Fort Ug Ala. 472 73 Wayne Coal & Iron Co. ) Fort Wa,yne, Muncie & Cinn. R. Co. i g^ j^^ ggg g^ 4„ V. Mellett. ) ' P,„ ,; , „ H„i,=ii i 99 U- S- 255 121, 124, 129, Fosdick V. Schall I ■ ^3^ • g^Q- 333 Foster v. Barnes 81 Pa. St. 377 150 Fowler v. Jarvis-Conklin Mortgage. .68 Fed. Rep. 888 85 Fowler's Petition 9 Abb. (N. C), N. Y. 368 107 Fraenkle v. Jackson 30 Fed. Bep. 898 197 Francis v. Evans 69 Wis. 115 332 Frank v. Bingham 58 Hun (N. Y.), 580 333 Frank v. Denver & R. G. B. Co 23 Fed. Bep. 757 218 Frank v. Morrison 58 Md. 423 186, 197 Frankv. N. Y., L. E. & W. R. Co ....123N. Y. 197 326 Frank v. Railway Co 23 Fed. Bep. 757 219 Franklin Bank, Matter of 1 Paige (N. Y.), 85 7, 10 Frasch.Inre 5 Wash. 344 480 Frayser v. Richmond & Allegany B. ) „. y „„„ -.q R. Co. ). Freeholders, etc., v. State Bank ofloRN J Ea 166 86 New Brunswick. ) ' ^' Freeman v. Winchester 10 Smedes&M. (Miss.), 577 .198, 274 Freiberg v. Stoddard 161 Pa. St. 269 335 Frelinghuysen v. Baldwin 12 Fed. Rep. 395 239 French Bank Case 53 Cal. 495 53, 75 French v. Andrews 145 N. Y. 441 258 French v. Dauchy 57 Hun (N. Y.), 100 432 French v. GifEord 80 la. 148 5, 46, 56, 66, 71 French v. GifEord 31 la. 428 536, 541 Fricker v. Peters & Calhoun 31 Fla. 254 66 Fripp V. Chard R. Co 11 Hare (Eng.), 341 50, 86 Frowd V. Lawrence 1 Jac. & Walk. 635 31 Fry V. Charter Oak Life Ins. Co 31 Fed. Bep. 197 235 FuUerton v. Fordyce 121 Mo. 1 118, 402 Furness v. Chaterham R. Co 25 Beav. (Eng.), 614 59 XXX TABLE OF CASES. G Paqe. Qaehle v. Snowden 56 Md. 343 414 Gaither v. Stockbridge 67 Md. 232 330, 453 Galveston Railroad Co. v. Cowdrey . . .11 Wall. (U. S.), 459 126, 376 Galway v. TJ. S. Steam Sugar Refin- ) gg ^^^^ ^j^- ^^ ggg ^g ing Co. J \ ,. Garden City Banking & Trust Co. v. ) gg ry. g. „ „„ Gellfuss. ) Gardner v. Butler 30 N. J. Eq. 703 183 Garham v. Mutual Aid Society 161 Mass. 357 19 Garver v. Kent 70 lud. 428 196, 198, 272 Gaylord v. Fort Wayne, M. & C. R. ) g ^.^^ ^gg gg_ g^ Geib V. Topping 83 N. T. 46 389 Gelpeke v. Milwaukee & Hor. R. Co. . .11 Wis. 454 97, 375 George Mather's Sous Co., Matter of . .53 N. J. Eq. 607 373 Gest V. New Orleans, St. L. & Chi-) „« t a oo en iao cagoR.Co. [30La. An. 28 53,103 Getty V. Campbell 3 Robt. (N. T.), 664 282 Gibson v. Peters 150 U. S. 843 239 GiDjert v. Washington City, etc., R. J 33 g^^^^ ^^^_^_ ggg ^g_ ^^^ Gill V. Balis 72 Mo. 424 186, 196, 199, 360 Gillett V. Fairchild 4 Denio (N. Y.), 80 181, 199 Gillett V. Moody 3 N. Y. 479 B, 184 Gillett V. Phillips 13 N. Y. 114 184 Gilman v. Ketcham 84 Wis. 60 43, 44 Girard Life Ins. & Trust Co. v. Cooper. .51 Fed. Rep. 333 316 Gleeson v. The Willamette Valley 63 Fed. Rep. 393 91 Glenn v. Leggett 51 Fed. Rep. 381 188 Glenn v. Marbury 145 U. S. 499 189 «'-"-P^^-' I^ffetie^lo'di ''' Glenn v. Sample 80 Ala. 159, 380 188 Glenn v. Williams 60 Md. 93 188 Qlennville Woolen Co. v. Ripley 43 N. Y. 306 33 Glines v. Binghamtou Trust Co 68 Hun (N. Y.), 511 165 Globe Ins. Co., Matter of Receivers of. .6 Paige (N.Y.), 102 449 Godfrey v. Ohio & Miss. R. Co 116 Ind. 30 13 Goldthwaite v. Ellison 99 Ala. 497 109 Goodhue v. Daniels ^ 54 la. 19 204 Gordon v. Newman 63 Fed. Rep. 686 530 Graeff's Appeal 79 Pa. St. 146 480 Graham Button Co. v. Sperlmann 50 N. J. Eq. 120 168 Grant v. Bryant 101 Mass. 567 536 Grant v. City of Davenport 18 la. 181 165, 170, 201 Grant v. Walsh 81 Hun (N. Y.), 449 '.....' 338 Gravenstine's Appeal 49 Pa. St. 310 5 TABLE OF CASES. XXXI Page. Gray v. Davis 1 Woods, 420 8 Gray v. Lewis 94 N. C. 393 196 Gray v. Oxnard Bros. Co 59 Hun (N. Y.), 387 179 Grayden v. Cliurch 7 Micli. 36 38, 326 Great Luxemburg Ey. Co. v. Magnay. .25 Beav. (Eng.), 586 183 Great West. Tel. Co. v. Burnliam 79 Wis. 47 189 Great West. Tel. Co. v. Haight 49 111. App. 683 190 Great West. Tel. Co. v. Loewenthal .. 154 111. 261 271 Greeley v. Provident Savings Bank. . .98 Mo. 458 376 Greeley v. Provident Savings Bank. . .103 Mo. 212 31, 535 Greely v. Smith 8 Story (U. S.), 657 8, 24 Green v. Seymour 3 Sandf. Ch. (N. T.), 385 15 Green v. Walkill National Bank 7 Hun (N. Y.), 63 499 Greenawalt v. Wilson 52 Kan. 109 31 Greenwood v. Taylor 1 Euss. & My. (Eng.), 185 481 Griesal v. Schmal 55 Ind. 475 5, 200 Griffin v. Chase 36 Neb. 828 334 Griffith V. Griffith 3 Ves. (Eng.), 400 429 Griunell v. Merchants' Ins. Co ICE. Green's Ch. (N. J.), 288. 154 Grissell's Case L. E. 1 Ch. (Eng.), 538 192 Griswold v. Central Vermont E. Co 9 Fed. Rep. 797 95 Grocers' Bank of N. Y. City, Matter of . . 114 N. Y. 621 144 Groffenried v. Brunswick & Albany) Kiy q^ 22 115 E. Co. J Guardian Mut. Life Ins. Co.,Matter of -j ^^ ^"y' ^^^jl 265 Guardian Savings Inst., In Matter of . .78 N. Y. 408 567 ^"t'^SavllSank.' " ^°""' \ '' ^"'^ ^^^ ^■^- ''' "^ Gue V. Tidewater Canal Co 24 How. (U. S.), 257 9 Gutsch V. McUhargey and one 69 Mich. 377 455 ^Ta^nTe C^ ^^^^^^'^ Appeal -Ava- ) 93 ^^^^ 5^3 ^^^ H Haas V. Chicago Building Society 89 111. 498 49, 53 Hackensaok Water Co. v. Be Kay 36 N. J. Eq. 548 150, 152 Hackett v. Eeynolds, Lamberton & ) w ^ , „ „. „(>„ _.„ Co. ) Hackley v. Draper 60 N. Y. 88 460 Hade v. McVay, Allison & Co 31 Ohio St. 331 510 Hagedon v. Bank of Wisconsin 1 Pinney (Wis.), 61 167 Hale V. Frost 99 U. S. 389 19, 126, 129, 180 Hale V. Nashua & Lowell K. Co 60 N. H. 383 121, 141 Hallett's Estate, In re L. B. 13 Ch. Div. 696 338 Hambleton & Co. v. Glenn 72 Md. 331 189, 261 Hamilton v. Accessory Transit Co 36 Barb. (N. Y.), 46 72, 80 Hamilton v. Chouteau 3 McCrary, 509 185 XXXU TABLE OF CASES. Paqb. Hamilton v. Glenn 85 Va. 901 189 Hammock v. Loan & Trust Co 105 U. S. 77 4, 32 Hand v. Dexter 41 Ga. 457 56, 73 Hand v. Savannah & Charleston R. Co . .17 S. C. 217 287, 292, 296 Handy v. Cleveland & M. R. Co 31 Fed. Rep. 689 288, 575 Hanke v. Blattner 34 111. App. 394 32, 284 Hardee v. Sunset Oil Co 56 Fed. Rep. 51 73 Hardwick v. Kean 95 Ky. 563 118 Hardwick v. Hook 8 Ga. 354 198 Hardy v. McClelland 53 Miss. 507 47 Hajland v. Bankers' & Merchants' ) 33 ^^^ Rep. 305 280 Tel. Co. ) *^ Harmony Fire & Marine Ins. Co. , ) . , j^ y 31 n 45O Matter of. f ' ' Harvey v. Allen 16 Blatchf. 39 243 Harvey v. Lord 11 Biss. 144 62, 311 Hasselman v. Japanese Development ) „ j , , - „„ „„ Hastings v. Belknap 1 Denio (N. T.), 190 453 Hatch V. Bankcroft-Thompson Co 67 Fed. Rep. 802 89 Havemeyer v. Superior Court 84 Cal. 367, 327 4 Hawkins v. Glenn 131 U. S. 832 261 Haxtun & Brown v. Bishop 3 Wend. (N. T.), 13 177, 198 Hayden v. Chicago Title & Trust Co. . .55 111. App. 341 556 Hayden v. Thompson 67 Fed. Eep. 373 310 Hayes v. Beardsley 136 N. T. 399 804 Hayes v. Brotzmau 46 Md. 519 6, 197 Hayes v. Kenyon 7 E. I. 142 181, 184, 260 Hayes v. Lycoming Fire Ins. Co 99 Pa. St. 621 19 Hayes V. Shoemaker 39 Fed. Rep. 819 312 Haywood v. Lincoln Lumber Co 64 Wis. 639 56, 182 Hazard v. Credit Mobilierof America. .38 Fed. Rep. 195 574 Hazelrigg v. Bronaugh 78 Ky. 63 106 Heermans v. Clarkson 64 N. Y. 171 203 Heffron v. Flower 85 HI. App. 200 202 Heffron v. Milligan 40 111. App. 291 565 Heffron v. Rice 1 U9"lll.^2!6 ^^^'f ^^^' ^^'^ Hegewisch v. Silven 140 N. Y. 414 300 Heise v. Starr 44 111. App. 406 541 Helme v. Littlejohn 13 La. An. 298 198, 272 ^ R 'co.''" *^°'"'^'=*''="* ^ Passumpsic ) 33 ^j^^^j^^ ^gg 3^^ Henderson v. Walker 55 Ga. 481 403 Hennlng v. Raymond 85 Minn. 808 198 Henshaw, Ward & Co. v. Wells 9 Humph. (Tenn.), 568 204 Herrick v. Miller 128 Ind. 304-845 382, 288 Herring v. N. Y., L. E. & W. R. Co. . . .105 N. T. 340.3, 9, 165, 169, 421, 498 Hervey v. lUinoiB Midland R. Co 28 Fed. Rep. 169 4, 129 TABLE OP CASES. XXXIU Page. Bibernia National Bank v. Lacombe. . .84 N. T. 367 28, 33, 35 Hicks V. International & Great North- ) on m _ oq hqo /tga em E. Co. ) ' * Higgins, In re 37 Fed. Rep. 448 103 Hlghtower v. Thornton 8 Ga. 486 485 Hiles V. Case 14 Fed. Rep. 141 139 Hill V. Western & Atlantic R. Co 86 Ga. 284 186 Hillier v. Allegany Co. Mut. Ins. Co. . .3 Pa. St. 470 466 Hills V. Parker Ill Mass. 508 .. . .113, 166, 298, 454 Hinckley, Receiver, In re 3 Fed. Rep. 356 545 Hinckley v. Blethen 78 Me. 331 56, 73, 81 Hinckley v. Qilman & Clinton S. B. j. 04 tt S 467 'iGH Oo. J Hinckley v. Pfister 83 Wis. 64 77 Hinckley v. Railroad Co 100 U. S. 153 100, 385, 556 Hirshfield v. Kalischer 81 Hun (N. Y.), 606 113 Hitz V. Jenks 133 U. S. 297 378, 501 Hobart v. Gould 8 Fed. Rep. 57 508 Hobbs V. McLean 117 U. S. 582 355 Holbrook v. Ford 153 111. 633 43, 107 ^Fh-e°Ins7co^^""^'' °^ American | g p^.^^ ^j^ y.), 230. . .180. 463, 465 Holcombe v. Johnson 27 Minn. 353 -. 411 Holden v. Upton 134 Mass. 177 184 Hollenbeck v. Donnell 94 N. Y. 343 3, 53 HoUingshead v. Woodward 107 N. Y. 96 8, 34 HoUins V. Brierfield Coal & Iron Co. . .150 U. S. 371 78 Holt V. Thomas 105 Cal, 273 249 ^ In re^''"''''^^''* ^*^^'^ ^""'^ '*'^^- j- 129 N. Y. 388 365, 426 Hood V. McNaughton 54 N. J. Law, 425 190 Hook V. Bosworth 64 Fed. Bep. 443. . ., 281 Hooper v. Winston 24 111. 353 384, 561, 564 ^La'ke r''c^°'"'^"'' ^ Greenwood J 39 n. J. Eq. 4 121, 633 Hopkins v. Taylor 87 111. 436 269 Hornsby v. Eddy 56 Fed. Rep. 461 407 Hospes V. Northwestern Mfg. & Car ) ^^ Minn. 356 147 Go. J Houston V. RedWin 85 Ga. 130 33 Hovey v. McDonald 109 U. S. 150 435 Howard v. La Crosse & Milk. R. Co 1 Woolworth, 49 573 Howard v. Lowell Machine Co 75 Ga. 335 571 Howard v. Turner 155 Pa. St. 349 193, 206 Howe V. Barney 45 Fed. Rep. 668 245 Howe V. Deuel 43 Barb. (N. Y.), 504 74 Howe V. Jones 57 la. 130 65 Howe V. Jones 60 la. 70 384, 561, 568 Howe V. Jones 66 la. 156 541 xxxiv TABLE OF CASES. PAen. Howell V. Eipley 10 Paige (N. T.), 43 204, 381 Howes V. Davis 4 Abb. (N. X.), 71 561 Howland v. Edmouda 34 N. Y. 307 263 Howland v. Cuykendall 40 Barb. (N. T.), 320 307 Hewlett V. Central Car. Land and ) gg ^^^ jj jg^ gg Improvement Co. ) Howlett V. New York, West Shore & ) 14 Abb. (N. C. N. Y.), ) „„„ BuflFalo K. Co. \ 328; 38 Hun, 55. f ^^^ Hoyle V. Plattsburg, etc., R. Co 54 N. Y. 314 181 Hoyt V. Continental Ins. Co 31 N. Y. Week. Dig. 145 573 Hoyt V. Thompson 5 N. Y. 330 16, 33, 174, 234 Hubbard v. Guild 2 Duer (N. Y.), 685 443 Hubbell V. Dana 9 How. Pr. (N. Y.), 424 115 Hubbell V. Syracuse Iron Works 43 Hun (N. Y.), 183 168 Hughill V. Hayes 136 N. Y. 163 474, 509 Huguenot National Bank v. Studwell. .74 N. Y. 631 8 Hull V. Thomas 3 Edwards Ch. (N. Y.), 236. ... 105 Humphreys v. Allen 101 111. 490 528 Humphreys v. Hopkins 81 Cal. 551 230 Hunt V. Columbian Ins. Co 55 Me. 290. . . .7, 37, 32, 33, 35, 301 Hupfeld V. Automaton Piano Co 66 Fed. Rep. 783 117 Hurd V. City of Elizabeth 41 N. J. Law, 1 223 Hutchinson v. Green 3 McCrary , 471 101 Hyde v. Lynda 4 N. Y. 387 355 Iglehart v. Bierce 36 111. 133 197, 331 '''^:llTBliTi:^^'-^''''\ ''^^'- ««P- 858 505 Importers' & Traders' National Bank ) .no jr y 27'> 333 V.Peters. ) Independent Ins. Co 1 Holmes, 103 98 Ingraham v. Terry 11 Humph. (Tenn.), 573 34 In re Armstrong 41 Fed. Rep. 381 304 In re Boston, Hartford & Erie R. Co. . .9 Blatchf. 101 98 In re De Peyster 4 Sandf. Ch. 511 .- 553 In re Hallett's Estate L. R. 13 Ch. Div. 696 338 In re Lewis, Petitioner 53 Kan. 660 56 In re Manufacturers' Nat. Bank 5 Bissell, 499 60, 61 In re Merchants' Ins. Co 8 Bissell, 162 98 In re National Life Ins. Co 6 Bissell, 35 98 In re Plankinton Bank 87 Wis. 378 342 In re Tyler ." 149 U. S. 164 373 In re Waite 99 N. Y. 433 44 Investment Co. v. Ohio & N. B. R. Co. .36 Fed. Rep. 48 524 Ireland v. Nichols 40 How. Pr. (N. Y.), 87 574 Irons v. Manufacturers' Nat. Bank 6 Bissell, 301 63 TABLE OF CASES. XXXV J Page. Jackson v. Horton 126 111. 566 461 Jackson v. Lahee 114 111. 287 24, 167 Jackson v. Eoberts 31 N. T. 304 210, 211, 213 Jackson Marine Ins. Co., Matter of. . . .4 Sandf. Cli. 559 49 Jacobs V. Turpin 83 111. 424 176 Jacobson v. Allen 20 Blatchf. 525 266 JafEray v. Raab 72 la. 335 540 James v. Sams 90 G a. 404 116 James v. St. Nicholas 49 Fed. Rep. 671 117 Jay V. De Groot 17 Abb. Pr. (N. Y.), 36 31 Jay V. De Groot 2 Hun (N. T,), 205 365 Jaycox & Green, In the Matter of 3 Blatchf. 70 267 JefErey v. Button Paper Co 37 111. App. 96 104 Jenkins v. Briant 7 Sim. 171 431 Jennings v. Philadelphia & Beading J 33 j,^^ ^^^ ggg ^^^^ 4^9 Jerome v. McCarter 94 U. S. 734 89, 141, 520, 526 J-i--S-i'^ rtl'7':iVel£l8^9S ^80 Jessup V. Atlantic & Gulf B. Co 3 Woods, 441 127, 135 Jessup V. Wabash, St. L. & P. R. Co. .44 Fed. Bep. 663 491 Jewett V. Miller 10 N. T. 402 285 John Berry, Matter of 26 Barb. (N. Y.), 55 163, 164 John Tiebout, Matter of 19 N. Y. Week. Dig. 570 107 Johnson v. Charlottesville Nat. Bank. .3 Hughes, 657 240 Johnson v. Gunter 6 Bush (Ky.), 534 283 Johnson v. Martin 1 Thomp. & Cook (N. Y.), 504. . 7 Johnson v. Powers 21 Neb. 292 409 Johnston v. Laflin 5 Dillon, 65; 103 U. S. 800. .254, 313 Jones V. Bank of Leadville 10 Col. 464 67 Jones V. Blun 145 N. Y. 333 32 Jones V. Browse 32 W. Va, 444 115 Jones V. Keen 115 Mass. 170 536 Jones V. Kilbreth 49 Ohio St. 401 334 Jones V. Puning 85 Wis. 264 472 Jones V. Sisson 6 Gray (Mass.), 288 210 Jordan v. Sharlock 84 Pa. St. 366 471, 472 Jordan v. Wells 3 Woods, 527 444 Co. (S*- Judd Y. Bankers' & Merchants' Tel. , ^^ Blatchf. 420 89 94 101 K Kadish v. Chicago Brewing Assn 35 111. App. 411 355 Kain v. Smith 80 N. Y. 458 9, 33, 35, 396 Kaisar v. Kellar 21 la. 95 415 Kansas & G. S. L. R. Co. v. Dorough. .72 Tex. 108 12 XXXVl TABLE OF CASES. Page. Kansas Pacific E. Co. v. Bayles 19 Col. 348 363 Kansas Pacific R. Co. v. Wood 24 Kan. 619 13 Kam & Hickson v. Rorer Iron Works. .86 Va. 754 148, 529, 536 Keeler v. Brooklyn Elevated R. Co. . . .9 Abb. N. C. (N. Y.),166. .58, 86, 576 Keen v. Breckenridge 96 Ind. 69 115 Kebr v. Hall 117 Ind. 405 171 Kellock's Case 3 Ch. App. 769 481 Kellogg V. Miller 22 Or. 406 480 Kelly V. Crapo 45 N. T. 86 229 ^fi-^ ""• ^^S,^*^*"^ "^ ^'■^^^ ^^y ^ 1- 10 BisB. 151 127 Minn. R. Co. ) Kelly V. Trustees of Alabama R. Co. . .58 Ala. 489 52 „ , „., (8 Wall. (U. S.), 498. . . .159, 246, Kennedy V. Gibson j 247,308,569 Kennedy v. I. C. & L. R. Co 3 Fed. Rep; 97 115, 116, 444 Kennedy v. I. C. & L. R. Co 3 Plippin, 704 3, 119 Kennedy v. St. Paul & Pacific R. Co ... 3 Dillon, 448 64, 141, 520 Kennedy v. St. Paul & Pacific R. Co. . .5 Dillon, 515 132 Kenney v. Ranney 96 Mich. 617 456 Kent V. Lake Superior Canal Co 144 U. S. 75 458, 527 Kerr v. Brandon 84 N. C. 128 434 Kerr v. Little 39 N. J. Eq. 83 145, 447 Kerr v. White 7 Baxt. (Tenn.), 394 3 Keyser v. Hitz 133 U. S. 138 249 Kilgore v. Hair 19 S. C. 486 87 Kilmer v. Hobart 68 How. Pr. (N. Y.), 453 230 Kimball v. GaSord 78 la. 65 331 Kimball v. Ives 30 Hun (N. Y.), 568 195 Kincaid v. Dwinelle 59 N. Y. 548 7, 8, 27 King V. Armstrong 50 Ohio St. 233 511 King V. Barnes 50 Hun (N. Y.), 550 3, 107 King V. Ohio & Miss. R. Co 7 Biss. 529 103 Kingsley v. First Nat. Bank of Bath. . .31 Hun (N. Y.), 329 183 Kinney v. Crocker ". 18 Wis. 75 113 Kinney & Co. v. Paine 68 Miss. 358 334 Kinula v. The Cataract City Bank 18 N. J. Eq. 159 331 Kitchen v. St. Louis, etc., Ry. Co 69 Mo. 334 183 Kittredge v. Osgood 161 Mass. 384 20, 23 Klauber v. San Diego St, Car Co 95 Cal. 353 11 Klein v. Jewett 36 N. J. Eq. 474 403 , Klotz V. Ross 118 Mo. 33 31, 33 Knauer v. Globe Mut. Ins. Co 46 N. Y. Superior Ct. 370 23 Kneeland v. American Loan & Trust) 136 XJ. S. 89 121, 137, 140, Co. \ u-i, 144 151^ 330,' 321 Kneeland v. Foundry and Machine ) , .„ tt o i^no Works. M40 U. S. 593 142 Kneeland v. Luce 141 U. S. 491 539 Knickerbocker Bank, In the Matter of . . 19 Barb. (N. Y. ), 602 84, 85 Knight v. Fisher i 5^ S^*^' ^^P' ^^^ ^ I ' 47'i ^ (61 Fed. Rep. 491 f ^'* TABLE OF CASES. XXXVll Faoe. Knight V. Lord Plymouth 3 Atk. (Eng.), 480 417 Knott V. Receivers of Morris Canal) o a,„„„,„ riv. /w t \ a<>9 iaa & Banking Co. \ ^ ^""^^"^ ^ ^^- (^- •^■^' *^^ ^*^ Knowles' Petition 13 B. I. 90 483 Koontz V. Northern Bank 16 Wall. (U. S.), 190 384, 459 Kronberg v. Elder 18 Kan. 150 6 Kuser v. Wright 53 N. J. Eq. 835 361 La Blanc, Matter of 14 Hun. 8; 75 N. T. 598 21 Lafond v. Deems 1 Abb. N. C. (N. Y.), 318 46 La Grange Butter Tub Co. v. Nat.) .onux i^a an Bank of Commerce. ^ 132 Mo. 154 30 ^tlL nII^bS*' ^' ^°' ^' ^''^^"'"'P- [ 65 Fed. Rep. 690 334 Lamphear v. Buckingham 33 Conn. 237 893 Langdon v. Vermont & Canada R. Co. .53 Vt. 328 533 Langdon v. Vermont & Canada R. Co. .54 Vt. 593 217, 561 Langford v. Langford 5 L. J. N. S. Ch. (Eng.), 60. . . . 106 Lanier v. Gayoso Savings Inst 9 Heisk. (Tenn.), 606 469, 470 Lathrop v. Knapp 37 Wis. 215 187, 198 Lathrop v. Knapp 37 Wis. 307 187 Laughlin v. United States Rolling) „. „, •,,„„ ok nao Stock Co. [ 64 Fed. Rep. 35 533 Lawrence v. Greenwich Fire Ins. Co. . .1 Paige (N. T.), 587 59 Lawrence v. Nelson 21 N. Y. 158 466 Lawrence Iron Works Co. v. Rock-) jr, zr a -o itkk my bridgeCo. |- 47 Fed. Rep. 755 67 Laybouru v. Seymour 53 Minn. 105 464 Laytou v. Davidson 95 N. Y. 363 553 Leathers v. Shipbuilders' Bank 40 Me. 386 33, 453 Leavitt v. DeLaunay 4 Sandf. Ch. (N. Y.), 281 183 Leavitt, Receiver, v. Yates 4 Ed. Ch. (N. Y.), 134 175 Lebanon Trust & Safe Deposit Bank's ) , no p g^ ann qoj; Estate. j ■ ■ ■■ ■ ' ■ Lees V. Hayden 78 Hun (N. Y.), 370 470 Leggett V. Glenn 51 Fed. Rep. 381 89 Lehigh Coal & Navigation Co. v. ) „„ „ ^ „ „.„ .,„„ ...,„ Central B. Co. of N. J. ] ^^ ^- ''■ ^1- ^^'^ ""' ^^^ Lehigh Coal & Navigation Co. v. ) „- xt t tn ^na no Central B. Co. of N^J. [ 35 N. J. Eq. 426 146 ^'clnLflT^Co ff^N^J*'°° ^°" ^ \ 38 N. J. Eq. 175.. 116, 363, 444, 447 Lehigh Coal & Navigation Co. v. j^ j ^g^ ^jg Central R. Co. of N. J. j ^ ' ''Saf K Co. otW°° ^°- ^- [ 43 N. J. Eq. 591 130 "-Sal R Co. otW' '"• " I 48 N. J. Eq. 669 363 xxxviii TABLE or cases. Pagk. L'Engle v. Florida Central E. Co 14 Fla. 266 571, '574 Leo V. Green 52 N. J. Eq. 1 156 LeBoy v. Globe Ins. Co 2 Edwards Ch, (N. T.), 657. ... 21 Leslie v. Goodhue 69 Hun (N. Y.), 71 284 Lett V. Morris 4 Simons (Eng.), 607 31 Lewis V. Glenn 84 Va. 917 188, 189 Lewis, Petitioner, In re 52 Kan. 660 56 Lewis V. Singleton 61 Ga. 164 105 Lewis V. United States 93 TJ. S. 618 480 Libby v. Eosekrans 55 Barb. (N. T.), 202 458, 461 Life Association of Am. v. Goode 70 Tex. 90 33 Lincoln v. Fitch 42 Me. 456 263 Lindsay v. Jackson 3 Paige (N. T.), 581 461 Litchfield Bank v. Church 29 Conn. 137 179, 191 Litchfield Bank v. Peck 39 Conn. 884 271 Little V. Dusenbury 46 N. J. Law, 61-4 403 Litzenberger v. Jarvis-Conklin Trust ) „ tj, v -i g -1^29 Co. ) ' Livingston v. Pettigrew 7 Lans. (N. Y.), 405 362 Lloyd Y. Chesapeake & O. & S. B 65 Fed. Eep. 851 82, 143 Locke V. Covert 43 Hun. (N. T.), 484 387 Logan's Case L. E. 9 Eq. 149 318 Logan V. Anderson 18 B. Mon. (Ky.), 114 480 Loos, Matter of 50 Hun (N. T.), 67 167 Lottimer v. Lord 4 E. D. Smith (N. Y.), 183 162 Louisiana Savings Bank, Matter of . . . .35 La. An. 196 3, 59 Louisville, Evansville & St. L. E. Co) ^gg ^ g g^^ ^22, 133 v. Wilson. j ... Louisville & New Albany & Chicago ) .„ ^ , „„- jq ,„ E. Co. V. Caudle. ) ' Lowne v. American Fire Ins. Co 6 Paige (N. Y.), 482 31 Ludgater v. Channell 3 Mac. & Gord. (Eng.), 174 430 Lycoming Fire Ins. Co. v. Wright. . . .55 Vt. 526 34, 333 Lyman v. Central Vermont E. Co 59 Vt. 167 397 M Maclure's Case L. E. 5 Ch. App. 737 318 Magee v. Cowperthwaite 10 Ala. 966 535, 537 Maish V. Bird 59 la. 307 47 Manchester Locomotive Works v. ) >,,,. ^,_ ^„o Truesdale. \ ^^ *^™"- ^5 128 Manlove v. Burger 38 Ind. 211 196, 205, 207, 208 Manlove v. New 39 Ind. 289 208 Mann v. Fairchild 3 Keyes (N. Y.), 106 195 Mann v. Pentz 3 N. Y. 415 9 Manners V. Furze 11 Beav. (Eng.), 30 438 Manning v. Monaghan 23 N. Y. 544 150, 415 TABLE OF CASES. XXXIX Page. M. & M. Nat. Bank v. Circuit Judge. .43 Mich. 393 87 MauufactureiB' Bank v. Continental) 140 M„gg 553 507 Bank. j Manufacturers' National Bank, In re. .5 Bissell, 499 60, 61 Market Nat. Bank v. Pacific Nat. Bk. .103 N. Y. 464 175 Marsh v. Seymour 97 U. S. 348 114 Marshall v. Farmers' & Meoh. Sav. ) „- y^ „„« jgg Bank. f Marstaller v. Mills 143 N. T. 398 18 Martin v. Black 9 Paige (N. Y.), 641 453, 454 Martin v. Kunzmuller 37 N. Y. 396 467 Martin v. Martin 14 Or. 165 535, 536 Martin v. New York, S. & W. E. Co. . . 36 N. J. Eq. 109 390 Mason v. Bogg 3 Myl. & Craig, 448 481 Mason v. Supreme Court of Equit- ) «» >, j igo 53 able League. ) Massachusetts Mut Life Ins. Co. v. ) ^3 p^^ ^ gg^ 49I Chicago & A. E. Co. ) '^ Matter of Attorney-General v. Atlan- ) jqq j^ y 279 170 tic Mutual Life Ins. Co. j Matter of Attorney-General v. Guard- 1 93 jj y 631 547 ian Life Ins. Co. j Matter of Attorney-General V. North I QQ jT y 150 17I American Life Ins. Co. ) Matter of Attorney-General v. North j. 91 jr y 57 357 American Life Ins. Co. J Matter of Bank of Niagara 6 Paige (N. Y.), 313. . .55S, 554, 563 Matter of Bates 118 111. 534 480 Matter of Binghamton General Elec- ) 1 43 jr y ofil 117 trie Co. ) Matter of Brown 3 Edw. (N. Y.), 348 453 Matter of Christian Jensen Co 138 N. Y. 550 Ill, 163, 440 Matter of Columbian Ins. Co 30 Hun (N. Y.), 343 560 Matter of Columbian Ins. Co | ^ App.'^^i) Jcs^'ssg [ ^'^^ Matter of Colvin 8 Md. Ch. 303 569, 571 Matter of Commonw'lth Fire Ins. Co. .34 Hun (N. Y.), 78 383 Matter of Commonw'lth Fire Ins. Co. .33 Hun (N. Y.), 78. . . . 417, 535, 563 Matter of Crosby, Beeeiver, v. Day. . . .81 N. Y. 343 115 Matter of Croton Ins. Co 8 Barb. Ch. (N. Y.), 643 303 Matter of Day 34 Wis. 638. : 108, 440 Matter of Eagle Iron Works 8 Paige (N. Y.), 385 7, 85, 163 Matter of Empire City Bank 10 How. Pr. (N. Y.), 498 84, 87 Matter of Empire City Bank 18 N. Y. 199 193 Matter of Ensign 95 N. Y. 664 443 Matter of Franklin Bank 1 Paige (N. Y.), 85 7, 10 Matter of George Mather's Sons Co. . .53 N. J. Eq. 607 378 Matter of Guardian Savings Inst 78 N. Y. 408 567 Matter of Guardian Mut. Lite Ins. Co. . 13 Hun (N. Y.), 115 365 xl TABLE OF CASES. Pase. Matter of Harmony Fire & Marine ) 45 jj Y 310 450 Ins. Co. ) Matter of Home Provident Safety ) ^^q n Y 288 . 265 Fund Ass. ) Matter of Jackson Marine Ins. Co 4 Sandf. Ch. (N. T.), 559 49 Matter of Jaycox & Green 13 Blatclif. 70 267 Matter of John Berry 36 Barb. (N. T.), 55 163, 164 Matter of Knickerbocker Bank 19 Barb. 602 84, 85 Matter of La Blanc 14 Hun (N. T.), 8 21 Matter of Long Branch & Sea Shore I 24 N J Eq 398 574 R. Co. ) ■ ■ 1 Matter of Loos 50 Hun (N. Y.), 67 167 Matter of Louisiana Savings Bank 35 La. An. 196 3, 59 Matter of North River Bank 60 Hun (N. Y.), 91 337 Matter of Receivers of Globe Ins. Co. .6 Paige (N. Y.), 103 449 Matter of Receiver of Grocers' Bank. .114 N. Y. 621 144 ** District Bank''^'' °^ ^^^ '^'"^■^^H 1 Paige (N. Y.), 585 . .463, 470, 473 Matter of Reciprocity Bank 33 N. Y. 9 194 Matter of Schuyler's Steam Tow Boat ) .gg j^ Y igg 9I igi Matter of Security Life Ins. & Ann. | g^ ^^^ ^j^ y.), 36 . . . .548, 550, 553 Matter of Slater Mut. Fire Ins. Co 10 R. L 43 207 Matter of Stafford 11 Barb. (N. Y.), 358 419 Matter of Stryker 37 Hun (N. Y.), 337 128 Matter of United States Rolling) ^^^ p Stock uo. j ' M..t„..f vor, Aii.r, i 87 Barb. (N. ) ...165, 180, 264, Matter of Van Allen j Y. ), 225 ) 463; 469, 472] 474 Matter of Waite 99 N. Y. 433 248 Matter of Woven Tape Skirt Co 13 Hun (N. Y.), Ill 16, 101, 165 Matter of Woven Tape Skirt Co 85 N. Y. 506 553 May V. Printup 59 Ga. 139 89 May V. State Bank of N. C 3 Rob. (Va.), 56 35 Mayer v. Attorney-General 83 N. J. Eq. 815 350, 353 Maynard v. Bond 67 Mo. 315 163 Maysville & Lexington R. Co. v. ) , _ t, ij^ ,Tr ^ Ar, n Punnett. ^ 15 B. Mon. (Ky.), 47 5 McAlpin V. Jones 10 La. An. 553 34, 330 McArthur v. Montclair R. Co 37 N. J. Eq. 77 535 McCarthy v. Lavasche 89 111. 270 266 McCay v. Black 14 Phila. 635 413 McCosker v. Brady 1 Barb. Ch. (N. Y.), 346 574 McCulloch V. Norwood 57 N. Y. 563 8, 36 McCullough V. Merchants' Loan &) IcCullough V. Merchants' Loan &) on m t t^ ,^^n Trust Co. \ 29 N. J. Eq. 317 576 McCurdy v. Bowes 88 Ind. 583 514 McDonald v. Miller 54 111. App. 335 493 McDonald v. Ross-Lewin 29 Hun (N. Y.), 87 213 TABLE OF CASES. xli Pagk. McDonald, Shea & Co. v. Railroad 93 Tenn. 381 133 McDonald v. Alabama Gold Life Ins. ) gg ^-^^ ^qj g^g Co. ) McEvers v. Lawrence Hoffman's Ch. (N. T.), 171 374 McEwen v. Jolinson 7 Cal. 258 31 McGeorge v. Big Stone Gap Imp. Co. .57 Fed. Rep. 263 87 McGowan v. Myers 66 la. 99 167 McHenry v. N. T., Penn. & 0. R. Co. .25 Fed. Rep. 114 578 Mcllhenny v. Binz 80 Tex. 1 131, 141 Mcllrath v. Snure 23 Minn. 891 269 McKellar v. Rogers 52 N. T. Superior Court, 360 . . 51 McKim V. Glenn 66 Md. 479 261 McKinnon v. Wolfenden 78 Wis. 337 273 McLaiu T. Wallace 103 Ind. 562 341 McLane V. Placerville & Sacramento) gg ^^^ gpg g^ ^^j ^^^ g^g V. R. Co. ) McLaren v. First Nat. Bank of Mil- ) ^g ^j^ ^gg 184 360 waukee. ) ' " McLaren v. Pennington 1 Paige (N. T.), 103. . .461, 469, 470 McLeod V. Evans 66 Wis. 401 333 McMinnville & Manchester R. Co. v. ) „ g^^^ j„_ „n^. Huggins & Price. ) McNulta V. Ensch 184 111. 46 14, 403 McNulta V. Lochridge 137 111. 370 14, 403, 408 McNulta V. Lochridge 141 U. S. 327 118, 409 Meading Valley Mining Co, v. Dodds. .6 Nev. 362 5 Meara's Admr. v. Holbrook 20 Ohio St. 137 11, 403, 403 Mechanics' Nat. Bank v. Landauer 68 Wis. 44 116 Meier v. Kansas Pacific R. Co 5 Dillon, 476 68, 84 Melendy v. Barbour 78 Va. 544 115, 403 Mellen v. Molina Iron Works 131 U. S. 353 148, 458 Memphis & C. R. Co. v. Hoechner 67 Fed. Rep. 456 176 Memphis & Little Rock R. Co. v. ) ^ . ,, goo i o Stringfellow. ) Mercantile Ins. Co. v. Jaynes 87 111. 199 33 Mercantile Trust Co. v. Kanawha & ) gg ^^^ -^ ^^^ ^g^ U, Hi. KjO, J Mercantile Trust Co. v. Kanawha &) gg j.^^ ^ g gg O. R. Co. ) ^ Mercantile Trust Co. v. Lamoille Val. ) ^g gi^tchf 334 95 R. Co. ' ) Mercantile Trust Co. v. Missouri,) ^g j.^^ jj 2gj gg etc., R. Co. ) ^f ?S"l^^^^'^'''^' '^°- "■ *^^^«°""' ^- 1 36 Fed. Rep. 321 49, 51 Mercantile Trust Co. v. Pittsburg & j gg ^^^ ^ 733 j^^ West. R. Co. ) '^ Merchants' Bank v. McLeod 88 Ohio St. 174 30, 33, 84 Merchants' Ins. Co., In re 3 Bissell, 162 98 Merchants' Loan & Trust Co. v. Clair . . 107 N. Y. 663 34 xlii TABLE OF CASES. Pagb. Merchants' Nat. Bk. v. Eastern R. Co . . 124 Mass. 518 480 Merchants' Nat. Bank V. Northwest- ) -o ,,. oai n»A em Mfg. & Car Co. [ 48 Minn. 361 260 Merchants' & Planters' Nat. Bank v. ) ^o «- R^n New York & West. Union Tel. Co. v. ) iik jr y Ififi 2 421 Jewett. S ■ ■ ' ^rw°E'co ^ ^' ^' ^' ^' ^" ^' ^' 1 ^S ^^^- ^^P- 2^8. . .82, 94, 139, 325 Niagara Bank v. Roosevelt 9 Cowen (N. Y.), 409 470, 471 Nichols V. Perry Patent Arm Co 3 Stockt. (N-. J.), 126 48 Noe V. Gibson 7 Paige (N. Y.), 513 105, 166 Nonotuck Silk Co. v. Flanders 87 Wis. 237 332 North Carolina B. Co. v. Drew 3 Woods, 711 377 Norwood, Ex parte 3 Bissell, 504 223 Noyes v. Rich 52 Me. 115 16, 281 o Oatman v. Batavian Bank 77 Wis. 501 467 O'Brien v. Fitzgerald 143 N. Y. 377 274 Ohio, etc., R. Co. v. Davis 23 Ind. 558 11 Ohio, etc., R. Co. v. Russell 115 III. 52 9 Ohio & Mississippi R. Co. v. Fitch 20 Ind. 498 12 Ohio & Mississippi R. Co. v. Nickless .. 71 Ind. 371 23 Olcott V. Heermans 3 Hun (N. Y.), 431 203 TABLE OF CASES. xlv Faqe. Oloott V. Hendrick 141 U. S. 543 151, 156 Olmstead v. Distilling & Cattle Feed- ) „n p j t>._ ox gg Olmstead v. Rochester & Pitts. R. Co. .46 Hun (N. Y.), 552 276 Olyphant v. St. Louis Ore & Steel Co. .28 Fed. Rep. 729 127 Olyphant v. St. Louis Ore & Steel Co. .39 Fed. Rep. 308 467 O'Mahoney v. Belmont 62 N. T. 133 . . .82, 89, 411, 541, 564 Orphan Asylum Soc. v. MoCarter 1 Hopk. (N. Y.), 429 80 Osborne v. Byrne 43 Conn. 155 477 Osgood v.Laytin | ' of" Ap^dIc. 4'i8 ( ^^^ Osgood V. Maguire 61 N. Y. 524 16, 228 O^goo^-Ogden ^ 'f VDe^e! 4^5 [ ^^^ Osgood V. Strauss 55 N. Y. 672 263 Otis V. Gross 96 111. 612 341 Overton V. Memphis & Little Rock ) 3 ji^crary, 436 80 Owen V. Kellogg 56 Hun (N. Y.), 455 451 Owen V. Smith 31 Barb. 641 16 Pacific R. Co. V. Ketchum 95 U. S. 1 3 Pacific Ry. Co. v. Wade 91 Cal. 449 116 Paige V. Smith 99 Mass. 395 395 Paine v. Holliday 68 Miss. 298 181 Paine v. Lake Erie R. Co 31 Ind. 353 181 Paine v. Lester 44 Conn. 196 42 Pairpont Mfg. Co. v. Phil. Optical &.) ^a^ -a a* 1 ^ Watch Co peiPa. St. 17 Palen v. Johnson 46 Barb. (N. Y.), 21 175 Palmer v. Clark 4 Abb. N. C. (N. Y.),25. . .6,30, 31, 59 Palys V. Jewett 32 N. J. Eq. 802 445 Palys V. Jewett 32 N. J. Eq. 216 115 Park V. N. Y., L. E. & W. R. Co 57 Fed. Rep. 799 335 Parker v. Browning 8 Paige (N. Y.), 388 115, 275, 444 Parker v. Nickerson 137 Mass. 487 194 Parmly v. Tenth Ward Bank 3 Edw. Ch. (N. Y.), 395 75 Parsons v. Charter Oak Life Ins. Co. .31 Fed. Rep. 305 45, 80, 233 Patrick v. Eells 30 Kan. 680 272, 273 Patten's Appeal 45 Penn. St. 151 480 Patterson v. Stewart 41 Minn. 84 195 20 Pauly V. State Loan & Trust Co. . . . { ^6 Fed. |ep. 430 ; J 3^3 Paxson V. Cunningham 68 Fed. Rep. 132 91, 118 Payson V. Stoever 2 Dillon, 437 194 Payson v. Withers 5 Bissell, 269 193 xlvi TABLE OF CASES. Paoi;. Peacock v. Pittsburg Locomotive &j. 50 Qq 417 407 Car Works. j Peak V. Ellicott 30 Kan. 156 332 Peale v. Phipps 14 Howard, 368 115 Peckham v. Dutchess County K. Co ... 145 ST. Y. 385 816 Pendleton v. Russell 144 U. S. 640 27 Pennsylvania^ etc., Co. v. Jackson-) gg j,^^_ ^ ^^^ g ville, etc., R. Co. j ^ Pennsylvania & Delaware R. Co. v.) 04 p„ gi- irq iqo Leuffer. ) Pennsylvania R. Co. v. Jones 155 U. S. 350 15 Pentz V. Hawley 1 Barb. Ch. (N. Y.), 122 188 People V. Albany & Susquehanna R. ) ^ ^^^ Pr N S 265 46 Co. ) People V. American Steam Boiler Ins. ) o-. -g ,j^ y ■, Ana oR'i Co. ) ^ ' ''' People V. Bank of Dansville 39 Hun (N. Y,), 187. . . .331, 334, 442 People V. BrufE 9 Abb. N. C. (N. Y.), 153 58 People V. Cataract Bank 5 Misc. (N. Y.), 14 107, 181 People V. Central City Bank 53 Barb. (N. Y.), 413 90 People V. City Bank of Rochester 96 N. Y. 33 332 People V. Columbia Car Spring Co 13 Hun (N. Y.), 585 556 People V. Empire Mut. Life Ins. Co. . .93 N. Y. 105 344 People V. Empire Order of Mut. Aid . .70 Hun (N". Y.), 439 181 People V. E. Remington & Sons. . . . j "^^(n^V"^ 350 j- 116, 414, 444 People V. E. Remington & Sons 54 Hun (N. Y.), 480 478, 482 People V. E. Remington & Sons 59 Hun (IST. Y.), 307 501 People V. E. Remington & Sons 60 Hun (N. Y.), 43 185 People V. E. Remington & Sons 59 Hun (N. Y.), 282 165 People V. E. Remington & Sons 45 Hun (N. Y.), 329 122 People V. E. Remington & Sons 45 Hun (N. Y.), 347 115 People V. Erie Railway Co 36 How. Pr. (N. Y.), 139 74 People V. Gardner 51 Barb. 353 229 People V. Globe Mut. Life Ins. Co 57 How Pr. (N. Y.), 482 574 People V. Globe Mut. Life Ins. Co 91 N. Y. 174 10, 11, 317 People V. Illinois Bldg. & Loan Assn. .56 111. App. 643 85 People ex rel. v, Illinois Midland R Co. V. Barnett. ^91111.433 22 People V. Jones 33 Mich. 303 158, 541 People V. Knickerbocker Life Ins. Co. .18 N". Y. Week. Dig. 493 558 People V. Knickerbocker Life Ins. Co. .31 Hun (N. Y.), 633 558 People V. Knickerbocker Life Ins. Co. .34 Hun (M. Y.), 476 154 People V. Knickerbocker Life Ins. Co. .40 Hun (N. Y.), 44 348 People V. Knickerbocker Life Ins. Co . . 106 N. Y. 619 26 People V. Madison Square Bank 75 Hun (N. Y.), 114 339 People V. Mechanics & Traders Sav- { ao -k v >y o/n ings Inst. J- 93 N. Y. 7 340 People V. Merchants & Mechanics Bk . . 78 N. Y. 269 21, 334 TABLE OF CASES. xlvii Paqk. People V. Murdock 50 111. App. 311 434 People V. Mutual Benefit Assu 39 Hun (N. Y.), 49 550, 55], 555 People V. National Trust Co 82 N. Y. 283 18, 319, 442 People ex rel. Newcomb v. McCall 94 N. Y. 587 550 People V. Norton .1 Paige (N. Y.), 17 47 People V. O'Brien Ill N. Y. 1 9, 17, 33, 79 People v. Security Life Ins. & Ann. j 33 ^^^ ^^_ y^_ g^^ ^^^ People y. Security Life Ins. & Ann. j ^3 j^ ^ ^jg 3^3^ 3^^^ 3^g_ ^^^ People V. St. Nicholas Bank 76 Hun (N. Y.), 523 165, 471 People V. St. Nicholas Bank 77 Hun (N. Y), 159 339 People V. Susquehanna R. Co 55 Barb. 369 65 People V. Third Avenue Sav. Bank. . .50 How. Pr. (N. Y.), 33 86 People V. Troy Steel & Iron Co 83 Hun (N. Y.), 303 18, 33, 25 People V. Trustees of Ogdensburgh. . .48 N. Y. 390 339 People V. Ulster Co. Savings Inst 64 Hun (N. Y.), 434 55 People V. Universal Life Ins. Co 17 N. Y. Week. Dig. 563 25 People V. Universal Life Ins. Co 30 Hun (N. Y.), 143 338 People V. Universal Life Ins. Co 32 Hun (N. Y.), 616 350 People V. Van Rensselaer Ins. Co 38 Barb. 323 15 People V. Walker 17 N. Y. 503 8, 34 People V. Wall Street Bank 39 Hun (N. Y.), 535 369 People's Home Savings Bank v. ) ^^g ^^-^ g,^ Superior Court. ) People's Mutual Ins. Co. v. Allen 10 Gray (Mass.), 397 310 Peoria & Pekin Union B. Co. v. Chi- h 37 u. S. 300 339 cago, Pekin & S. W. R. Co. ) Perry & Hale v. Selma, Marion & ) 35 j^^^ 39]^ _ g^^j Memphis R. Co. ) Peters v. Foster . . . : 56 Hun (N. Y.), 607 44, 347, 348 Peterson v. Gibson 31 Ark. 140 429, 574 Phelan v. Oanebin 5 Col. 14 36, 112 Phelps V. Masterton, etc.. Dressing) 3 jj^^^ ^^_ ^^^ gj^ gg^ C/0. J Philadelphia National Bank v. Dowd. .38 Fed. Rep. 172 506 Philadelphia & Reading R. Co. v. h 04 Pa. St. 80 13, 375 Commonwealth. ) Phinizy v. Augusta & K. R. Co 56 Fed. Rep. 373 63 Phinizy v. Augusta & K. R. Co 63 Fed. Rep. 771 316 Phinizy v. Augusta & K. B. Co 63 Fed. Rep. 933 140 Phoenix-Foundry, etc., Co. v. North ) 33 ^^^ ,jj y.), 156 . . Ill River Const. Co. ) Phoenix Iron Co. v. N. Y. Wrought ) 3 p^^^^ ^j^ j^_ ^g^ ^g^ Iron Co. ) Phoenix Warehouse Co. v. Badger 67 N. Y. 394 33, 193, 193 Pickersgill v. Lycoming Fire Ins. Co .. 99 Pa. St. 631 19 Pickersgill v. Myers 99 Pa. St. 602 314 xlviii TABLE OF CASES. Pasb. Pine Lake Iron Co. v. Lafayette Car ) gg y^^ ^^^^ ggg 33 Works. ' Pittsburg Carbon Co. v. McMillin .... 119 N. Y. 53 178, 260 Pittsfield National Bank v. Baynea .... 140 N. Y. 331 542 Flankinton Bank, In re 87 Wis. 378 342 Piatt V. Archer 9 Blatchf. 559 • 98 Piatt V. Archer 13 Blatclif. 351 561, 563, 565 Piatt V. Beach 3 Benedict, 303 159, 340 Piatt V. Beebe 59 N. Y. 339 239 Piatt V. Crawford 8 Abb. N. S. (N. Y.), 397 239 Piatt V. Philadelphia & R. R. Co 65 Fed. Rep. 660 318 Poland V. Lamoille Valley R. Co 52 Vt. 144 131, 134 Pond V. Cooke 45 Conn. 126 34 Pond V. Framingham & Lowell R. Co. . 130 Mass. 194 48, 56, 67 Ponder v. Catterson 137 Ind. 434 301 Pondville v. Clark 25 Conn. 97 7 Pope's Case 30 Fed. Rep. 169 402 Porter v. Industrial Inf. Co 5 Misc. (N. Y.), 263 54 Porter v. Sabin 149 U. S. 473 96, 186 Porter v. Williams 9 N. Y. 143 3, 9 Port Huron R. Co. v. Judge, etc 31 Mich. 456 47 Portland Dry Dock & Ins. Co. v. ) j^ ^ ^^^ ^^ Trustees of Portland. ) Port Royal & Augusta E. Co. v. King. .93 Ga. 63 89 Post V. Dorr 4 Edw. Ch. (N. Y.),418 881 Potter V. Beal 49 Fed. Rep. 793 504 Potter V. Bunnell 30 Ohio St. 150 403, 447 Potter V. Kingman 126 Mass. 141 439 Potter V. Merchants' Bank of Albany. .38 N. Y. 641 6, 80 Potter V. Spa Spring Brick Co 47 N. J. Eq. 442. 116 Powers V. Loughridge 38 N. J. Eq. 396 417 Preston v. Loughram 58 Hun (N. Y.), 210 166 Price V. Abbott 17 Fed. Rep. 506 339 Price v. Yates 19 Alb. Law Journal, 295 ..161, 308 Pringle v. Woodworth 90 N. Y. 502 7, 23, 27, 369 PuUau V. Cin. & Chicago R. Co 4 Biss. 35 48, 53, 68 Putnam v. Jacksonville, L. & St. L. ) „i „ j t> un e< _ _ > 61 Fed. Rep. 440 51 Putnam v. Russell 17 Vt. 54 480 Pyles V. Furniture Co 30 W. Va. 133 81 Q Quincy v. Cheeseman 4 Sandf. Ch. (N. Y.), 465 53 "^ HumpSeT' ^ ''"''" ^- ^°- ^' f 145 U, S. 82 324, 327 TABLE OF CASES. xlix E Faos. Radford v. Folsom 55 la. 376 384, 540, 561 Raht V. Attrill 106 N. Y. 433 133, 386 Railroad Co. v. Brown 17 Wall. 445 15 Railroad Co. v. Railroad Co 15 How. (U. S.), 243 93 Railroad Co. v. Soutter 3 Wall. (0. S.), 531. . . .76, 560, 573 Railroad Co. v. Jewett 37 Ohio St. 649 65, 82 Ralpli V. Circuit Judge 100 Mich. 164 51 Ralston v. Washington & C. R. Co 65 Fed. Rep. 557 85 Ramsay v. Erie Ry. Co 38 How. Pr. (N. T.), 198 75 Ramsay v. Peyser 83 N. Y. 1 381 Randfield v. Randfield 3 De Q., F. & J. (Eng.), 766 115 Ranger v. Champion Cotton Press Co. .52 Fed. Rep. 609 73 Rankin v. Elliott 16 N. Y. 377 193 Rawnsley v. Trenton Mut. L. & F. ) - „. , j. ,„ r s c^n na j^g Q^ j- 1 Stockt. (N. J.), 347 68 Ray V. Macomb 2 Edw. Ch. (N. Y.). 164 301 Read v. Frankfort Bank 33 Me. 318 8 Receivers of New Jersey Midland R. ) or, -vr t xp bko ioi» Co. V. Wortendyke. ^ xi7 iN. J. Jiq. 658 127 Receivers of New Jersey & New York ) nn -kt t yn an ■. m Ry.Co.,Inre. [ 29 N. J. Eq. 67 146 Receivers of State Bank V. First Nat. ) oa -kt t w tcr, nna Bank of Plainfield. |- 34 N. J. Eq. 450 276 Reciprocity Bank, In the Matter of 22 N. Y. 9 , 193, 194 Redmond v. Hoge 3 Hun (N. Y.), 171 60 Reed v. Axtell & Meyers 84 Ta. 331 115 Reinart v. Atlantic & G. W. R. Co 58 Fed. Rep. 33 101 Relfe V. Rundle 103 U. S. 322 45, 232 Reliance Lumber Co. v. Brown 4 lud. App. 93 350, 351 Remington & Sons v. Samana Bay Co. .140 Mass. 494 25 Republic Life Ins. Co. v. Swigert 135 111. 150 258 Republican Mountain Silver Mines v. ) _„ j, , -o „ . . „^ Brown. ) Hevere V. Boston Copper Co 15 Pick. 351 8, 27 Reyburn V. Consumers' Gas Fuel &) gg j.^^ ^ gg^ ^2g Light Co. ) -^ Reynolds v. Adden 136 U. S. 353 44 Reynolds v. Stockton 140 U. S. 254 96, 378, 424 Reynolds v. Stockton 43 N. J. Bq. 211 273 Rice V. St. Paul & Pacific R. Co 24 Minn. 464 68, 70, 76 Richards v. Chesapeake & Ohio R. Co . . 1 Hughes, 28 86 Hichards v. New Hampshire Ins. Co. . .43 N. H. 363 181 Richards v. Osceola Bank 79 la. 707 28, 168 Richards v. The People 81 111. 551 30, 106, 107, 167 Richardson v. Hickman 32 Ark. 406 168 Richmond v. Irons 131 U. S. 37 252 Biddle v. First National Bank 27 Fed. Rep. 508 499, 501 1 TABLE OF CASES. Paqs. Rider v. Bagley 84 N. T. 461 304 Eiggs V. Whitney 14 Abb. Pr. (N. Y.), 388 . . .337, 440 Kinn v. Astor Fire Ins. Co 59 N. Y. 143 450 Risk V. Kansas Trust & Banking Co. . .58 Fed. Rep. 45 117 Roberts v. Hill 23 Blatcbf. 312 242 Robinson v. Atlantic & G. W. R. Co. . .66 Pa. St. 160 167, 440 Robinson v. Bank of Attica 31 N. Y. 406 182 Robinson v. Bank of Darien 18 Ga. 65 188 Robinson v. Turrentine 59 Fed. Rep. 544 349 Eockwell V. Merwin 45 N. Y. 166 5, 200 Eodbourn v. Utica, Ithaca & E. R. Co . .38 Hun (N. Y.), 369 75 Rogers V. Dougherty 30 Ga. 371 65 Rogers v. Haines 96 Ala. 586 43 Rogers v. Odom 86 N. C. 433 434 Rogers v. Wendell | ^^ ^T 541 [ " ' •^^^' ^^^' ^^'^' ^^^ Rogers y. Wheeler 43 N. Y. 598 391 Roman v. Woolfolk 98 Ala. 219 74 Roseboom v. Whittaker 133 111. 81 20 Rosenblatt v. Johnston 104 U. S. 463 244 Ross V. Williams 11 Heisk (Tenn.), 410 433, 436 Rothwell V. Robinson 44 Minn. 538 56 Rouse V. Hornsby 67 Fed. Rep. 319 407 Roxbury v. The Lotta 65 Fed. Rep. 319 91 Rubber Co. v. Goodyear 9 Wall. 788 114 Rudd V. Robinson .54 Hun (jST. Y.), 339 . . .168, 182, 260 Ruggles V. Brock 6 Hun (N. Y.), 164 191 Ruggles V. Chapman 59 N. Y. 163 365 Buggies V. Chapman 64 N. Y. 557 265 Kunyon v. Farmers' Bank 3 Green Ch. (N. J.), 480 3 Russell V. East Anglican R.Co | ^ ^^^^^^^ f°^^- 1 . .31, 103. 103, 107 Russell v. Texas & Pacific R. Co 68 Tex. 646 . .16, 149, 153, 166, 167 Ryan v Hayes i ^^ '^^^- ^^- • • -^2. U3, 399, 433. ±lyan y. Hayes ^ ^3^^ ^g^^ ^gg Ryan v. Kingsbery 88 Ga. 361 104 Ryan v. Rand 20 Abb. N. C. (N. Y.), 313. .287, 358 Ryan & Sous v. Paine 66 Miss. 678 333 Ryckman v. Parkins 5 Paige (N. Y.), 543 301 s Sacramento & Placeryille R. Co. y. Superior Court. j- 55 Cal. 453 51 SafEord y. People 85 111. 585 428 y. Memphis & L. R. Co 18 Fed. Rep. 571 573 V. Memphis & L. R. Co 125 U. S. 361 58, 379 Sagory y. Du Bois 3 Sandf. Ch. 466 186, 188 Saltmarsh v. Planters' Bank 17 Ala. 761 24 TABLE OF CASES. li Paqk. Salway v. Salway 2 Russ. & Myl. (Eng.), 315 418 San Diego Co. v. California Nat. Bank. .53 Fed. Rep. 59 343 Sands v. Hill 43 Barb. 651 310, 311 Sands v. Hill 55 N. Y. 18 205 Sands v. Kimbark 27 N. T. 147 115 Sands v. Sanders 38 N. Y. 416 310, 311 Sands v. Sweet 44 Barb. 180 207 Sanford v. Sinclair 8 Paige, 373 47 Sanger v. Upton 91 U. S. 58 188 Savage v. Bartlett 78 Md. 561 271 Savage v. Medbury 19 N. Y. 33 363 Sawyer v. Hoag 17 Wall. (U. S.), 610 . .193, 193, 465 Sayles v. Jourdau 2 N. Y. Supp. 837 360 Scammou v. Kimball 93 U. S. 363 464 Schenck v. Ingraham 5 Hun (N. Y.), 397 559 Schlect's Appeal 68 Pa. St. 173 5 Schmid v. N. Y., L. E. & W. R. Co. . . .33 Hun (N. Y.), 335 489 Sclinicblliolz V. CuUum 55 Fed. Rep. 885 107 Schoonover v. Hinckley 48 la. 83 191 Schuehle v. Reimaun 86 N. Y. 370 100 Schwartz v. Keystone Oil Co 153 Penn. St. 283 385, 587, 561 Scott V. Armstrong 146 U. S. 499 470, 509 Scott V. Eagle Fire Ins. Co 7 Paige, 198 21 Scott V. Elmore 10 Hun, 68 16 Scoville V. Thayer 1C5 U. S. 143 188, 192, 363 Screven v. Clark 48 Ga. 41 198, 372 Searcy v. Stubbs 13 Ga. 437 300, 452 Searles v. Jacksonville, Pensacola, ) , Wnods 622 81 etc., R. Co. ) "' ' Seattle, S. L. & E. R. Co., In re 61 Fed. Rep. 541 219 Seckler v. Delfs 25 Kan. 159-165 204 Second Nat. Bank of Patterson v. | ,, t^ , „ kqo iq oo New York Silk Mfg. Co, [ ^^ ^«^- ^^P" ^^^ ^^- ^^ Secorv. F. P. & W. R. Co 7Biss.518 103 Security Bank v. Bank of Common- ) , „ ,jj ^ , „„„ ^gg wealth. ) ~ *■ ■ ■' Seibert v. Minn. & St. L. R 53 Minn. 346 881 Seidenbach, Schwab & Co. v. Denkles- ) ^^ ^ea (Tenn.), 397 432 Set-comb v. Catlin 128 111. 556 107, 223 ^7ron Co^''*' ■^^"^ ^' ^^^''^''^°^^ I 35 Fed. Rep. 436 126, 515 ^TcV' '^^^^ ^^^ ^ ^^"^^"^ ^°'°* } ^° ^- ^ ^°s- ^- ^*'' ^^^ ^'^ Sbainwald v. Lewis 8 Fed. Rep. 878 301, 575 Shaughnessy v. Rensselaer Ins. Co. . . .31 Barb. 605 305, 213, 213 Shaw V. Norfolk Co. R. Co 5 Gray, 163 51 Bhawv Railroad Co 100 U. S. 605 132, 536 Sheldon v. Adams 37 Barb. 179 200 lii TABLE OF CASES. Pass. Shepley v. Atlantic & St. L. E. Co 55 Me. 395 50 Sherwood v. Milford Bank 94 Mich. 78 337 Shields v. Coleman 157 U. S. 168 90 Shields v. Thomas 71 Miss. 260 842 Showalter v. Laredo Imp. Co 83 Tex. 163 187 Simmons v. Wood 45 How. Pr. 363 283 Simpkins V. Smith and Parmelee ) gg ^^^ p^, gg 33 „ Gold Co. ) Siney v. New York Con. Stage Co. . | gg How.^Pr.' 481 [ ^^^' ^^^ Singerly v. Fox 75 Pa. St. 113 201 Skiddy v. Atlantic, Miss. & O. R. Co. . .3 Hughes, 320 7, 126 Skinner v. Maxwell 66 N. C. 45 3, 46 Skinner v. Maxwell 68 N. C. 400 166 Skip V. Harwood 3 Alk. (Eng.), 564 105 Slater Mut. Fire Ins., Matter of 10 R. I. 43 207 Sloan V. Central Iowa Ry. Co 63 la. 728 407, 488 Smith V. Bell 107 Pa. St. 353 207 Smith V. Danzig 64 How. Pr. 320 59 Smith V. Earl of Effingham 2 Beav. (Eng.), 333 440 Smith V. Felton 43 N. Y. 419 471 Smith V. Fox 48 N. Y. 674 471, 472 Smith V. Manhattan Ins. Co 4 Hun (N. Y.), 127 450 Smith V. MoCuUough 104 U. S. 35 281, 289 Smith V. McNamara 15 Hun, 447 115 Smith V. Moseby 9 Heisk. (Tenn.), 501.. 468, 470, 471 Smith V. New York Consolidated ) 18 Abb. Pr. 420 86, 106,109, Stage Co. S 163, 201 Smith V. Port Dover, etc., E. Co 13 Ont. App. 388 48, 80 Smith V. Superior Court 97 Cal. 348 67, 77 Smith V. Trenton Delaware Falls Co. .3 Green's Ch. (N. J.), 505 570 Smith V. Union Bank of Georgetown . . 5 Peters, 518 38 Smith V. United States Express Co 135 111. 379 278 Snow V. Russel Coe Fertilizer Co 58 Hun, 134 102, 267 Snow V. Winslow 54 la. 200 19, 496, 532 Snyder's Sons Co. v. Armstrong 37 Fed. Rep. 18 509 South Carolina R. Co. v. People's ) /.^ (-, ^n 22 41 Savings Inst. j ^To*n & T ^c''r°C™^°* *^°' ""■ °°'''" I 2^ ^^^- ^^P- 3*4 108, 341 Southern Express Co. v. Western) no tt o m. 010 001 North Carolina R. Co. ^9 U. S. 191 316, 331 Spader v. Mural Decoration Co 47 N. J. Eq. IS U Special Bank Comrs. V. Franklin Inst. ) ,, t, t ^^n cm for Savings. \ '■^ ^- ^- ^^^ ^^^ Spinning v. Ohio Life Ins. & Trust Co . . 3 Disney, 336 89, 100, 103, 107 Bpooner v. Bay of St. Louis Syndicate. .48 Minn. 313 156 Spokane County v. Clark 61 Fed. Rep. 538 342 Sprague v. Smith 29 Vt. 431 392 TABLE OF CASES. liii Page. Spring V. Bowery Nat. Bank 63 Hun, 505 199 Stafford, In the Matter of 11 Barb. (N. Y.), 353 419 Stafford v. People 85 111. 558 89, 113, 158, 428 Stanton v. Alabama & Chattanooga) 3 Woods, 506 131, 141, 413, R. Co. S 513, 515, 516, 523 StMiton V. Alabama & Chattanooga i g^ p,^^_ ^^^ ^gg g^g Stanton v. Wilkinson 8 Benedict, 363 347, 350 Staples V. May 87 Cal. 178 456 Stark V. Burke 5 La. An. 740 59, 186 State V. Butler 15 Lea (Tenn.), 114 563 State V. Jacksonville R. Co 15 Fla. 201 89 State V. Marietta & Oin. R. Co 35 Ohio St. 154 94 State V. Merchant 37 Ohio St. 351 8, 9 State V. Nebraska Savings Bank 40 Neb. 342 480 State V. Northern Central R. Co 18 Md. 193 10 State V. Rivers 60 la. 381 168 State V. Ross 132 Mo. 462 83, 51, 67, 89 State V. Wabash Ry. Co 115 Ind. 466 12 State ex rel. Klotz v. Ross 118 Mo. 23 31, 33 State of Florida V. Jacksonville, etc., ) 1-™ nnt o^ R. Co. \ ^^^1*- ^°1 6^ State of Florida v. Johnson 13 Fla. 33 159 State of Georgia v. Atlantic & Gulf) „ ,„ , .„. .,_ „„, jj (-,Q ^ y 3 Woods, 434 19, 371 State of Kansas v. Miller 54 Kan. 344 97 State of Maryland v. Northern Cent. ) ^ „ -, , .. _„ „. R. Co. j State of Nebraska v. State Bank of) ,„ yr u iqo irq Wahoo. f ^*Kent°uck/ir Co'*' ^' ^'^^^^"''^ * [ 4 Baxt. (Tenn.), 93 355 State of Tennessee v. Edgefield &[ g Lea (Tenn.), 353 .. . .141, 287, 297 Kentucky R. Co. ) State of Tennessee v. McMinnville & ) g L^a (Tenn.), 369 290 Manchester R. Co. ) State ex rel. Brittin v. City 43 La. An. 839 66 State ex rel. Paper Co. v. Judge 45 La. An. 1418 149 State ex rel. Pettenger v. Claypool 13 Ohio St. 14 569 State use of Peterson v. Gibson 31 Ark. 140 439 State Bank v. Receivers of Bank of) 3 ^^^^^^.^ ^h. (N. J.), 366 .... 480 New Brunswick. ) ' Steel Bush, etc., Co. v. Musk., etc., Co. .98 Mich. 616 115 Stephens v. Bernays 119 Mo. 143 160 „, , „ (41 Fed. Rep. 401 Stephens v. Bernays -j 44 p^^ g^^ g42 Stephens v. FoUett 43 Fed. Rep. 843 363, 308 Stephens v. Overstolz 43 Fed. Rep. 465 310 Stephens v. Overstolz 43 Fed. Rep. 771 310 Stephens v. Schuchmann 33 Mo. App. 333 508 643 ^ ^^'^ liv TABLE OF CASES. Paob. Stetson V. City Bank of New Orleans. .2 Ohio St. 167 23 Stevens V. Davison 18 Gratt. (Va.), 819 56 Stevens v. Midland R. Co 13 Blatchf. 104 372 Stevens v. Union Trust Co 57 Hun (N. T.), 498 533 Stewart v. Beebe 38 Barb. 34 199 Stewart v. Cbesapeake & Ohio Canal ) ^ Hn„]igg 47 go do, J Stewart v. Johnston 87 Ga. 97 430 Stewart v. Lay 45 la. 604 189, 191, 193 Stewart v. Lehigh Valley R. Co 38 N. J. Law, 505 182 Stillman v. Dougherty 58 Md. 423 186 Stillman v. Dougherty 44 Md. 380 191 St. Joseph & Denver City R. Co. and I ^ Q ^ n„^ „„ ..„ „_. Bond, Receiver, v. Smith, \ ^^ ^='°- ^^^ ^^' "^' 3™ St. Joseph & St. Louis R. Co. v. ) i,>t, „ ,„_ „„. Hamphries, j- 145 u. a. lUS iiS St. Louis, Alton & Terre Haute R. Co. I loc tt a arro in« V. Cleveland, C. & I. R. Co., j- 135 U. 8. 658 126 St. Louis, Kansas City and C. R. Co. [ 33 p^^ ^ ^9 V. Dewees, j ^ J^hnst'on ^^'^ ^■■^'"=''''° ^- ^°- ^- [133 U. S. 566 504 St. Louis & San Francisco R. Co Johnston, Stockton V. Mechanics and Laborers' ockton V. Mechanics and Laborers' ) ooiv-tt? lao r,.,, oac Savings Bank, [ ^^ ^- ^- ^1- ^^^ ^^^- ^^^' 477 Stokes V. N. J. Pottery Co 46 N. J. Law, 237 178 Stone V. City and Co. Bank 3 C. P. Div. (Eng.), 283 260 Stone V. Dodge 96 Mich. 514 470, 471 Stonebridge V. Perkins 141 N. Y. 1 183 Strang v. Montgomery & Eufaula R. ) 3 ^^^^^_ g^g ^^^ Street v. Maryland Cent. R. Co 59 Fed. Rep. 25 126, 524 Strong V. Southworth 8 Bened. 831 247 Stryker, Matter of 78 Hun, 827 128 Stuart V. Boulware 183 U. S. 78 663 Sturges V. Vanderbilt 73 N. Y. 884 8, 24 Sturgia v. Knapp 33 Vt. 486 171 Sunflower Oil Co. v. Wilson 142 U. S. 313 831 Supreme Sitting of the Order of Iron ) w„, , j Ann ce Hall V.Baker, [ 184 Ind. §93 55 Sutherland v. Lake Superior Ship) n nr ^ t, 1 -d nno ia-t Canal R. and Iron Co., [ ^ ^^*- ^^"'^ ^«g- 398 147 ""C^Blurswicr °' *''' ^"'^ \ ' «^««"'« C^- (^- '■^- ''' ''' ""^erslunswick!" "' ''"' ^"^ \ ^ ^'^^"^'^ ^'^^ ^^^ "'•)■ ''' ''' Swann v. Clark 110 U. S. 602 616, 530 Bwaun v. Wright's Executor 110 U. S. 690 150, 630 Swope V. Villard 61 Fed. Rep. 417 485 Syme v. Bunting 91 N. C. 48 434 TABLE OF CASES. Iv T Faoe. Talmage v. Pell 9 Paige, 410 23 Talmage v. Pell 7 N. Y. 338 175 Tapscott V. Lyon 103 Cal. 397 458 Taylor v. Columbian Ins. Co 14 Allen, 353 7, 34, 35 Taylor v. Gillean 23 Tex. 508 167 Taylor v. Life Association of Am 13 Fed. Rep. 493 236 Taylor v. Life Association of Am 3 Fed. Rep. 465 34, 85, 439 Taylor v. North Star Mut. Ins. Co 46 Minn. 198 350, 351 Taylor v. Phila. & Reading R. Co 9 Fed. Eep. 1 525, 573 Taylor v. Phila. & Reading R. Co 7 Fed. Rep. 381 101 Terry v. Bamberger 44 Conn. 558 199 Terry v. Bamberger 14 Blatchf . 334 181 Texas Foundry R. Co. v. Lewis 81 Tex. 1 149 Texas & Pacific R. Co. v. Baruhart 5 Tex. Civ. Rep. 601 496 Texas & Pacific R. Co. v. Bloom 60 Fed. Kep. 979 493 Texas & Pacific R. Co. v. Collins 84 Tex. 131 405 Texas & Pacific R. Co. v. Comstock. . .83 Tex. 537 495 Texas & Pacific R. Co. v. Cox 145 U. S. 593 118, 406 Texas & Pacific E. Co. v. Gay 86 Tex. 571 405 Texas & Pacific R. Co. v. Geiger 79 Tex. 13 495 Texas & Pacific R. Co. v. GriflSn 76 Tex. 441 490, 495 Texas & Pacific R. Co. v. Huflfman 83 Tex. 386 405, 495 Texas & Pacific R. Co. v. Johnson. . | Jg^'^u^'g'^^si [ • • ■^'^^' ^^^' ^^^' *^^ Texas & Pacific R. Co. v. Miller 79 Tex. 78 495 Texas & Pacific R. Co. v. Overheiser. . .76 Tex. 437 493, 495 Texas Trunk R. Co. v. Lewis 81 Tex. 10 90, 168 Texas Trunk R. Co. v. Texas 83 Tex. 1 90 Thau V. Bankers & Merchants' Tel. )-„„„„ „ , »„„ Qg y 56 N. Y. Superior Court, 588. . . 59 Thayer v. Butler 141 U. S. 334 247 Third Swedish M. E. Church v.) .„ ,,. . , Wetherell, [ ^^ "1. App. 414 475 Thomas v. Brigstoke 4 Russ. (Eng.), 65 379 Thomas v. Cincinnati etc., R. Co 63 Fed. Rep. 17-669 103, 219 Thomas v. East Tenn. V. & G. R. Co. .60 Fed. Rep. 7 408 Thomas v. MacGregor 81 N. Y. 592 433, 4.S5 Thomas v. Peoria & R. I, R. Co 36 Fed. Rep. 808 330. 335, 339 Thomas v. Western Car Co 149 U. S. 95 139, 142, 320 Thomas v. Whallon 31 Barb. 173 205, 207 Th^ompson v. Gloucester City Savings ) g ^^^^ ^^^ g^g 334 Thompson v. Greeley 107 Mo. 577 195, 260 Thompson v. HoUaday 15 Or. 34 385 Thompson v. McCleary 159 Pa. St. 189 440 Thompson v. Phoenix Insurance Co . . .136 TJ. S. 287 169, 170, 565 Ivi TABLE OF CASES. Pagi. Thompson v. Scott 4 Dill. 508 113, 119, 444 Thompson v. Thompson 4 CushiDg (Mass.), 137 47 Thompson v. Willamette S. M. L. & ) ^g q^. gQ^ Man. Co., ) Thompson's Appeal 33 Pa. St. 16 21 ThornhiU v. The Bank 1 Woods, 1 3a Thornton v. Highland Ave. R. Co 94 Ala. 353 365 Thornton v. Marginal Freight R. Co. .138 Mass. 33 25 Thornton v. Washington Savings ) ^g y^ ^gg Bank, ) Thuenunler v. Barth 89 Wis. 381 383 Thurman v. Cherokee R. Co 56 Ga. 376 U Thurman v. Morgan 79 Va. 367 439, 432 Tillinghast v. Champlain 4 R. I. 173 198 Tink V. Bundle 10 Beav. 318 105 Titherington's Admr. v. Hodge 81 Ky. 386 285 Tobey v. Russell 9 R. I. 58 311, 312, 214 Toby V. Oregon Pacific R. Co 98 Cal. 490 148 Tolford V. Church 66 Mich. 431 206 Tolleson v. People's Bank 85 Qa. 171 104 Tome V. King 64 Md. 166 543 Toronto General Trust Co. v. C. B. ,123 N. Y. 37-47 44 ;. R. Co., ) Towle V . American Building, etc., ) g^ ^^^ ^3^ ^ Society, ) Town of Roxbury v. Central Vermont I oa y^ -i 01 R. Co., i Tracy v. First Nat. Bank of Selma. . . .37 N. Y. 533 33, 243 Tremper v. Brooks 40 Mich. 333 151, 167 Tripp V. Boardmau 49 la. 410 146, 363 Trustees of Mutual Building Fund,) , ^^ , „„.> ^ T3 , -D • ' ^ 4 Hughes, 387 195 etc. , Bank v. Bossieux, ) Tuckerman v. Brown 33 N. Y. 297 177 Tuckley v. Thompson 1 Johns. & Hem. Ch. 126 481 , Turgeau v. Brady 34 La. An. 348 33, 46 Turnbull v. Prentiss Lumber Co 55 Mich. 387 58, 66 Turner v. Cross & Eddy 83 Tex. 318 405 Turner v. First National Bank of) „„ -, ^„„ ,„„ Keokuk, [36Ia.563 499 Tu^rner V. Hannibal & St. Joseph R. J ^4 jj^ggg ^^ Turner v. Indiana, B. & W. R. Co 8 Bise. 537 335 Turner v. I. B. & W. R. Co 8 Biss. 315 100, 135 Turner v. Peoria & Springfield R. Co. .95 HI. 134 513 Tyler, In re 149 TJ. S. 164 373 Tyler v. Hamilton 63 Fed. Rep. 187 281 Tyson v. Wabash Ry. Co 8 Biss. 347 68 TABLE OF CASES. Ivii U Fase. Umstead v. Buskirk 17 Ohio St. 113 266 Dnion Bank Case 29 N. J. Eq. 220 589 Union Bank Case ( 37 N. J. Eq. 430. .412, 416, 535, ( 561, 563 Union Bank of Chicago v. Kansas) tor- rr a ono o City Bank, \ ^^^ ^- ^- ^^^ ^ Union Cattle Co. v. Int. Trust Co 149 Mass. 492 301 Union Mutual Life Ins. Co. v. Union) „» ,,„, ■r,„„ oqc ni Mills Plaster Co., ^ 37 Fed. Rep. 286 71 Union Mutual Life Ins. Co. v. Uni- [ ^^^ ^ ^^g versity of Chicago, ) ^ ^Huron a" Co.°' ^" ^^''"'^° ^ ^""^^ \ ^ ^^^- ^«P- ^^^ 389, 519 Umon Trust Co. .. Illinois Midland) ^^^ ^ ^ ^^^ (m. Ig |15. ^- *^°- ) (516.532,536,532 Union Trust Co. v. Morrison 125 U. S. 591 131 Union Trust Co. V. Railroad Co 4 Dillon, 114 69 ^St" L 'r"co ^°" ''■ ^""^^"""^ ^- * [ 6 Biss. 197 90, 98 Union Trust Co. v. Souther 107 U. S. 591 121 Union Trust Co. v. Walker 107 U. S. 596 130 Union Trust Co. v. Weber 96 111. 346 16, 19, 370 United States v. Kane 25 Am. & Eng. R. Cas. 608 103 United States v. Knox 102 U. S. 422 249 United States V. Late Corporation of ) iot> t> oc 10/ Church of Christ, \ ^^ P*"- ^^^- ^^ ^84 ^CWh 0/ Chri^t*^ Corporation of | g ^^^^_ ^g ^^g ^MaUer^o*r' '^"^""^ ^'°"^ ^°" [ 5^ 3°^ P^- 1^ 3- 115. 364 United States Trust Co. v. Harris 2 Bosworth, 76 467 United States Trust Co. v. N. T., ) „_ „ , „ ~n»y 10c 100 West Shore & Buffalo R. Co. , \ ^^ ^^^- ««?• ^^^ ^26, 136 United States Trust Co. v. N. T., ) mi xt tt Arto c^n West Shore & Buffalo R. Co. ' ^ 101 N. T. 478 549 ^St.l. r!co.'^™'* ^°' ^' ^"^^^^ ^ [ 58 Fed. Rep. 787 219 United States Trust Co. v. Omaha &) „, tj' j -o no, 1,0 St. L. R. Co., \ 61 ^^•l- ^«P- 5^1 118 United States Trust Co. v. Wabash [ ^., „ „ „„ Western R. Co., jW50 U. S. 287 327, 378 United States Vinegar Co. v. Spamer. . 148 N. T. 676 23 Upton V. Hansborough , 3 Bissell, 417 186, 188, 193 Upton V. Tribilcock 91 U. S. 45 194 Utica Insurance Co. v. Lynch 2 Barb., Ch. (N. T.), 573 563 Utica Insurance Co. v. Lynch 11 Paige (N. Y.), 530 383, 417 Iviij TABLE OF CASES. V Page. VaU V. Hamilton 85 N. Y. 453 168 37 Barb. 235. .165, 180, 364, 463, 464,469r,472,-474 Van Allen, Matter of -j Van Alstyne v. Cook 25 N. Y. 489 162, 164 Van Antwerp v. Hulburd 7 BlatcM. 426 159 Van Antwerp v. Hulburd 8 Blatchf. 286 338, 305 Vanatta v. N. J. Mutual Life Ins. Co. .31 N. J. Eq. 15 353, 477 Vanderbilt v. Central E. Co 43 N. J. Bq. 669 367, 444, 447 Vanderbilt v. Little 43 N. J. Eq. 669 109, 115 Vanderweken v. Glenn 85 Va. 9 188 Van Dyck v. McQuade 85 N. Y. 616 264, 469 Vane v. Newcombe 133 U. S. 230 138 Van Glahn v. De Eoaset 81 N. C. 467 19 Van Mater v. Ely 13 N. J. Eq. 271 480 Van Rensselaer v. Emery 9 How. Pr. 135 440 Van Wagenen v. Clark 23 Hun, 497 193 Van Wagoner v. Paterson Gasligbt ) 3 Zab. (N. J.), 283 2G3, 470, Co., \ 471,473 Varnum v. Hart 119 K Y. 101 75, 166, 357 Venango National Bank v. Taylor 56 Pa. St. 14 510 Vermont & Canada E. Co. v. Ver- ) ^g ^ ^gg g gg ^^^ ^^r, mont Cent. E. Co., j < . > Vermont & Canada R. Co. v. Ver- 1 go yt. 500 76. 141, 389 mont Cent. H. Co., ) Verplanck v. Mercantile Ins. Co . . . j ^ P-g« (N- Y.), 438 . .9, 46,^65, ^^^ Verplanck v. Mercantile Ins. Co 1 Edw. Ch. (N. Y.), 84. .53, 71, 181 Vienna Bakery Co. v. Heissler 50 111. App. 406 74 Vilas V. Page 106 N. Y. 439. . . .124, 146, 386, 287 Virginia, Tenn., etc., Co. v. Wilder. . .88 Va. 942 66 Visage v. Soliofield 60 Ga. 680 575 Voorhees v. Receivers of the Bank) in r\i ■ aoo mo of Circleville, p 9 Ohio, 463 193 Voorhees v. Sessions 34 Mich. 99 103 w Wabash R. Co., In re 34 Fed. Rep. 317 103 Wabash v. Eaymond 58 Conn. 251 562 Wabash, St. L. & Pacific R. Co. v. ) „„ „ , -□ „„„ „„, Central Trust Co., \ ^^ ^^^' ^^P- ^"^ ^'^^ Wabash R. Co. v. Dykeman 133 Ind. 56 66 Wabash E. Co. v. Stewart 41 111. App. 640 490 Waite, In re 99 N. Y. 433 44 Walker & Bradford v. Morris 14 Qa. 323 147 Wallace v. Loomis 97 TJ. S. 146 109, 131, 633, 537 Walling V. Miller 108 N. Y. 173 166 TABLE OF CASES. lix Paqe. Walsh V. Raymond 58 Conn. 251 361 Walton V. Grand Belt Copper Co 56 Hun, 311 Ill Ward V. Salem St. E. Co 108 Mass. 332 56, 73 Ward V. Sea Ins. Co 7 Paige, 294 49 Warden v. Railroad Company 103 U. S. 651 182 Wardle v. Hudson 96 Mich. 432 207 Wardle v. Townsend 75 Mich. 385 307, 310 Warren v. Rising Fawn Iron Co 3 Woods, 514 50 Warren v. Pake 49 How. Pr. 430 47, 56 Warren v. Sprague 11 Paige (N. Y), 200 201 Warren v. Union Nat. Bank 7 Phila. 156 33, 36 Washington Nat. Bank v. Eckels 57 Fed. Rep. 870 61, 63 Washington City & Point Lookout ) -= m j i kq kito E. Co. V. Southern Maryland E. Co. f '"""'*• ^^'^ °^'^ Washington Life Ins. Co. v. Fleisch- ) ^q ^^^ ,jj y . ^^^ gg2 SiXLQVf ) Wasson v. Hawkins 59 Fed. Rep. 233 334 Waterbury v. Merchants Union Ex- ) -„ g , . _» „i press Co., ) Waterhouse v. Comer 55 Fed. Eep. 149 103, 219 Watkins v. Minn. Thresher Mfg. Co. .41 Minn. 150 158, 167 Watson V. Citizens Savings Bank 2 Hughes, 200 98 Waverly Co. v. Worthington Co 4 Misc. 447 23 Wayne Pike Co. v. Hammons 129 Ind. 368 57 Wayne Pike Co. v. State 134 Ind. 672 198 Weber v. Spokane Nat. Bank 50 Fed. Rep. 785 340 Webster v. Watts 45 Hun (N. T.), 319 541 Weeks v. Weeks 106 N. T. 636 110, 145 Weems v. Lathrop 42 Tex. 207 431, 436, 437 Wehrl V. Atlanta Furniture Co 89 Qa. 297 70 Weingartner v. Charter Oak Life ) gg ^^^ ^^^ g^^ 335 Ins. Co., ) Welles V. Graves 41 Fed. Rep. 459 309 Welles V. J. B. Pace Tobacco Co 2 N. T. Snpp. 292 236 Welles V. Stout 38 Fed. Rep. 807 509 Werner v. Murphy 60 Fed. Eep. 769 97 Wesson v. Chapman 76 Hun (N. T.), 592 519, 531 West V. Bank of Rutland 19 Vt. 403 480 West V. Weaver 3 Heisk. 589 8 West of England, etc., Bank, In re L. R. 11 Ch. Div. 772 338 Western Union Tel. Co. v. A. & P. Tel. Co., Western Penn. E. Co. v. Johnston .... 59 Pa. St. 290 141 Wetter v. Schlieper 7 Abb. (N. T.), 93 575 Wheat V. Dingle -.32 S. 0. 473 480 Wheeler v. Clinton Canal Bank Harr. Ch. 499 15 Wheeler v. Pullman Iron & Steel Co. .43 111. App. 626 78 Whelpley v. Erie Ey. Co 6 Blatohf. 271 80 • [ 7 Bissell, 367 97 Ix TABLE OF CASES. PiGB. White V. Havens 30 How. Pr. 177 313 White V. Joy 13 N. Y. 83 199 White V. Keokuk & Des Moines R. ) gg -^^ g^ ^2^ ^g , Co., ) ' White V. Knox Ill U. S. 784 501 23 White, etc Mfg. Co. v. Pettees Im- ) g^ p^^ ^ gg^ porting Co., j *^ . Whitehead v. Wooten 43 Miss. 533 65 Whiteside v. Prendergast 3 Barb. Ch. (JST. T.), 471 574 Whitesides v. Lafferty 3 Humph. (Tenn.), 150 386 Whitman v. Mason 40 Ind. 189 308 Whitney v. Bank 71 Miss. 1009 33, 67 Whitney v. Butler 118 U. S. 665 311 Whittlesey v. Delaney 73 N. T. 571 178 Whittlesey v. Frautz 74 N. T. 456 31, 186 Wickham v. Hull 60 Fed. Rep. 336 353 Wiggins V. McDonald 18 Cal. 126 21 Wilcox V. Continental Life Ins. Co 56 Conn. 468 19, 199 Wilde V. Baker 14 Allen, 349 437 Wilkinson v. Culver 25 Fed. Rep. 639 225 Wilkinson v. North River Const. Co. .66 How. Pr. 423 Ill Wilkinson v. Rutherford 49 N. J. Law, 241 197 Willetts V. Waite 35 N. T. 577 35 Williams, Ex parte 17 S. C. 396 361 Williams v. Babcock 35 Barb. 109 205, 306, 209 Williams v. Halliard 14 At. Rep. 880 180 Williams v. Hintermeister 26 Fed. Rep. 389 5, 36 Williams v. Morgan Ill U. S. 684 487 Williams v. Traphagen 38 N. J. Eq. 57 192 Wmiamson v. New Albany, etc., R. J ^ g.^^ ^gg ^9_ ,^q Williamson's Admr. v. Wash. City,) go o,„t* r9a ioq iai Virginia Midland, etc., E. Co. , f ^^ «ratt. 6S4 129, 131 Willink V. Morris Canal & Banking g g^^^^,^ ^,j^ g^^ 2^ Co., ) Willis V. Sharp 124 N. Y. 406 436 Wilmer V. Atlanta & Richmond Air )„ „r j Ann i<. o, ot ..•, no T- „ „ ^ 3 Woods, 409 16,31,34,51,93 Lme R. Co., ) .... Wilsonv. Welch 157 Mass. 77 198, 301 Wilson V. Barney 5 Hun (N. Y.), 257 570, 576 Wilson V. Coburn 35 Neb. 530 337 Wilters v. Poster 33 Blatchf. 457 308 Winans v. Manufacturing Co 48 Kan. 777 33 Winans v. McKean R. & Nav. Co 9 Blatchf. 215 5 Winbourne's Case , 30 Fed- Rep. 167 402 Winchester v. Davis Pyrites Co 67 Fed. Rep. 45 456 Wincock v. Turpln 96 111. 135 267 Winfleld v. Bacon 24 Barb. 154 130 TABLE OF CASES. Ixi Wing V. Disse 23 Hun, 190 16 Winters v. Armstrong 37 Fed. Eep. 508 263, 307 Winters v. Sowlea 43 Fed. Rep. 405 310 wicwaii xr «.,„«=,.„ 5 14 Howard, ( . .19, 89, 101, 115, Wiswall V. Sampson -j (XJ. S.), 52 ^ 166,441, .38 Fed. Rep. 700 99N. T. 398 19, 111; 115 443 Witters v. Sowles 38 Fed. Rep. 700 249 WoerishofEer v. North River Const. ) Co., i Wood V. New York & N. B. R. Co. . . .61 Fed. Rep. 236 276 Wood V. Standard, etc., Ins. Co 154 Pa. St. 157 210 Woodruff V. Erie Railway Co 93 N. Y. 609. .116, 125, 218, 256, 326 Woodruff V. Jewett 115 N. Y. 267 426 Woods V. Ellis 85 Va. 471 283 Woodward v. Ellsworth 4 Col. 580 248 Woven Tape Skirt Co., Matter of 85 N. Y. 506 553 Woven Tape Skirt Co., Matter of 12 Hun (N. Y.) Ill ... .16, 101, 165 Wray v. Hazlett 6 Phila. 155 115 Wray & Pierce v. Jamison 10 Humph. (Tenn.), 186 198 Wren v. Kirton 11 Vesey (Eng.), 378 419 Wright V. McCormack 17 Ohio St. 86 266 Wright V. Merchants Nat. Bank 1 Flippin, 568 61 Wurtz V. Hart 13 la. 515 481 Wyatt V. Ohio, etc., R. Co 10 Brad. (111.), 389 33 Wyokoff V. Schofield 98 N. Y. 475 304 WyckofE V. Schofield 103 N. Y. 630 386 Yardley v. Clothier | 5? Fed! f e^" f 06 ' [ ^^^^ 509 Yardley v. Dickson 47 Fed. Rep. 835 339 Yardley v. Philler 58 Fed. Rep. 746 243 Yardley v. Wilgus .'56 Fed. Rep. 965 313 Yeager v. Wallace 44 Pa. St. 394 198 Young, In re 7 Fed. Rep. 855 455 Young V. Montgomery & Eufaula R. ) 3 y^^^^^^ gOO 89, 94, 448, 570 Co., ) Young V. Rollins 85 N. C. 485 66, 87, 89 Young V. Wempe 46 Fed. Rep. 854 247 LAW OF RECEIVERS or CORPORATIOK8. CHAPTEE I. Of the Appointment and Status or the Keceivek. Sec. 1. Definition of the term. 2. Of the appointment of the Receiver and herein : (a.) Of the appointing power. (6.) How the appointment may be proved. 3. Of the order appointing the Receiver — generally. 4. Incidents and effects of the order appointing the Receiver : (as.) Upon corporate existence. (5.) Upon corporate functions and liabilities. (c.) Upon the title to corporate property. {d } Upon prior liens of creditors. (e.) Upon pending suits. (/.) When the appointment may not be attacked collaterally. (g.) When the appointment may be attacked collaterally. 5. The Status of the Receiver : (a.) Within the jurisdiction of the Court appointing him. (6.) Outside of the jurisdiction of the Court appointing him. Sec. 1. Definition. — A receiver is an officer of the court through whom equity takes possession of the property which is the subject of a litigation, preserves it from waste and destruction, secures and collects the proceeds, and ultimately disposes of them according to the rights and priorities of those entitled thereto, whether regular parties in the cause or only coming before the court in a reasonable time and in the due course of procediire to assert and establish their claims. As the representative of the court, he is subject to its orders, accountable in such manner and to such persons as the court may direct, and having in his character as receiver no personal interest save that arising out of his fiduciary capacity and responsibility for the correct and faithful discharge of his, THE STATUS OF A EECEIVEK. [chap. 1. duties. He is not the representative of a party or parties, but the representative of the court. Through and by him the court itself acts — exercising its authority for the corporation, its creditors and its stockholders.^ 1 In N. T. & W. U. Tel. Co. b. Jew- ett, 115 N. T. 168, it is said by Eabl, J., that "in the action commenced against the Erie Railway Company, the court had taken into its posses- sion the property of the company to dispose of, manage and administer it for the benefit of all parties inter- ested therein, or having any claims against the same ; and the receiver was merely its officer, arm or agent, to take possession of the property and manage and dispose of the same under its direction and subject to its control. He could at any time be discharged by the court and an- other receiver appointed, or the property could be taken out of his hands and restored to its owner or otherwise be disposed of under the judgment in the actions in which lie was appointed." Herring v. N. y. L. E. & W. R. R. Co., 105 N. Y. 340, 372 ; Attorney-General v. North. Am. Life Ins. Co., 89 N. Y., 103 ; In re U. S. Boiling Stock Co., 57 How. Pr. (N. Y.) 16, 19, 20. In the leading case of Curtis and others against Leavitt, 15 N. Y. 9, where a receiver was appointed of a banking com- pany under a statute of the State of New York, which empowered the court to issue an inj unction, for the causes therein enumerated, and to "appoint one or more receivers to take charge of the property and effects of the corporation," with authority to recover the debts due to it, and "the property that may belong" to it ; and declaring that " such receiver shall possess all the powers and authority ' ' conferred by another statute declaring that such receivers ' are vested with all the estate, real and personal, of such corporation'" — "as trustees for the benefit of creditors and stockholders," with the power con- ferred, by another statute, upon trustees of insolvent debtors, who have "power to sue, in their own names or otherwise, and recover all the estate, debts and things in action belonging or due to such debtor, in the same manner and with the like effect as such debtor might or could have done, if no attachment had been issued or trustees appointed " ; it was Tield that the receiver has no interest in or power over the prop- erty affected by the trusts in ques- tion, except such as he derives un- der the statutes which have been mentioned. " It has been said," the Court says, " in this, as in other cases, that he represents the credi- tors and the stockholders, but for aU the purposes of inquiry into his title, he really represents the corporation. 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 benefioiaries of the funds in his hands, without indica- ting the sources of his title or the extent of his powers." And it was held under a statute (Laws of N. T. of 1850, chap. 172) providing that "no corporation shall hereafter in- terpose the defense of usury," that a receiver cannot set up that defense in any stage of a case, not even at the final hearing, although such de- fense was alleged in pleading, and was established by proofs, before SEC. 2.] APPOINTMENT OF THE RECEIVER. 3 Sec. 2. Of the appointment of the Receiver and herein : (a.) Of the appointing power. — The appointment of re- ceivers originated in the Courts of Chancery in England and has naturally and regularly descended to all courts possessing equitable jurisdiction as a part of their inherent power,^ but always exceptional and extraordinary in its exercise.^ The considerations which should guide the court in the exercise of this extraordinary power are considered hereafter. In those states which have codes, the provisions of such codes relating to the appointment of receivers limit the power of the court if they furnish an adequate remedy and prescribe the method of its action.^ The codes of several of the states, notably New York, California and North Carolina, do not affect, materially, the equitable jurisdiction of the courts.'' Appellate courts seldom appoint receivers. When they do they must have jurisdiction of the suit upon appeal and of the person against whom the remedy is sought.' the law was passed. See pages 43, Cohen and Jones, Harr. Ch. (Mich.) 44, 85, 86, 354. Attorney-General v. Guardian Mut. Life Ins. Co., 77 N. T. 373 ; Porter v. WUliams. 9 N. Y. 143, 150; Gillett v. Moody, 3 N. Y. 479 ; Union Bank of Chicago v. Kan- sas City Bank, 136 TJ. S. 323 ; Ken- nedy V. I. C. & L. H. R. Co., 2 Flippin (tr. S.), 704 ; Booth v. Clark, 17 How- ard (U. S.), 832, 332 ; Hills v. Parker, 111 Mass. 510; Davis v. Gray, 16 Wall. (U. S.), 203, 218; Gray v. Davia, 1 Woods (U. S.), 430 ; Morris V. Thomas, 17 III. 112 ; First Nat. Bank v. Barnum Wire and Iron Works, 60 Mich. 487; Runyon t>. Farmers' Bank, 3 Green Ch. (N. J.), 480; Vermont & Canada R. Co. ■». Vermont Central R. Co., 46 Vt. 793 ; Baker v. Backus, 33 111. 79; EUi- cott B. Warford, 4 Md. 80 ; Beverly B. Brooke, 4 Qratt. (Va.), 187, 308. ' Folsom B. Evans, 5 Minn. 418 ; Skinner v. Maxwell, 65 N. C. 45 ; Bainbiigge v. Baddeley, 3 Mac. & «. (Eng.) 419 ; Barbour v. Nat. Ex. Bank, 45 Ohio 133; Hollenbeck v. Donnell, 94 N. Y. 843; Ex parte 494. In the Matter of the Louisiana Sav. Bk. 35 La. Ann. 196. ' Pullan 1). Cincinnati & Chicago R. Co., 4 Biss. (U. S. C. C.) 35, 47. ^Colwell V. Garfield Nat. Bank, 119 N. Y. 408. * Hollenbeck v. Donnell, 94 N. Y. 343 ; King v. Barnes, 51 Hun (N.Y.), 550, 555 ; Skinner «. Maxwell, 65 N. C. 45 ; Bateman v. Superior Court, 54 Cal. 385. « Kerr o. White, 7 Baxt. (Tenn.), 394; West v. Weaver, 3 Heisk. (Tenn.), 589 ; Pacific R. R. Co. «. Ketchum, 95 IJ. S. 1. In this case a decree of foreclosure and sale was made by consent of a railroad, and its property under the order of the court was turned over by the re- ceiver to a new corporation. Sub- sequently the old corporation took an appeal from the decree of fore- closure and made a motion for a receiver of the property of the rail- road pending the appeal. Meld that the relief asked for should not be granted. 4 THE STATUS OF A EECEIVEE. [CHAP. 1^ A judge in vacation has no power, in the absence of express statutory authority, to appoint a receiver ; ' yet, if such action be subsequently confirmed by a court of competent jurisdic- tion, the appointment will be deemed to have been made by the court itself from and after the entry of the order con- firming such action.^ In California the Superior Court has no jurisdiction to appoint a receiver of the property of a corporation in a quo warranto proceeding, upon judgment of forfeiture of its cor- porate charter. The rendition of the judgment authorized by its code of civil procedure terminates the proceeding, and no receiver can be appointed unless a new suit is commenced by a creditor or stockholder of the corporation for that purpose. The appointment of a receiver in such a proceeding is void in toto and the receiver takes nothing by his appointment. If he has seized and is holding property of the corporation, a writ of prohibition wiU run to and operate directly upon the court which made the order appointing him, and indirectly upon the receiver, to prevent further action, and to annul the action taken under the void order, and compel restoration of the property seized.^ After service of the alternative writ of prohibition commanding the Superior Court judge, and the receiver appointed by him, to desist from interfering with the property of the defunct corporation and its business, if the receiver continues to interfere, and the Superior Court judge neglects his duty to see that the receiver obeys the writ, each is guUty of contempt and liable to punishment.* ' Hammond v. Loan & Trust Co. , alleged that although the title to a 105 N. Y. 77 ; Delaware Bay & Cape certain mine stood in the name oi a May R. Co. ■». Markley, 45 N. J. Eq. mining corporation, the copartners 139 ; Neuman v. Hammond, 46 Ind. as such owned and worked it, and 119. that the corporation was a mere ' Hervey ■». Illinois Midland Ry. name and agent of the partnership, Co. 28 Fed. Rep. 169. See also Mor- and not the owner of the mine, and risen v. Menhaden Co., 37 Hun (N. the court found the allegations to be Y.), 533. true, and rendered a judgment in ^Havemeyer u. Superior Court, favor of the plaintiff; it was held 84 Cal. 337. that the court was authorized, pend- • Havemeyer v. Superior Court, ing the litigation, to make an order 87 Cal. 267. In a suit in equity for appointing a receiver to take charge the dissolution of a copartnership of and manage and work the mine, and for an accounting, the complaint Fischer v. Superior Court, 98 Cal, 67. SEC. 2.] APPOINTMENT OF THE RECEIVER. 5 - — The exercise of the appointing power by a court of equity, being discretionary in its character, is not, ordinarily, review- ,able upon appeal.^ It is not a condition precedent to the exercise of the appoint- ive power by a Federal Court that there should be property of the insolvent corporation in the same District where the court is held. It is sufficient if the corporation appear ; even though the corporation be one created in a state outside of the District wherein the Federal Court is vested with jurisdiction.^ It is a condition precedent — a jurisdictional essential — to the exercise of the appointive power that a cause be pending and that the corporation over which it is proposed to extend the receivership be a party thereto.' In the case of a foreign corporation, it is not a condition precedent to the exercise of the appointive power that statu- tory provision should exist therefor.* If there be, in the jurisdiction of the court, property of the foreign corporation, a court of equity may appoint a receiver thereof, as auxiliary to the proceeding instituted against it in the jurisdiction of the sovereignty which created it, and may confer upon him the same powers which it is authorized to grant to the receiver of a domestic corporationi, so far, at least, as these may be neces- sary for the recovery and collection of the assets of the corporation.' (6.) How the appointment may he proved. — An allegation that the receiver was duly appointed is sufficient to admit proof of the appointment upon the trial.' ' Emerio «. Alvarado, 64 Cal. 529 ; ■• Murray v. Vanderbilt, 39 Barb. ScUect's Appeal, 60 Pa. St. 172 ; (N. ¥.), 140 ; Williama «. Hunter- Meading Valley Mining Co. D.Dodds, meister, 36 Fed. Kep. (U. S. C. C), 6 Nev. 363 ; Denike v. N, T. & R. 889. In the first Case cited the Line Co. , 80 N. Y. 599 ; Eaton & court appointed a receiver of a cor- Hamilton R. Co. ■». Varnum, 10 Ohio poration, existing under the Nicara- St, 623 ; Maysville & Lexington R, Co. gua government, upon the ground V. Punnett, 15 B. Monroe (Ky.), 47. that the corporation had a large ^ Fifth Nat. Bank v. Pittsburgh & amount of property in N. Y. which Castle Shannon R. Co., 1 Fed. Rep. could not be reached by execution. 190 ; Winans i). McKean R. & Nav. ' National Trust Co. ■». Miller, 33 Co , 6 Blatch. (U. S. C. C), 315. N. J. Bq. 155 ; Williams t>. Hinter- 8 Baker d. Backus, 33 111. 79 ; meister, 36 Fed. Rep. 889. French v. GifEord, 30 Iowa, 148; 'Rockwell «. Merwin, 45 N. Y. Qravenstine's Appeal, 49 Pa, St. 310. 166 ; Griesse) «. Schtnal, 55 Ind. 475. THE STATUS OF A RECEIVER. [chap. I. The usual method of proving the appointment of a receiver is to produce a duly authenticated copy of the order appointing the receiver and to establish the fact of the giving of the bond in conformity thereto.^ But when the jurisdiction of the court appointing him is directly put in issue by a defendant, the receiver must prove that the court had jurisdiction over the corporation and power to appoint a receiver, otherwise the action cannot be maintained.^ Any irregularity in the execu- tion of the bond can only be taken advantage of by the ' Palmer i). Clark, 4 Abb. (N. C), (N. Y.), 25. Wbere the order ap- pointing a receiver of a corporation is made by a court of competent jurisdiction, the order carries with it the presumption of regularity and it is not necessary that the re- ceiver offer proof to show that the court had acquired jurisdiction to make the order. The order, stand- ing in full force, must be taken as establishing, at least, prima facie, that all the necessary averments were made and proceedings had to give jurisdiction to the court. Hayes t>. Brotzman, 46 Md. 519. In Potter «. Merchants Bank of Albany, 38 N. T. 641, the only evidence in re- lation to the appointment of the receiver was a copy of the order of appointment, and the giving of a bond in conformity thereto. The pendency of the action, in which the r«ceiver was appointed, was not proved, except by recital in the order, and the objection was made that a fact material to jurisdiction caanot, in a case like this, be proved by recital in an order or record, but must be proved aliunde. The Court lield, that it was sufficiently proven, and said : " Whether a recital of a jurisdictional fact in a record is or is not evidence of such fact, I am of the opinion that in the absence of any recital the law presumes that the court had jurisdiction to make the order in question. The court making it is a court of general j uris- diction, and it had by statute juris- diction M. appoint receivers in cases of insolvB^ corporations; and when an orders is made appoint- ing such officer, the presumption is that all things were done re- quired by the statute to be done in order to authorize it to make such order." « Krouberg c. Elder, 18 Kan. 150. In this case, the jurisdiction of the court to appoint a receiver was specially denied, and no testimony was offered as to its jurisdiction, and no record produced of its pro- ceedings, and the court was one whose jurisdiction was not deter- mined by the Constitution of the State (New Tork) in which it existed, and there was nothing to show whether it was a court of general or limited jurisdiction, or in what man- ner or by what process it claimed to have acquired jurisdiction to make the appointment. It was liddi that the action could not be main- tained, even though a statute pro- vided that the jurisdiction of the court was to be presumed until the contrary appaared, since this statute applied oisly to the courts of the state whose legislature enacted the statute. SEC. 3.] ORDEK APPOINTING THE RECEIVER. 7 corporation or parties to the suit in which the receiver was appointed.^ Sec. 3. Of the Order appointing the Receiver, generally, — The order appointing the receiver sometimes has its inception in the reference by the court to a master in chancery to report a proper person to be appointed a receiver of the property of a corporation and to approve of sureties to be given by such receiver. Under such a direction the appointment is not com- plete until it is confirmed by the special order of the court. When, however, the master is directed to appoint the receiver and to receive from him the requisite security, no confirmatory order on the part of the court is necessary.^ In and of itself the order of appointment does not give to the party applying therefor any advantage over other claim- ants ; nor can such order be held, in and of itself, to determine any right or affect the title of any party decisively. Its oper- ation is limited to a prospective result over rents and profits which may come to the possession of a receiver as a lien in favor of those interested, according to their rights and priori- ties in or to the principal subject out of which those rents and profits issue.' Specific forms for the order of appointment are given in the reports.* Sec. 4. Incidents and effects of the order appointing the receiver. (a.) Effects upon corporate existence. — The appointment of a receiver of a corporation does not, ipso facto, effect a dissolution of the corporation.^ A corporation may, by virtue of the proceedings against it, or by reason of its pecuniary condition, or by reason of the non-user or mis-user of its priv- ' Morgan «. Potter, 17 Hun (N. ^ Kincald «. Dwinelle, 59 N. T. T.), 403 ; Johnson d. Martin, 1 548 ; Pringle v. Woolworth, 90 N. Thomp. & Cook (N. Y.), 504. Y. 503 ; Pondville Co. ■». Qark, 35 ^ In the Matter of the Eagle Iron Conn. 97 ; Coburn •». Boston Papier Works, 8 Paige (N. T.), 385. Co., 10 Gray (Mass.), 243 ; Taylor v. 2 See authorities cited in Note 1, Columbian Ins. Co., 14 Allen (Mass.), page 2. 343 ; Davis «. Gray, 16 Wallace (U. * In the Matter of the Franklin S.), 203, 233 ; Moaeby v. Burrow, 52 Bank, 1 Paige (N. Y.), 85 ; Skiddy Tex. 896 ; Hunt ». Columbian Insur- V. Atlantic, M. & Q. E. E. Co., 3 ance Co., 55 Me. 390. Hughes (U. S. C. C). 334. 8 THE STATUS OF A EECEIVEE. [CHAP. I. ileges and franchises, cease to exist for all practical purposes, for all the purposes for which it was created or for which a corporation may exist ; but it cannot be held to be actually dissolved ' till the time of its existence has expired ; ^ or the charter creating it is annulled by act of the sovereign power ; ' or its dissolution is adjudged by a court of competent jurisdic- tion ;.* or by a surrender of its corporate rights, privileges and franchises, and the acceptance thereof by the sovereign power.' Corporate vitality, moreover, as indicated by the election of directors is not affected by the appointment of a receiver of the corporation, or by a sale of its property by the receiver under an order of the court.^ But it has been held, that by the appointment of a receiver a corporation is so far dissolved that thereafter the duty no longer devolves upon the trustees or directors to make the annual report required by statute J (6.) Upon corporate functions and liabilities. — If there is no statute regulating or prescribing his duties, a temporary or common law receiver is clothed with such powers and duties only as in the exercise of its equitable jurisdiction the court, in its order appointing him or subsequent orders, may see fit ' Kincaid ■». Dwinelle, 59 N, Y. appointing a permanent receiver 548 ; Miokles v. Rochester City Bank, thereof and restraining its officers 11 Paige (N. Y.), 118. and agents from all interference ^ People V. Walker, 17 N. Y. 503 ; with it. Subsequently the corpora- Sturges V. Vanderbilt, 73 N. Y. 384. tion transacted no business ; the 'Mumma c. The Potomac Co., 8 receiver took possession of the Peters (U. S.), 384 ; Read «. Frank- property and distributed the pro- fort Bank, 33 Me. 318. ceeds among creditors pursuant to * McCuUoch v. Norwood, 58 N. Y. orders of the court, the same not 563; Moseby «. Burrow, 53 Texas, being sutficient to pay all of the 396. corporation's debts. It was held ' Greely v. Smith, 8 Story (U. S.), that these facts created a surrender 657; Revere D. Boston Copper Co., by the corporation of its corporate 15 Pick. (Mass.), 851 ; Boston Glass rights, privileges and franchises, Manufactory ■». Langdon, 24 Pick. and its consequent dissolution. See (Mass.), 49. In HoUingshead i>. also Bradt v. Benedict, 17 N. T. Woodward, 107 N. Y. 96, more than 93. four years before the commence- ' State, ex rel., Attorney-General ment of the action a judgment was v. Merchant, 37 Ohio St. 351. rendered in a suit against the cor- ' Huguenot National Bank ®. Stud- poration sequestrating its property,' well, 74 N. Y. 621. SEC. 4.] ORDER APPOINTING THE RECEIVER. 9 to confer upon him.' It would seem that only to the extent that the functions of a corporation are transferred to its receiver, does "his appointment effect the corporation in the exercise of its corporate functions.^ There is, however, some diversity of opinion in the authorities upon this subject.' It may be said that if a receiver of an insolvent corporation not only represents the court appointing him, but also acts for the ■corporation itself,^ that upon his appointment the corporation must, of necessity, be divested of its rights, privileges and franchises, and that these must be transferred to the receiver for the reason that the same corporate franchises cannot be exercised, at one and the same time by the court, through its receiver, and also by the corporation; and that if the fran- chises of an insolvent corporation are invested with the char- acter of property, of which there seems to be no doubt,' the act of transferring the property and assets of the corporation ' Herring v. N. T. L. E. & W. R. R Co., 105 N. T. 340, 372 ; Verplanck. ■». Mercantile Ins. Co., 3 Paige (N. Y.), 438. » Cardot i>. Barney, 63 N. Y. 281 ; Kain V. Smith, 80 N. Y. 458, 469 ; In City of Rochester v. Bronson, 41 How. Pr. (N. Y.) 82, Mdlun, P. J., said : "A receiver, when appointed of the property of a corporation, displaces the directors or other body, that, by its charter, are au- thorized to manage its affairs, and under the direction of the court by whom he is appointed, has the sole control of its property and effects, and, when authorized so to do, the executive power to use its fran- chises." Ferry v. Bank of Central New York, 15 How. Pr. (N. Y.) 445. 'Coburn «. Boston Papier, etc., Company, 10 Gray (Mass.), 343, 245 ; Mann v. Pentz, 3 N. Y. 415, 419; Ohio, etc., R. R. v. Russell, 115 111. 53; State v. Merchant, 87 Ohio St. 251. * Attorney General v. Guardian Mutual Life Ins. Ck)., 77 N. Y. 872 ; Porter v. Williams, 9 N. Y. 142, 150; Bartlett «. Keim, 50 N. J. Law, 360. "People «. O'Brien, 111 N. Y. 1, 33, 40; Gue b. Tide Water Canal Co., 24 How. (U. S.), 357; Morgan v. Louisiana, 93 U. S. 317, 233; New Orleans, etc., B. B. Co. ». Delaware, 114 U. S. 501 ; E. B. F. R. R. Co. i>. Hubbard, 10 Allen (Mass.), 459, note. Chief Justice Taney, in Bank of Augusta V. Earle, 18 Peters (U. S.), 595, said, " Franchises are special privileges conferred by government upon individuals, and which do not belong to the citizens of the coun- try generally, of common right. It is essential to the character of a franchise that it should be a grant from the sovereign authority, and in this country no franchise can be held which is not derived from a, law of the State." In Paul «. Vir- ginia, 8 Wallace (U. S.), 181, Justice Field said, "a grant of corporate existence is a grant of special priv ileges to the corporators, enabling them to act for certain designated purposes as a single individual." 10 THE STATUS OF A EECEIVEE. [CHAP. I. to a receiver must also divest the corporation of its corporate franciiises, which are but a part of its property, and without which it cannot exercise any right or privilege as a body corporate.^ It is, however, unquestioned that the complete operation of this doctrine in no way conflicts or interferes with the proper fulfilment of corporate contractual obligations, due regard being had to the rights of creditors and stock- holders. Such obligations, created while the corporation existed, survive its dissolution, and will be enforced against and so far as may be satisfied out of any corporate property in existence at the time of corporate dissolution.^ In the case of the insolvency of a national bank no doubt is entertained that from the time a receiver is appointed under the National Bankrupt Act the directors cease to have any power, and that the control and supervision of its property and affairs are vested in the proper officers of the United States.' It is moreover, customary for a court of equity, in the order appointing the receiver, to explicitly restrain the corporation and its officers from exercising any of the privileges or fran- chises granted to the corporation until the further order of the court.'' But when the corporation itself has been guilty of some act or omission in relation to its contractual obligations, and the appointment of the receiver results therefrom, such an order does not release it from the performance of other obligar tions and it is no valid defense that it was prevented from so doing by operation of law. It is not the operation of the law which prevents performance, even though the law may have subsequently deprived the corporation of the means of per- formance. The non-performance had its source in corporate acts or omissions, and was proximately caused by them, and, therefore, non-performance must be deemed its own sin of ' Louisville, etc., B. Co. ■». Cauble, ^ Bank of Bethel 11. Pahquioque 46 Ind. 377 ; Central Trust Co. «. Bank, 14 Wallace (U. S.), 400. N. T. C. & N. R. Co., 110 N. Y. 250, ■> Matter of Franklin Bank, 1 Paige 357. (N.Y), 85 ; Morgan v. N.Y. & Albany = Broughton v. Pensacola, 93 U. S. R. R., 10 Paige (N. Y.), 290; People 366; Nelsoni). Hubbard, 96 Ala. 244; v. Globe Mutual Life Ins. Co., 91 Davis «. Ladoga Creamery Co., 138 N. Y. 174; State ■». Northern Cent. Ind. 222. Ry. Co.,18Md. 193. SEC. 4.j ORDER APPOINTING THE RECEIVER. 11 omission, wliicli it cannot plead as an excuse.^ Of course, where the initiation of the restraining order is due to some extraneous force, operating independently of the corporation, the rule is otherwise. In such ease, though the restraining order does not work a dissolution of contractual relations, it temporarily suspends their operation.^ After the corporation is deprived of the supervision and management of its property by order of the court, it is, of course, only just that it should not be held responsible for the acts or omissions of duty of the receiver, whose conduct it cannot supervise or regulate ; and the corporation is, therefore, not liable for any contracts made or acts done by the receiver, his agents or subordinates, in the management of the property of the corporation.' ' Klauber v. San Diego Street Car Co., 95 Cal. 353. In this case tlie defendant railroad company, for a good consideration, contracted with plaintiff that if it failed to operate its railroad, as provided iu the con- tract, it would forfeit a certain por- tion of the road (which had been extended by the aid of the plaintifis) and that it would convey Buch extension to the plaintifis. Both parties fulfilled their respective ob- ligations under the contract until the institution of an action in the Circuit Court of the United States brought for the purpose of fore- closing a mortgage upon the prop- erty of the company and for the appointment of a receiver, restrain- ing the corporation from interfer- ing with the possession or control of the corporate property or from conveying or otherwise disposing of it. Such receiver failed to oper- ate the road and this action was brought for a specific performance of the contract, and defended by the company on the ground that it had been prevented by operation of law from fulfilling its contracts, and that the conveyance sought would interfere with the possession of the receiver and of the Federal Court. The defenses were held untenable and specific performance was de- creed. See also Spader d. Mural Decoration Mfg. Co., 47 N. J. Eq. 18. 5 People v. Globe Mut. L. Ids. Co., 91 !N. T. 174. See this case annotat- ed infra. See index cases annotated. 'Metz B. Buffalo, Corry & P. R. Co., 58 N. T. 61 ; Meara's Admr. v. Holbrook, 20 Ohio St. 137. The receiver is not an agent or ser- vant of the railroad corporation and the latter is not liable to in- jured parties for any acts of mis- conduct or negligence of employees operating the road while it is under the control of the receiver. Metz «. Buffalo, Corry & P. E. Co., 58 N. Y 61 ; Ohio, etc., R. Co. ■». Davis, 23 Ind. 553; Bell v. Indianapolis, etc., R. Co., 53 Ind. 57 ; Turner ■». Hanni- bal & St. Joseph R. Co., 74 Mo. 603. Employees of the road cannot maintain an action against the cor- poration for personal injuries sus- tained by them while the road was in the hands of a receiver, Thur- man v. Cherokee R. Co., 56 Qa. 376. For injuries to passengers sus- 12 THE STATUS OF A RECEIVER. [chap. But this principle has been held subject to modification in the case of railroads, which by statute are made absolutely liable for the killing of stock where their roads are hot securely fenced. In such cases it has been held that the fact that the affairs of the company have passed into the hands of a receiver constitutes no defense to an action against the company upon such liability.' Neither does the appointment of a receiver tained by reason of the negligence of the employees of the road ■while it is under the control of the re- ceiver, the corporation is not re- sponsible. Godfrey «. Ohio and Miss. B. Co., 116 Ind. 30 ; Davis v. Duncan, 19 Fed. Rep. 477 ; Memphis & Little Rock R. Co. v. Stringfellow, 44 Ark. 322 ; Ryan ii. Hays, 62 Tex. 42 ; Kansas & G. S. L. R. Co. v. Dor- ough, 72 Texas, 108. The corporation cannot be prose- cuted for crimes or misdemeanors committed by the agents or servants of the receiver. State «. Wabash Ey. Co., 115 Ind. 466. ' Louisville, New Albany & Chi- cago R. Co. V. Cauble, 46 Ind 277. The statute under consideration in this case provided, " that the les- sees, assignees, receivers and other persons, running or controlling any railroad, in the corporate name of such company, shall be liable, jointly or severally with such com- pany, for stock killed or injured by the locomotive, cars or other car- riages of such company, to the ex- tent and according to the provisions of this act." The act further pro- vided in express terms that such action may be brought against the railroad, whether the same was be- ing run by the company, or by a lessee, assignee, receiver or other person in the name of the company. The receiver was appointed by the United States Circuit Court for the District of Indiana and the consti- tutionality of the act was denied, but the court held, that it was a proper exercise of the police power of the state and therefore valid. But this act, it has been held, so far as it undertakes to empower the state courts to control the earnings of railroads which have been placed in the care and management of re- ceivers, by orders of Federal Courts, is inoperative and void. The en- forcement of the judgment out of the earnings in the hands of the re- ceiver must be left to the Federal Courts as within their exclusive j urisdiction. Ohio & Miss. R. Co. v. Fitch, 20 Ind. 498. In Kansas a similar statute is in force, except that the act names assignees and lessees, but not re- ceivers. The court, in its construc- tion of the act, held, that the intent was to bring receivers within its provisions ; and sustained its valid- ity, Kansas Pacific R. Co. i). Wood, 24 Kan, 619. In Mississippi and Ohio R. Co. ii. Russell, 115 111. 52, the statute made it the duty of every railroad corpo- ration, within a certain time after its line is open for use, to erect and thereafter maintain fences on both sides of its road, suitable and suffi- cient to keep stock from getting on the track; and further provided that the owner or occupant of the laud adjoining the railroad may give notice to such corporation to build such fence, and upon its fail- ure so to build, such owner or occu. pant may build the fence, and be SEC. 4. J OEDER APPOINTING THE RECEIVER. 13 relieve the railroad company from the payment of a state tax upon its gross receipts during the receivership.^ pointed by the directors of the cor- poration. It is that and nothing more. As the corporation still ex- ists, it may still exercise, as before, its franchises, so it does not inter- fere with the rightful management of the road by the receiver, so far as his duties are defined by the court appointing him. No doubt it may do many corporate acts, and certainly it can do all things neces- sary to preserve its legal existence, notwithstanding the appointment of the receiver, to which the tempo- rary management of the road is given, otherwise the appointment of the receiver would be tanta- mount to a dissolution of the cor- poration. It is a principle well understood, that all railroads, or other corporations, transacting bus- iness in its nature public, are sub- ject to all reasonable police regula- tions deemed necessary for the com- mon welfare. The mere fact that its property may be temporarily in the hands of a receiver does not re- lieve a corporation from the opera- tion of such regulations, any more than a private citizen is released from the duty to observe the law because his property may be seques- tered by the order of a court for the benefit of his creditors. But the duty of the corporation in this re- gard need not be further discussed on principle. It is sufficient the statute has imposed the duty sought to be enforced against the corpora- tion and it must be obeyed. * * * The suggestion that at the time the notice was served and the fence was built, the railroad company could not have entered upon the entitled to double the value thereof from such corporation or party ac- tually occupying or using such rail- road. In an action against the cor- poration to recover such penalty the court, per ScoTT., J, said : " Counsel have cited a line of authorities that hold, while a railroad is in the hands of a receiver, under appointment of a court of competent jurisdiction, with full power to operate such road, to the exclusion of its em- ployees, the corporation will not be liable for injuries caused by the negligent conduct of the agents or servants of the receiver, over which it has and can have no control. Conceding the correctness, as is freely done, of the general d' trine on this subject, it has no applica- tion to the case being considered. The defendant in this case is not sued for an injury or damage done by the servants of the receiver operating the road. The action is against defendant for the non-per- formance of duty imposed by stat- ute against which it is apprehended no order of a court can avail to re- lieve it. It is a public regulation, to which the corporation is sub- jected by the sovereignty of the state, and it is not within the right ful jurisdiction of the court, either state or Federal, to arrest its opera- tion. Notwithstanding the appoint- ment of the receiver, the corpora- tion is clothed with its franchises, and such corporation still exists. The effect of the appointment of the receiver is simply to give him the temporary management of the railroad, under the direction of the court, instead of the manager ap- ' Philadelphia & Reading R. Co. «. Commonwealth, 104 Pa. St. I 14 THE STATUS OF A KECEIVEE. [CHAP. I. Indeed, it may be observed, generally, that statutes creating specific liabilities on the part of corporations are not directed, primarily, against the funds or property of a corporation but against its franchises. They do not in any sense affect the weU-established rule, that a railroad company, whose railroad and property are in the hands of a receiver appointed by the court and who is running its trains and operating the road under its orders, is not liable for torts committed by the em- ployees in charge of the property.^ The legislative intent is clearly indicated where all lessees or other persons owning or operating a railway are made liable as well as a corporation operating a railway. In such a case the corporation whose railway is being operated by a receiver duly authorized is not liable under the statute. The receiver, in possession and con- trol of the railway, is not the representative of the company but that of the court appointing him and acts under its orders solely. The corporation is not in possession and cannot control him or his employees in any way.^ In this connection, it is pertinent to consider the Act of Congress of March 3, 1887, chapter 373, section 2, touching the possession of a receiver appointed by a Federal Court. It provides that : " Whenever in any cause pending in any court of the United States there shall be a receiver or manager in possession of any property, such receiver or manager shall manage and operate such property according to the require- ments of valid laws of the state in which such property shall be situated in the same manner in which the owner or pos- sessor thereof would be bound to do if in possession thereof. Any receiver who shall willfully violate the provisions of this section shall be deemed guilty of a misdemeanor and shall, on conviction thereof, be punished by a fine not exceeding three thousand dollars or by imprisonment not exceeding one year, or by both said punishments in the discretion of the court." Under this enactment the receiver of a railroad was held right of -way to build the fence, son, or fact, or law, that it is hardly without a violation of the injunc- necessary to remark upon it." tiou contained in the order of the ' McNulta v. Bnsch, 134 111. 46 ; court appointing the receiver, has McNulta ». Lockridge, 137 111. 270. so little foundation, either in rea- »Brockert«. Cent. lowaR. K. Co., 82 la. 369. SEC. 4.J OKDEK APPOINTING THE KEOEIVER. 15 liable for damages resulting from the overflow of lands and the destruction of the crops thereon, caused by the failure of the railroad company (whose property was in the receiver's possession) to maintain the embankment and road-bed in con- dition to drain the surface water as the natural lay of the land required, a duty imposed by the statutes of the state.* The partial assumption and control by the court through its receiver of the affairs or funds of the corporation, is not a recognition of the due incorporation of the corporation, or an estoppel upon proceedings for a violation of the law of its existence.^ And in a case where a railroad was run on the joint account of a receiver of part of it and of the lessees of the remaining part, and the company allowed tickets to be issued in its own name, in the same form as it had done before the road had been leased and the receiver appointed, and the passenger, so far as appeared, did not know that the railroad company was not itself managing the road, it was held liable for injuries committed by a servant of the parties operating the road upon the person of the passenger, whom such servant improperly expelled from a car which such passenger had entered.' This case was followed by a later case, in which it was shown that, practically, the road was managed and con- trolled by the agents and employees of the company, and that the receiver's functions were restricted to the receipt of its share of the net earnings.* (c.) Upon the title to corporate property. — At common law, upon the dissolution or civil death of a corporation, aU the personal estate of the corporation vested in the people ; aU of its real estate which remained unsold reverted to the original grantors and their heirs; and all debts due to and from the corporation were extinguished.' This rule has become obso- ' Olark V. Dyer, 81 Tex. 339. * Pennsylvania R. Co. v. Jones, « People V. Rensselaer Ins. Co., 38 155 U. S. 350. Barb. (N. Y.) 333 ; Green d. Seymour, ' 2 Kent Com. 374, 375 ; Bingham 3 Sandf. Ch. (N. Y.), 385 ; Wheeler v. Weiderwax, 1 Comstock (N. Y,), ■». Clinton Canal Bank, Harr. Ch. 509; Folger v. Chase, 18 Pick. . Whittaker, 133 111. 81 ; Ballin v. Merchants Exchange Bank, 89 Wis. 378. 'La Grange Butter Tub Co. v. National Bank of Commerce, 133 Mo. 154. ^ Dann Mfg. Co. v. Parkhurst, 135 Ind. 317. It appeared in this case that judgment creditors of a cor- poration issued executions to the sheriff, and subsequently, eleven days later, in another action in which these judgment creditors were not made parties and were not heard, a receiver of the corporation was appointed, who took possession of all the personal property of the corporation, including that in dis- pute, and under an order of the court about one month later sold the property. About two weeks later the sheriff levied on the property in dispute and took it into his posses- sion. In this, an action of replevin, it was held that the liens obtained by the judgment creditors by the ex- ecutions could be enforced against the property, it having .passed from the custody of the law. A Federal Court will not put the receiver in possession of prop- erty levied upon and held by a sheriff under state process issued prior to his appointment in the territorial jurisdiction of the court, even though he was, previous to the levy under state process, ap- pointed receiver by a Federal Court of another circuit and the corpora- tion had assigned its property, in- cluding that in question, to him. Cole V. Oil Well Supply Co., 57 Fed. Rep. 534. And see Baldwin «. Cir- cuit Judge, 101 Mich. 433. If an insolvent corporation is not prohib- ited by statute from confessing judgment, a sale under the judg- ment will not be restrained by the court on the ground that a sale of the company's property can be more advantageously conducted in the interest of all the creditors by the receiver. Pairpont Mfg. Co. e. Phil. Optical & Watch Co., 161 Pa. St. 17. SEC. 4.] ORDER APPOINTING THE RECEIVER. 21 they should call ; but before all of the checks were called for, the corporation became insolvent and passed into the hands of a receiver, it was held that the setting apart of a surplus fund, and the drawing of checks upon such fund, is a specific appro- priation of so much of the fund to the payment of the divi- dends, and gives to the several stockholders an equitable lien thereon fro tanto, which can not be swept away by the trans- fer of the property of the corporation to the receiver.' And when the fund so set apart for the stockholders by the corpo- ration is subsequently withdrawn by it, and thereafter its affairs passes into the hands of a receiver who assumes control of such fund, the equitable lien, which the stockholders ac- quired upon such fund to the extent of the amount to which they are respectively entitled, foUows the fund into the hands of the receiver.^ But if the corporation merely declares divi- dends without appropriating any specific fund for the pay- ment thereof, the unpaid dividends are, after the appointment of a receiver, merely debts against the corporation in favor of the stockholders, who then come in ratably with other creditors in case of insolvency.' The general rule is, that to constitute an assignment or equitable lien of this character, the check or order must specify the particular fund upon which it is drawn and which has been set apart and appropriated for the pay- ment of it.^ The property of a foreign corporation, actually within for- eign territory, is liable to attachment in a suit brought by a creditor therein, although a receiver of the corporation has been appointed in another state. The title acquired by a receiver, subsequently appointed in such foreign state, is sub- ject to any lien that may have been acquired by the attaching creditor.'' ' LeEoy «. Globe Insurance Co., 3 N. Y. 269 ; De Peyster v. American Edwards Ch. (N. Y,), 657. Fire Ins. Co., 6 Paige (N. Y.), 486 ; = Matter of LaBlanc, 14 Hun, 8 ; Thompson's Appeal, 23 Pa. 16 ; Lett affirmed, 75 N. Y. 598. v. Morris, 4 Simons (Eng.), 607 ; 'Lowne«, American Fire Ins. Co., McEwen o. Johnson, 7 Cal, 358; 6 Paige (N. Y.), 483 ; Scott v. Eagle Wiggins v. McDonald, 18 Cal. 126. Fire Ins. Co., 7 id. 198. ' Dunlop «. Paterson Fire Insur- ■" Attorney-General v. Continental ance Co., 12 Hun, 627, affirmed 74 Life Ins. Co., 71 N. Y 325; People N. Y. 145. 13. Merchants & Mecnanics' Bank, 78 22 THE STATUS OF A KECEIVEE. [CHAP. I. And a creditor of an insolvent corporation will not be de- prived of a lien obtained by him upon its assets by an attach- ment, because at the time the writ was issued he knew that the corporation was insolvent.^ Property of a corporation in possession of a licensee at the time of the appointment of a receiver passes to the receiver subject to the rights of the licensee.^ (e.) Upon pending suits. — The mere appointment of a receiver does not abate suits then pending in the name of the corporation or one of its officers against other parties; the suits may be continued in the name of the original party for the benefit of the receiver/ or the receiver may apply to the court and be made a party/ But the receiver need not apply to the court for permission to continue the prosecution of the suit. It is his duty to continue its prosecution in this manner in the absence of authority from the court to prosecute it in his name as receiver.^ This rule applies also to cases where the corporation expires by limitation of its charter or ceases to exist for any other cause.^ Neither do suits, pending against the corporation, abate by reason of the receiver's appointment, but the latter may be made a party and continue their defense,^ and so long as the corporation has not been dissolved and no injunction or order of a court of competent jurisdiction exists, restraining the bringing of suits against the corporation, it may still be sued and defended in its name.* ' White, etc., Mfg. Co. v. Pettes People i}. Barnett, 91 111. 422; Tracy Importing Co., 30 Fed. Kep. 861 v. First Nat. Bank, 37 N. T. 533; ' Comer v. Felton, 61 Fed. Rep.731. Knauer v. Globe Mut. Life Ins. Co., 2 Phoenix Warehouse Company v. 46 N. T. Superior Court, 370; South Badger, 67 N. Y. 394 ; Glenville Carolina R. Co. ■». People's Savings Woolen Co. e. Ripley, 43 id. 306. Institution, 64 Ga. 18 ; Second Nat. < Talmage v. Pell, 9 Paige (N. Y.), Bank of Paterson v. New York Silk 410 ; People ex rel. Illinois Midland Manf. Co., 11 Fed. Rep. 532 ; Kitt- R. Co. «. Barnett. 91 111. 423. redge v. Osgood, 161 Mass. 384. ' Hasselman v. Japanese Develop- * Pringle v. Woodward, 90 N. Y. ment Co., 3 Ind. App. 180; United 503; Bedell v. North American Life States Vinegar Co. v. Spamer, 143 Ins. Co., 7 Daly (N. Y.), 273 ; Revere N.Y. 676. D. Boston Copper Co., 15 Pick. « Houston ». Redwin, 85 Ga. 180. (Mass.) 351 ; Boston Glass Manufac- ' Mercantile Ins. Co. v. Jaynes, 87 tory v. Langdon, 34 Pick. (Mass.), 111. 199 ; Willink v. Morris Canal & 49 ; Life Association of Am.D.Goode, Banking Co., 3 Green Ch. (N. J.) 377 ; 70 Tex. 90 ; Ohio & Miss. R. Co. «. SEC. 4.] OEDER APPOINTING THE RECEIVER. 23 But it is to be observed that a judgment recovered in sucb case does not constitute a lien upon the property of the corporation, entitling the judgment creditor to a preference in payment over other creditors of the corporation ; it simply adjudicates the amount due from the corporation.^ It has, however, been held, that when the only object of a decree appointing receivers and awarding an injunction, so far as disclosed upon its face, was to provide for the safe keeping of the effects of the cor- NicklesB. 71 Ind. 271; Bank of Bethel v. Pahquioque Bk., 14 Wal- lace (U. S.), 383 ; S. C. 36 Conn. 335 ; Allen D. Central R. Co., 43 Iowa, 683; Wyatt «. Ohio, etc., R. Co., 10 Brad. (111.), 289 ; St. Joseph, etc., R. Co. i>. Smith, 19 Kan. 235 ; The rule in Maine and Ohio is changed by statute. Leathers v. Shipbuilders Bank, 40 Me. 386; Stetson «. City Bank of New Orleans, 2 Ohio St. 167. In Kansas it has been decided that an action is properly brought in the name of a corporation, in a foreign jurisdiction after the ap- pointment of a receiver of its prop- erty and assets, to recover upon a promissory note made payable to the corporation, and this even though there is a statute in force in the jurisdiction where the action is brought, which prevents a corpora- tion from suing, or maintaining any action in its name, after the receiver's appointment. Winans «. Manufacturing Co., 48 Kan. 777. In New York it has been held, that the entry of a judgment of seques- tration against a corporation, ob- tained under the statutes, and the appointment of a permanent re- ceiver, do not deprive it of the right to take and prosecute appeals from judgments recovered against it. Auburn Button Co. v. Sylvester, 68 Hun (N. Y.), 401. And in proceed- ings for the voluntary dissolution of a, corporation, the appointment of a temporary receiver therein, does not disable the corporation from moving to vacate an attach- ment against its property. Wav- erly Co. d. Worthington Co., 4 Misc. Rep. (N. Y.), 447. But this does not deprive the receiver of the right to take an appeal from an order or judgment rendered against the corporation. People v. Troy Steel & Iron Co., 83 Hun (N. Y.), 303. ' Attorney-General v. Continental Life Ins. Co., 28 Hun, 360 ; affirmed, 93 N. Y. 630. But see a contrary dictum in ex parte Brown and wife, 18 S. C. 91. When a bank owning real estate passed into the hands of a receiver, and a county treasurer who had deposited county funds in the bank, and had taken a bond with sureties to secure the deposit, subsequently procured a judgment against the bank for the deposit, it was held, that such judgment was not a lien upon the real estate of the bank, so as to entitle the sure- ties on the bond to have such real estate exhausted in payment of the judgment before they are made lia- ble on execution ; but that such real estate was an asset in the hands of the receiver for the bene- fit of all depositors ratably. Rich- ards v The Osceola Bank, 79 la. 707. And see Pine Lake Iron Co. v. La Payette Car Works, 53 Fed. Rep. 853; Clyde v. Richmond & D. R. Co., 56 Fed. Rep. 539. 24 THE STATUS OF A RECEIVER. [CHAP. I. poration and to prevent any fraudulent transfer thereof ; and where such decree did not state that the ulterior intent of the court was to make an equitable distribution of the funds, and contained no direction to the receivers to give notice to the creditors to jBle their claims ; this decree imposed no restric- tions upon creditors in prosecuting their claims, either at law or in equity, and a judgment, subsequently recovered by a creditor, is as much a lien on the real estate of the corpora- tion, as if the appointment of receivers had never been made. But this lien attaches only to such interest in the real estate as the corporation had therein at the time the receivers were appointed, and cannot be extended to the increased value of the property, resulting from payments of purchase money made thereon by the receivers.^ This decision is a marked departure from the established principles governing the laws of receivership, and while it cannot be sustained upon author- ity, it is not without foundation in reason. The recovery of a judgment against the corporation is of little utility — except to establish mere corporate liability — when it is deprived of its force and effect as a lien upon the real estate of the corpora- tion which the court has assumed possession of, not for the benefit of creditors, but for other parties primarily interested in the property, who have asked the court to assume control. It is well settled, however, that when the dissolution of a corporation is duly adjudged, or the time of its existence has expired, or the charter of a corporation is annulled by act of the legislature, or its corporate rights, privileges and franchises are surrendered and a receiver appointed at one and the same time — unless some statutory remedy exists for their revival — all suits pending for or against a corporation absolutely abate, and all further proceedings, for or against it, are void ; ^ and ' EUicott 11. United States lusur- N. Y. 663 ; HoUingshead v. Wood- anoe Co., 7 Gill. (Md.), 307 ; and see ward, 107 N. T. 96, 101 ; Mumma v. Jackson v. Lahee, 114 111. 287. Potomac Co., 8 Pet. (U. S.), 286. In 2 Greely v. Smith, 3 Story (U. S.), Sturges ii. Vanderbilt, 73 N. Y. 384, 6.'57; Merrill v. Suffolk Bank, 81 the action was brouglit to compel Me. 17, 57; Ingraham v. Terry, 11 the defendants to apply certain Humph. (Tenn.), 572 ; Saltmarsh v. moneys received by them as certain Planters Bk., 17 Ala. 761 ; People «. stockholders of the New Jersey Walker, 17 N. Y. 502 ; Merchants Steam Navigation Company, out of Loan & Trust Co. ii. Clair, 107 its assets, to the payment of a judg- SEC. 4.] ORDER APPOINTING THE RECEIVER. 25 the reason of this *rule is analogous to the case of a private person, dying pendente lite, in which case the suit is abated at law unless it can be revived, by virtue of some statute, in the personal representatives of the deceased party. The corpora- tion dies or becomes extinct by operation of law.' And a judgment recovered, after the dissolution of a corporation and the appointment of a receiver, in an action pending in another ment recovered, by the plaintiffs intestate, after the corporation de- fendant had been dissolved hj the expiration of the term of its charter, while the action against it was pend- ing ; ii was Tield that the judgment, upon which the action was brought, was void and the action could not be maintained. It was also claimed in this case by the plaintiff, that the corporation being organized under a statute of the State of New Jersey, which declared that upon the dis- solution of the corporation, the di- rectors and managers are constituted trustees of such corporation, that this language implied that the cor- poration still existed as cestui que trust, and was capable of defending in its corporate name ; but this claim was declared untenable by the court. May 13. State Bank of N. C. , 2 Rob. (Va.), 56 ; Farmers Bank v. Little, 7 Watts & S. (Pa.), 207; E. Remington & Sons v. Samana Bay Co., 140 Mass. 494; Thornton v. Marginal Freight By., 123 Mass. 33. The Code (sec. 1690) of Alabama provides that " All corporations whose powers expire by limitation, or which are dissolved by forfeiture or any other cause, exist as bodies corporate for the term of five years after such dissolution, for the pur- pose of prosecuting or defending suits, settling their business, dis- posing of their property, and divid- ing their capital stock, but not for the purpose of continuing their business." This provision, it has been held, does not authorize suits against corporations which have been dissolved at the instance of stockholders, pursuant to the pro- visions of the Alabama Code, sec. 1683, et seq., providing for the vol- untary dissolution of private corpo- rations, and for the administration of their assets by a receiver under the direction of the chancellor, and does not impair the obligation of contracts. Nelson 0. Hubbard ; Adams Cotton Mills ». Dimmlck, 96 Ala. 288. In Virginia, by force of a statute (Code 1887, sec, 1103), a corporation, though it has been dissolved or ter- minated by limitation, may be sued to enforce its liabilities, and its stockholders are not necessary par- ties to such suit in order to deter- mine their liability for installments due upon unpaid subscriptions to its capital stock. Hamilton v. Glenn, 85 Va. 901. And in New York, if the cause of action sur- vives the dissolution, the action may, with leave of the court, be continued against the receiver. Code Civil Pro., sees. 755, 756 ; Peo- ple «. Universal Life Ins. Co., 17 N. r. Week. Dig. 563; People v. Troy Steel & Iron Co., 83 Hun (N, T.), 303. 1 Greely v. Smith, 3 Story (U. S.), 657 ; National Bank «. Colby, 21 Wall. (U. S.) 609. 26 THE STATUS OF A RECEIVER. [chap. I. state, without the receiver being made a party, is absolutely void against the receiver of such corporation in the state where it was dissolved.^ After corporate dissolution, there exists no corporate vital- ity. The fact that the receiver of a dissolved corporation successfully prosecutes under an order from the court, an appeal from a former judgment recovered against the corporar tion, and succeeds in obtaining a reversal of the judgment, does not make him a party to the action, nor make a judgment, rendered subsequently in the same action against the defunct corporation, of binding force against him or against the prop- erty in his hands as receiver. The dissolution of the corporar tion ipso facto abates the action against it. A judgment rendered against it is, therefore, a nullity. The receiver can- not, without authority from the court appointing him, bind, by any action of his, the assets of the corporation, after its dissolution.^ ' In McCulloch i). Norwood, 57 N. Y. 562, the action -was brought to re- cover from the receiver the amount of a judgment rendered in favor of the plaintiff in the Court of Com- mon Pleas in the State of Ohio, against the Lorillard Fire Insurance Company, after the dissolution of the corporation and the appointment of a receiver, by a judgment duly rendered by the Supreme Court of New York, and without the receiver having been made a party. The Court observed that at common law it was very clear that such a judg- ment would be of no force. But it was contended by the plaintifE that the action in Ohio was not abated by the dissolution of the corporation, under section 131 of the Code of Procedure of New York, which provided that " no action shall abate, by the death, marriage, or other disability of the party, or the transfer of any interest therein, if the cause of action survive or con- tinue. In case of death, marriage or disability of a party, the court, on motion at any time within one year thereafter, or afterward on a sup- plemental complaint, may allow the action to be continued against his representative or successor in inter- est. In case of any other transfer of interest the action shall be con- tinued in the name of the original party, or the court may allow the person to whom the transfer is made to be substituted in the action." The Court met this contention by stating that ' ' this section, it is very clear, if applicable, by analogy to an action against a corporation, does not sanc- tion the idea that the action can be continued against the corporation after its death, but requires that be- fore the action can proceed the rep- resentative or successor in interest should be brought in." ° People ■», Knickerbocker Life Ins. Co., 106 N. Y. 619. In this action a j udgment was entered dis- solving the defendant corporation and appointing a receiver. Before SEC. 4.] OEDEE APPOINTING THE EECEIVER. 27 A dissolution of a corporation, however, in consequence o£ insolvency or non-user or mis-user of the corporate franchise or some other cause of forfeiture, until it has been judicially declared so, is not such a dissolution as to make the corpora- tion dead or extinct ; it is then a quasi dissolution ; the corpo- ration continues in esse until it is formally adjudged to have been dissolved ; it may still sue and be sued in its name, not- withstanding the appointment of a receiver, and a judgment so obtained is valid and binding both against the corporation and its receiver.' Where a court of general jurisdiction exceeds its inherent powers and those given by statute, and dissolves a corporation, a court of foreign jurisdiction wiU not recognize and give 548; Bank of Niagara ■». Johnson, 8 Wend. (N. Y.), 645; Mickley v. Rochester City Bank, 11 Paige (N. T.), 118. In Pringle «. Woodworth, 90 N. T. 502, the action was brought to recover against the defendant as the receiver of the Homestead Fire Insurance Company upon a judg- ment rendered by a court of Penn- sylvania, in plaintiff's favor and against that company, in an action commenced after the appointment of the defendant as receiver by, it seems, a court of New York. It did not appear, and it was not claimed, that the corporation had been dis- solved. It was lield that plaintiff was not debarred by the appoint- ment of the receiver from maintain- ing and prosecuting to judgment, the action in Pennsylvania, against the corporation; and that such judg- ment conclusively established, as against the defendant receiver and the other creditors of the corpora- tion, the validity and amount of plaintiff's claim. Revere «. Boston Copper Co., 15 Pick. (Mass.), 351 ; Boston Glass Manufactory v. Lang- don, 24 Pick. (Mass.), 49; Hunt ». Columbian Ins. Co., 55 Me. 290. the dissolution a judgment had been recovered against the oorpora- in the United States Circuit Court for the Western District of Tennes- see upon a policy of insurance. The company had taken the case to the United States Supreme Court for review, and the receiver was directed by the court in this case to employ counsel to argue that cause in the Federal Supreme Court. The cause was thus argued and the judg- ment was reversed and a new trial granted. A judgment was then taken by default in that action against the dissolved corporation, and this judgment was presented in this case as the basis of a claim to a share in the funds in the hands of the receiver, it being claimed that the receiver was' concluded thereby. The court rejected the claim as invalid and refused to allow it to share in the assets in the hands of the receiver. The case was then taken to the United States Supreme Court on writ of error and the judgment of the New York Court of Appeals afiBrmed in Pendleton «. Russell, 144 U S. 640_ 'Kincaid v. Dwinelle, 59 N. Y." ■28 THE STATUS OF A RECEIVER. [CHAP. 1. validity to such decree of dissolution, when by so doing the rio-hts of its own citizens will be prejudiced.^ In Wisconsin, pursuant to a statute, any court having juris- diction may, by injunction, restrain an insolvent corporation and its officers from exercising any of its corporate rights, privileges or franchises, and from collecting or receiving any 1 In Folger i). Columbian Ins. Co., 99 Mass. 367, the plaiutifE, a, citizen o£ Massacliusetts, procured trustee process against the defendant, in- corporated under the laws of New York, and found within the State of Massachusetts funds belonging to the corporation. Before the issuing of the writ the defendant corpora- tion, upon the application of one of its stockholders, was dissolved and receivers appointed by the Supreme Court of New York. The receivers claimed that by virtue of their ap- pointment and the dissolution of the corporation they became entitled to the funds in question. The court Gray, Judge, said: " The Supreme Court of New York has indeed gen- eral jurisdiction in law and equity over persons and corporations. But general jurisdiction of suits against corporations no more implies a power to destroy a corporation at the suit of an individual, than juris- diction of private suits against in- dividuals authorizes the court to entertain a prosecution for crime, to pass sentence of death, and to issue a warrant for execution. The only modes of dissolving a corporation, known to the common law, were, by the death of all its members ; by act of the legislature ; by a surren- der of the charter, accepted by the government ; or by forfeiture of the franchise, which could only take effect upon a judgment of a compe- tent tribunal on a proceeding in behalf of the state ; and neither a court of law nor a court of equity had j urisdiotion to decree a forfeit- ure of the charter or dissolution of the corporation at the suit of an in- dividual. Boston Glass Manufac- turing Company v. Langdon, 24 Pick. (Mass.), 52, 53 ; 2 Kent Com. (6th ed.), 305, 313, 314." Then the Court examined the statutes (E. S. 5th ed., part 3, chap. 8, title 4) of New York, which, it was claimed, gave the court jurisdiction to render the decree of dissolution; and said further: "It is not alleged or stated in the record produced in this case that the Columbian Insurance Company had remained insolvent or suspended its business for a year, as required to maintain an application under the forty-sixth section of the statute ; but the suit is based upon the forty-seventh section, alleging a violation of its charter in declar- ing and paying a dividend out of its capital stock instead of out of its surplus profits. That part of the decree, therefore, which declares the corporation to be dissolved, was apparently in excess of the juris- diction of the court, and entitled to no faith and credit as a judical pro- ceeding. The corporation remained in existence, liable to suit and to attachment of its property or debts in this commonwealth ; and the right of the attaching creditor, be- ing one of our own citizens, must prevail against the claim of the re- ceivers appointed in New York." See also Hibernia National Bank V. Lacombe, 84 N. Y. pages 384, 385. SEC. 4.] ORDER APPOINTING THE RECEIVER. 29 debts or demands, until the court shall otherwise order.' In construing this provision, it has been held that an injunction order so granted by a court prohibits not only the institution of an action in the name of the corporation for any purpose, but also the further prosecution of an action begun before the injunction issued, notwithstanding a receiver is appointed and he seeks to prosecute the action for his benefit.^ This power of restraint by injunction has very generally been exercised by courts of equity upon the appointment of a receiver, and its effect has heretofore not been held to deprive the receiver of the right to institute actions in the name of the corpora^ tion, or continue the prosecution of such actions that may have been begun before his appointment,^ unless, indeed, the cor- poration is formally adjudged to have been dissolved and the right of the receiver to institute or continue the prosecution of suits in its name is not preserved by statute. The decision in the Wisconsin case is distinctly placed upon the ground that the prosecution of an action comes within the prohibition of the injunction ; that the corporation was not thereby dissolved was conceded. This decision then repudiates the weU-estab- lished doctrine that a corporate franchise is property which, upon the appointment of a receiver, vests in him for the bene- fit of creditors. The danger of a departure from a well- established rule of equity is strikingly illustrated in this case. It was an action of libel, brought by the corporation before the injunction order issued and the receiver's appointment. It was alleged that the publication of the libel destroyed the- reputation of the plaintiff as a solvent insurance company, and forced it into insolvency. The right of action, it was said, being solely an action for a personal injury, did not possess the qualities of survivorship or assignability, and therefore did ' Statutes of Wisconsin, § 3318. gun an action in the name of the = Milwaukee Mutual Fire Ins. Co. corporation against one of its direc- V. The Sentinel Co., 81 Wis. 207. tors to recover a penalty for the 3 Bank of Niagara v. Johnson, 8 violation of a statutory duty, and Wend. (N. T.), 645. In this case it was held that such action could the receivers of an insolvent bank be maintained, but that it should (which, upon the appointment of distinctly appear that the suit was such receivers, was restrained by prosecuted by the direction of the Injunction from exercising any of receivers. its privileges as a corporation) be- 30 THE STATUS OF A RECEIVER. [CHAP. I. not pass to the receiver of the property and effects of the cor- poration. The receiver could, therefore, neither continue the suit in the name of the corporation though concededly the corporation continued in esse, nor institute one in his own name to recover damages from the wrong-doer, whose acts caused the loss to the injury of creditors who were represented by the receiver. The conclusions of this decision are not be- lieved to be in accord with established principles of law. That such a right of action does not survive the death of a corporation, and has not the quality of assignability, is con- ceded. But the prosecution of a suit by the receiver in the name of the corporation is not dependent upon the question whether the right of action can be assigned. He succeeds to the rights of the corporation ; he is its representative in that respect. And while the injunction restrains it, the corporate entity, from exercising its rights, privileges and franchises, the order does not prohibit the receiver from exercising them for it and in its name. On the contrary, the receiver takes the place of the board of directors and asserts the corporate rights in their stead. (yO When the Receiver's appointment may not he at- tacked collaterally. — The appointment of a receiver, by a court possessing general jurisdiction in law and equity, can- not be assailed collaterally, in any action or proceeding, merely because such appointment was inequitable or errone- ous ; and so long as the jurisdiction, the inherent power — not the exercise of that power — but the power of the court itself to make it, is not questioned, the appointment is conclu- sive upon all parties until it is adjudged to be vacated in a direct proceeding instituted for that purpose by some party rightfully challenging it.^ The presumption is that it was regularly made, and that the court had jurisdiction to make it.^ ' Bangs «. Duckenfield, 18 N. Y. tral R. Co., 42 Iowa, 683 ; Curtis v. 59a ; Palmer v. Clark, 4 Abb. N. C. Mcllhenny, 5 Jones Eq. (N. C), 290 ; . Wilson, 52 Kan. 109; Greeley «. Provident Savings Bank, 103 Mo. 212; State ex rel. Klotz v. Ross, 118 Mo. 23. The appointment of a receiver in an action brought by a creditor against a corporation to sequestrate 32 THE STATUS OF A RECEIVER. [CHAP. I. It follows, therefore, that if a person deals with a receiver in his official capacity, and makes purchases at a sale by him in such capacity, and receives and retains the goods so purchased, it is too late when the receiver seeks to make him comply with the terms of the sale to question the fact that the receiver was duly appointed and qualified.' If a judge, holding court and appointing a receiver, is dis- qualified by reason of relationship to the parties to an action, this has not the effect of making the appointment void. It is voidable only ^ (gf.) When the Receiver's appointment may he attacked collaterally. — The presumption that a court, possessing gen- eral jurisdiction, has jurisdiction to appoint a receiver of a corporation, is not conclusive. It is always competent in any suit or proceeding, or in whatever court the appointment comes in question, to show that the court had not inherent jurisdic- tion or power conferred by statute to make it.^ But this inherent jurisdiction in the court must not be con- fused with the mere exercise of a jurisdiction in the court. The question is properly one of jurisdiction only when a judg- ment asserting the power of the court would be void — not merely voidable^ — -and assailable collaterally in every other court.* As, for instance, where a judge of a Circuit Court in Illinois, without power to do so in vacation, appoints a re- ceiver ; ° or an appointment is made on an ex parte application, without showing the necessity for such summary proceedings.^ So an appointment made by a court upon the application of the corporation itself and of its property is a nullity and may its property cannot be attacked col- ■». O'Briau, 111 N. T. 1 ; Thomhill laterally, upon the ground that the v. The Bank, 1 Woods (U. S.), 1 r court, rendering the judgment re- Hunt «. Columbian Insurance Co., 55 covered against the corporation and Maine, 391 ; Barbour v. Nat. Ex. upon which sequestration proceed- Bank, 45 Ohio St. 133 ; Colwell v. ings were begun, had no jurisdic- Garfield National Bank, 119 N. T. tion. Jones i). Blun, 145 N. T. 338. 408. ■ Hanke v. Blattner, 34 111. App. * Bangs v. Duckinfield, 18 N. T. Rep. 394. 593, 595, 596 ; Ex parte Cohen & ' State ex rel Klotz «. Ross, 118 Jones, Harr. Ch. (Mich.), 494. Mo. 23. "^Hammock v. Loan & Trust Co., ' Folger V. Columbian Insurance 105 U. S. 77. Company, 99 Mass. 267, 273 ; People • Turgeau v. Brady, 24 La. An. 348. SEC. 5.] THE STATUS OF A KECEIVEK. 33 be attacked collaterally, unless the court is expressly empow- ered by statute to make tbe appointment upon such applica- tion, for as a court of equity it has no inherent power so to do.i Sec. 5. The Status of a Receiver. (a.) Within the jurisdiction of the Court appointing him. — The status of a receiver, as such, extends only to the boundaries of the territorial jurisdiction of the court appoint- ing him, and the definition of his office already given demark- ates his status and the boundaries of his official life.^ This rule just stated applies to the case of receivers ap- pointed by Circuit Courts of the United States, and it is now well settled that the official capacity of such receivers is lim- ited to the districts of the courts appointing them.' " State ex rel. ■». Ross, 123 Mo. 435 ; Whitney v. Bank, 71 Miss. 1009. 2 Booth v. Clark, 17 Howard (U. S.) 322. In Kain v. Smith, 80 N. Y. 458, defendant Smith and others who had been appointed receivers of the V. C. R. R. Co., a Vermont corpora- tion, by the Court of Chancery of that state, with the consent and authority of said court, together with the Vermont and Canada R. R. Co., leased of the O. & L. C. R. Co., a New York corporation, its road, rolling stock, etc., for a term of years ; the lessees covenanting to " assume all obligations " of the lessors, " either by statute or at common law, as common carriers, warehousemen or otherwise." Un- der this lease the lessees took pos- session of and operated said road. Plaintiff was in the employ of said lessees upon the road, and while engaged in loading a car was in- jured by the fall of a jigger belong- ing to and furnished by them for such use, but which was insufficient for that purpose; Smith was not present at the time and no personal negligence on his part was claimed ; held, that an action to recover damages was maintainable against Smith alone; that the fact of his being a receiver did not affect his liability, as he was not in possession of the road so leased as an officer of any court or by its authority, but by virtue of a contract simply per- mitted by the court; that, outside of the State of Vermont,- the court had no jurisdiction, and Smith could not act virtute officii in New York State; his liability was that of an individual, and he could not be shielded by a description of his office, or a declaration that he was acting in an official character. Simp- kins 1). Smith and Parmalee Gold Co., 50 How. Pr. (N. Y.), 56; Hi hernia Bank i). Mechanics', etc.. Bank, 21 Hun (N. Y.), 166, 177 ; S. C. 84 N. Y. 867; City Ins. Co. ■». Commercial Bank, 68 111. 851 ; Farmers & Mer- chants' Insurance Co. ■». Needles, 52 Mo. 17 ; Bartlett v. Wilbur, 53 Md. 485 ; Graydon v. Church, 7 Mich. 36 ; Warren ■». Union Nat. Bank, 7 Phila. 156 ; Merchants' Bank «. McLeod, 38 Ohio St., 174; Florida v. Jackson- ville, etc., R. Co., 15 Florida, 201. 'In Brigham v. Luddington, 12, Blatchford (U. S.), 337, the com- 34 THE STATUS OF A KECEIVER. [chap. I. (6.) Outside of the jurisdiction of the Court appointing Jiim. — The status occupied by the receiver outside of the juris- diction of the court appointing him is entirely dependent upon the principle of comity — a practice largely prevalent in the dif- ferent states of the United States and other nations, whereby a receiver appointed by a foreign tribunal is permitted to act and sue in their courts in his official capacity.^ plainant was appointed receiver of the Milwaukee & Superior Railroad Company, by the Circuit Court of the United States for the Eastern District of Wisconsin, and brought this action in the Circuit Court of the United States for the Southern District of New York, to compel the collection of a certain decree or judgment and its application to wards the satisfaction of a debt and the delivery to complainant of cer- tain farm mortgages. It was AeM that the complainant could not sue In that court. Woodruff, J., said, " The Circuit Court for this District and the Circuit Court for the East- ern District of Wisconsin each ex- ercises a local and limited jurisdic- tion, and I am not able to withdraw this case from the operation of the decision of the Supreme Court " in Booth ■». Clark, 17 How. (U. S.), 333. In that case (Booth v. Clark) the complaihant was appointed receiver, by the Chancellor of the Supreme Court of New York, of the assets of the defendant and brought this action, upon the authority of the court appointing him, to recover a part of a fund, in the hands of the Federal Court, belonging to the defendant. Other creditors within the jurisdiction of the Federal Court contested his right to do so. It was hdd that he could not be recognized as such receiver and therefore could not maintain the action. Watnb, J., said, " 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 ex- tent, to make such comity interna- tional or a part of the laws of nations. " 1 Hoyt t>. Thompson, 5 N. Y. 320; Taylor b. Columbian Insurance Co., 14 Allen (Mass.), 353 ; Lycoming Fire Ins. Co. ■». Wright, 55 Vt. 566; Bidlack ®. Mason, 26 N. J. Eq. 230; Hunt 11. Columbian Ins. Co. 55 Me. 290 ; McAlpin ». Jones, 10 La. An. 552 ; Merchants' Bank ■». McLeod, 38 Ohio St. 174 ; Metzner «. Bauer, 98 Ind. 435 ; Bagby «. A. M. & 0. E. Co., 86 Pa. St. 291 ; Pond «. Cooke, 45 Conn. 126 ; Cagill b. Wooldridge, 8 Baxt. (Tenu.), 680; Wilmer «. At- lanta, etc., R. R. Co., 3 Woods (U. S. C. C), 409, 419 ; Taylor i>. Life Asao- ciation of America, 3 Fed. Rep. 465. In Bank of Augusta v. Earle, 13 Peters (U. S.), 519, 589, Chief Justice Tankt judicially interprets the phrase " comity of nations." He says, " It ia needless to enumerate here the instances in which, by the general practice of civilized coun- tries, the laws of the one will, by the comity of nations, be recognized and executed in another, where the right of individuals are concerned. The cases of contracts made in a foreign country are familiar exam- SEC. 5.] THE STATUS OF A KECEIVER. 35 This important principle, however, cannot be successfully evoked when the interests of parties dwelling within the terri- torial jurisdiction of the court asked to grant such permission may be prejudiced, their remedies impaired or their securities diminished.' The rule as to the extent to which the practice alluded to should be followed is not quite uniform in different states of the Union. Thus it has been held in Pennsylvania that for- eign creditors have no right, after the appointment of a pies ; and courts of j ustice have always expounded and executed them according to the laws of the place in which they were made, provided that law was not repug- nant to the laws or policy of their own country. The comity thus ex- tended to other nations is no im' peachment of sovereignty. It is the voluntary act of the nation by which it is offered; and is inad- missible when contrary to its policy or prejudicial to its interests. But it contributes so largely to promote justice between individuals, and to produce a friendly intercourse be- tween the sovereignties to which they belong, that courts of justice have continually acted upon it, as a part of the voluntary law of nations." Judge Story, in his " Conflict of Laws," 36, 37, observes that : " In the silence of any positive rule, affirming, or denying, or restraining the operation of foreign laws, courts of justice presume the tacit adop- tion of them by their own govern- ment, unless they are repugnant to its policy or prejudicial to its inter- ests. It is not the comity of the courts, but the comity of the nation which is administered, and ascer- tained in the same way, and guided by the same reasoning, by which all other principles of municipal law are ascertained and guided." ' Hibernia National Bank i). La- combe, 84 N. T. 367, 385 ; Kain v. Smith, 80 N. Y. 458; Folger v. Col- umbian Insurance Co., 99 Mass. 367; Day V. Postal Telegraph Co., 66 Md. 354 ; Moseby v. Burrow, 52 Tex. 396. To illustrate : T, a citizen of Massachusetts, brought a trustee process against a corporation estab- lished in New York, as principal defendant, and a debtor of the cor- poration living in Mass., as trustee ; receivers previously appointed by the courts of New York to wind up the corporation claimed a right to the funds in the hands of the trus- tee, held, that they had no such right and that the trustee process was valid. Taylor v. Columbian Ins. Co., 14 Allen (Mass.), 358; and see Hunt i>. Columbian Ins. Co., 55 Me. 290. Certain creditors (citizens of New York) of the Toledo Bank, an Ohio corporation, instituted actions in New York against the latter and therein procured attachments upon funds belonging to the bank and in the possession of another bank located in New York City. Previous to the institution of such suits re- ceivers were appointed of the Ohio bank by the courts of Ohio, held, that the attachments were valid and would not be vacated on the receiv- er's application. Willets v. Waite, 25 N. y. 577. 36 THE STATUS OF A RECEIVER. [chap. I. receiver by a court within their own state binding upon them there, to attempt to avoid the effect thereof by escaping from the jurisdiction of such court and requesting the courts in Pennsylvania to infringe the comity they owe to such creditors' courts within their jurisdiction ; ^ while in New Jersey and Ohio the rule is extended still further and the courts of each state wiU recognize the appointment of a receiver in every case, unless such recognition is in conflict with the rights of its own citizens, or against the policy of its laws ; and wiU not permit foreign creditors to obtain a preference, by attachment or otherwise, over other creditors.^ In New York, Illinois, ing any disposition of its property. The writ was duly served on the second of April following, and the next day the petitioner was ap- pointed receiver. On the day the petition was filed, the State Bank owed the defendant (the First Na- tional Bank of Plainfield) about $4,500. The defendant was one of the correspondents of the State Bank, and, on the 9th and 10th of April, 1877, collected, on commer- cial paper theretofore forwarded to it by the State Bank, $470.30. This sum was not credited on the bal- ance due on the 31st of March, 1877, from the State Bank to the defend- ant, but still stands to the credit of the State Bank on the books of the defendant. The National Park Bank, of the City of New York, was also a correspondent of the State Bank, and on the day the petition was filed was indebted to the State Bank a trifie over $13,000. The de- fendant heard, on the 2d of April, 1877, that the State Bank had failed; and on the same day it learned that the National Park Bank owed the State Bank a considerable sum of money. The defendant at once pro- cured proceedings to be Instituted in the Supreme Court of New York, for the recovery of its debt. The method it pursued was this: On In Phelan v. Qanebin, 5 Col. 14, the plaintifE procured garnishee process to be issued and served upon the receivers of a railway appointed by a court of Kansas. A portion of the road was operated by such receivers in Colorado. Upon motion of the receivers to vacate the process upon the ground that leave of the court appointing them had not been obtained to proceed against them, held, that the motion was properly denied. ' Bagby d. Atlantic, M.&O.R. Co., 86 Pa. St. 291 ; Williams v. Hinter- meister, 36 Fed. Kep. 389. See con- tra Warren v. Union National Bank, 7 Phil. (Pa.), 156. ' In Receiver of State Bank ii. First National Bank of Plainfield, 84 N. J. Eq. 450, Vice-Chancellor Van Vlbet said : " The following summary exhibits all the facts ma- terial to the controversy in this case: On the 31st of March, 1877, a peti- tion was filed against the State Bank at New Brunswick, for the purpose of having it declared an insolvent corporation, and put it in process of being wound up. On the same day an injunction was granted, restraining the bank from exercising any of its franchises and enjoining its officers from collecting any of its choses in action, or mak- SEC. 5.] THE STATUS OF A KECEIVEK. 37 Georgia and Texas, the rule is quite different ; a foreign cred- itor, rightfully in a court of any of these states, who procures. the 3d of April, 1877, it assigned its claim to a citizen of New York, and he on the next day, at the in- stance of the defendant, brought an action in the Supreme Court of New York against the State Bank, and judgment was entered therein on the 21st of July, 1877. The judg- ment so recovered was subsequently paid by the National Park Bank, and the amount charged to the ac- count of the State Bank. The as- signment to the plaintiff in the New York suit was entirely voluntary. The reasons assigned for its being made are, that the defendant was advised that its suit against the State Bank could be more expedi- tiously and efficaciously prosecuted in that form than in its own name, and that it would thereby be re- lieved from the duty incumbent on Eon-resident suitors of giving bond with sureties for a large sum. It is admitted that the suit in New York was, in everything but name, the suit of the defendant. The State Bank received actual notice of the New York suit. The petitioner took no step to prevent the Na- tional Park Bank from paying the defendant's judgment, nor did he invoke the assistance of the New York courts to get possession of the property of the State Bank located in that state. Upon these facts the receiver seeks an order requiring defendant to pay him, not only the $470.30 standing to the credit of the State Bank on the books of the de- fendant, but also the money recov- ered and collected by virtue of the New York judgment. The latter branch of the relief claimed is put upon the ground that, by force of law, the title to all the property be- longing to the defunct bank, imme- diately upon his appointment as re- ceiver, became vested in him as the officer of this court, and that, con- sequently, the defendant's conduct was not only a contempt of the au- thority of this court, but also a fraud upon that provision of the law respecting insolvent corpora- tions, which directs that creditors without liens shall be paid equally, or proportionally to the amount of their respective debts. With re- gard to the first branch of the relief sought, it is manifest that no ground for the interference of this court is shown. The case is the ordinary one where one person owes another a sum of money, and, on demand, has refused to pay. It is marked by no element of fraud, trust, acci- dent, mistake, or other grounds of equity cognizance, and unless this court can entertain an ordinary col- lection suit, it has no jurisdiction in the matter. It is plain the peti- tioner has no right to relief here in respect to this claim. His right to relief in respect to his other claim rests on this proposition ; that he became invested by operation of law, on his appointment as receiver, with the title to all the personal property of the corporation, whether located in this state or elsewhere ; and this proposition is based, in turn, on the maxim, that personal property has no situs, but follows that of its owner — Mohilia sequunter personam. But this maxim does not express the prevailing doctrine with regard to property located in other j urisdictions than that within which the owner is domiciled. It has been said that the statement that personal property has no situs, 38 THE STATUS OF A EECEIVEK. [chap. by attachment or otherwise, a lien upon property of a foreign corporation within the state, may enforce his lien to the same expresses a metaphysical rather than a legal truth ; for it cannot he questioned that goods found within the limits of a sovereign jurisdic- tion are subject to his laws, and it would be an absurdity, in terms, to affirm to the contrary. Smith v. Union Bank of Georgetown, 5 Pet- ers, 518. It may be considered as part of the settled jurisprudence of this country, says Chancellor Kent, that personal property, as against creditors, has locality, and the lex loci rei sitae prevails over the law of the domicile with regard to the rule of preferences in the case of insolvents' estates. The laws of other governments have no force beyond their territorial limits ; and if permitted to operate in other states, it is upon a principle of comity, and only when neither the state nor its citizens would suffer inconvenience from the application of the foreign law. 2 Kent's Com. 406. * * * It is obvious that a transfer of title, by operation of law, can only be effected within the limits of the territory where the law prevails ; and as the laws of a state have no extra territorial force, it follows that the title to property located in our state cannot be passed by force of the laws of another. In such cases the law operates, if at all, on the property; and if the property is without the territorial limits of the state whose legisla- ture enacted the law, it is plain that the law can have no effect upon it, except in virtue of the comity or courtesy which prevails among the different nations and states by force of international law. The boundaries of this com- ity, I think, are very clearly de- fined. No state is bound to give effect to the law of a foreign state when, to do so, will prejudice either the rights of its citizens or the in- terests of the state; but, on the contrary, each state is bound to give its citizens the full benefit of all the remedies and securities provided by its laws. But when a. transfer of property is valid by the lex loci, whether it be effected by the act of the debtor, or by the operation of la w, no j ust rule of comity requires the courts of the state, where the property happens to be located, to adjudge such transfer to be invalid, at the instance of citizens of other states, simply on the ground that it is incompatible with its laws. For example, a transfer of property located here, made by a citizen of New York, which, though incon- sistent in substantial respects with the provisions of our law, yet if valid by the law of New York, will be enforced here against everybody but the citizens of this state. This is now the established doctrine of the courts of this state. Bentley v. Whittemore, 4 C. B. Gr. 463; Moore «. Bonnell, vbi supra. Applying this rule to the case in hand, it is obvious that if the defendant had brought its action in New York, in its own name, it would not have been permitted to proceed against the property of the bank located in New York, as though the title to it stood unaffected and unchanged, but it would have been held bound by the law of its domicile. By that, the title to the property in question was vested in the petitioner for the equal benefit of all creditors occu- pying the same rank. * * * The fact that the defendant assigned its SEC. 5.] THE STATUS OE A RECEIVER. 39 extent, in the same manner and with the same priority, as one of its own citizens may do, although, before the action was in- claim to a persop who, according to the rules of comity, was entitled to greater consideration and a higher position before the courts of New York than it was, adds nothing to the strength of its claim, nor should that fact induce the court to award it anything to which it was not entitled by strict law. Up to this point it has been assumed that the appointment of the petitioner as re- ceiver, ipso facto, invested him with title to the property of the bank. The statute does not expressly de- clare that such change of title shall be effected by his appointment, but simply says that he shall have power and authority to take posses- sion of the property of the corpora- tion, and to sell and convey or as- sign it. Rev. 189, § 72. In this respect it differs materially from the recent bankrupt law, under which the registers in bankruptcy were given authority to transfer the property of bankrupts to their as- signees ; and also from our statute regulating proceedings against in- solvent debtors, which directs that the debtor shall, before his dis- charge, execute an assignment of his property to the assignee ap- pointed by the court. Rev. 499, § 11. Both of the statutes last named plainly provide that the debtor or owner shall be divested of title and that his assignee shall be invested with it. They do something more than simply put the debtor's prop- erty in eustodia legis. Not so, how- ever, with the statute under consid- eration. That merely confers a right to take possession and power to sell. It does not change the title, but leaves it in the same condition as the title to property seized under execution is left ; the law takes cus- tody of the property, leaving the title unchanged, until a sale be- comes necessary. In such case no change of title occurs until sale is made. The officer has merely a power of sale, but until the power is exercised the title remains as it was before seizure. So, too, if the action in which a receiver is ap- pointed is dismissed and the re- ceiver discharged, no act of transfer is required to give or restore title to the corporation. By the dismissal of the action, the court renounces its power over the property, and the corporation resumes possession, not in virtue of a new or restored title, but in virtue of a previous un- changed title." The court, however, held that the receiver's remedy was by formal bill, and therefore dis- missed the petition. In Bank v. McLeod, 38 Ohio St. 174, the trustees of an insolvent railroad corporation sought to en- force their rights under certain mortgages of the road and its equipment, in a, suit in chancery brought in a Kentucky court, and made an application for the appoint- ment of a receiver to take charge of and operate the road. Pending this application, certain rolling stock covered by the mortgages was tem- porarily in Ohio, and while there was seized in attachment by an un- secured Kentucky creditor. The en- tire property was insufficient to pay the debts secured by the mortgages, or to earn income to pay the interest. It was held, that the attachment was invalid as against the receiver of the Kentucky court subsequently appointed. The court, per Johnson, J,, said : " Let it be assumed as 40 THE STATUS OF A RECEIVEK^ [chap. I. stituted in which the lien was obtained, the corporation was placed in liquidation and passed into the hands of receivers settled by all the authorities that the order of the Kentucky court, sitting in chancery, did not operate to confer or divest any title to prop- erty outside of that state. That is probably also true as to the title of property within that state. The re- ceiver, when appointed by the court of chancery, did not acquire the title to the property, but only the right under orders of the court to possess and operate the same, as the trustees under the mortgage might have done, or the court might direct. Stripped of all collateral matters, the question is, has the receiver, in such a case, the legal capacity to possess himself of the property em- braced in these mortgages ? * * * The general proposition is well es- tablished that the receiver is the officer or agent of the court appoint- ing him, for the benefit of whoever may be ultimately determined to be entitled to the property. In the case at bar, the fact was established that the right of property was in the receiver, for the benefit of the incumbrancers, on whose motion he was appointed, and therefore, as be- tween them and the owner, or the unsecured creditors, the possession is that of the incumbrancers. Thus it was held in Angel ■». Smith, 9 Vesey, 337, that when the rights of the parties are ultimately deter- mined, the possession of the re- ceiver for the whole period, by re- lation, dates back to the time of the appointment, though, pending such determination, it be deemed the possession of the court for all par- ties interested. * * * As the mortgage was valid in Ohio, and the property was insufficient to pay the debt, the equity of redemption. on which the attachment was lev- ied, was valueless. The attaching creditor acquired no right or inter- est by the seizure, paramount to the mortgages. Had it appeared that an interest in the property was ac- quired by the seizure a different and somewhat difficult question would have been presented, namely, would the Ohio court retain the property until this interest was ascertained and protected? If the attaching creditor was a citizen of Ohio, the principle, that our courts would protect its own citizens, would seem to apply, but treating the mortgages as valid, no such inter- est existed, or could be acquired by the levy of the attachment, as the property was insufficient to pay the debts secured by the mortgages. Independent of the rights of any citizen of Ohio, will comity allow the receiver to maintain an action in Ohio which he could bring in Kentucky? We think, that upon both principle and authority, such an action may be maintained. The nature of the union between the states, as members of a common government, the vital interests which bind them together, should lead us to presume a greater degree of comity in commercial, as well as in political affairs, than we should be authorized to presume between states wholly foreign to each other. * * * So far we have taken no notice of the fact that the litigating parties are both citizens of Ken- tucky. The plaintiff in error has no right to invoke that protection against the principles of comity, which this state would accord to her own citizens. Wharton on Con- flict of Laws, §§ 364-369. In such «EC. 5.] THE STATUS OF A RECEIVER. 41 under the laws of another state, of which the creditor was a <;itizen.^ This rule, however, does not apply to a receiver of a case it is held, ' where questions as to extra-territorial property arise between foreign assignees and for- eign creditors, domiciled in the same states, the foreign law to which such parties are subject will be upheld.' Ibid, § 369." ' Bank of Montreal v. Fidelity Nat. Bank, 1 N.T. Supplement, 852; City Insurance Co. v. Commercial Bank of Bristol, 68 111. 348 ; South Carolina R. Co. i>. People's Savings Institution, 64 Qa. 18. In Hibernia National Bank v. Lacombe, 84 N. Y. 367, the plaintifE having its place of business in New Orleans, purchased for value, of defendant, the M. & T. Bank, a Louisiana corporation, a draft on bankers in the City of New York, payable to plaintifE's order > the draft was duly presented to the payees at New York, and payment refused; it was duly protested and notice given to the drawer. This action was thereupon commenced and an attachment issued, which was served on said bankers, who had funds of the M. & T. Bank in their hands. After the delivery of the draft to plaintiff, the M. & T. Bank was placed in liquidation un- der the laws of Louisiana, and com- missioners were appointed to take possession of and administer its as- sets; they were made defendants and claimed title to the attached property. The court, per Danfobth, J., said : " The remaining question relates to the claim made by Messrs. Lacombe and others, commissioners appointed by the court in Louisiana. Neither the law, nor the adjudi- cation under which they were ap- pointed, can have any operation here. They are strictly local and affect nothing more than they can reach. For the rule, as we con- ceive, is well settled that an assign- ment by virtue of or under a for- eign law does not operate upon a debt, or right of action, as against a person in this state. The plaintifi, as we have seen, although a foreign creditor, is rightfully in our courts pursuing a remedy given by our statutes. It may enforce that rem- edy to the same extent and in the same manner and with the same priority as a citizen. Any other construction would make the per- mission of the statute a form with- out benefit ; a formality, and not matter of substance; a mere delu- sion. Once properly in court and accepted as a suitor, neither the law, nor court administering the law, will admit any distinction be- tween the citizen of its own state and that of another. Before the law and its tribunals there can be no preference of one over the other. The plaintiflF, by the process of our courts, has acquired a right, of which no principle of national com- ity requires us to deprive it." In Moseby v. Burrow, 52 Tex. 896, the defendants in error were resi- dents of the State of Arkansas and instituted this suit and therein pro- cured an attachment upon certain lands in Texas, which had there- tofore been bought by the Gayosa Savings Institution, a corporation created under the laws of the State of Tennessee, and the title to the lands was taken in the name of one Avery, as its cashier. The plaintiff in error, Moseby, claimed title to the land attached through a. deed made to him by Avery, and claimed to hold the same as the receiver of said institution, appointed previous 42 THE STATUS OF A KECEIVEK. [CHAP. I. the property of a foreign corporation appointed by the courts of Illinois, and under its laws, in a suit instituted by a non- resident creditor.^ In Connecticut and Minnesota it would seem that the courts strongly incline toward the rule adopted in New York.^ In Indiana, however, while a foreign receiver will be allowed to invoke the aid of its courts in obtaining possession of prop- erty or funds within its jurisdiction to which he is entitled, yet this aid will be extended to him only as against those who were parties to, or in some way in privity with, the proceedings in the course of which his appointment was made, or who are in possession of the property or funds to which the receiver has a right. It wiU not be granted as against creditors, whether residents of Indiana or not, who are seeking to sub- ject the property or fund to the payment of their claims, by proceedings duly instituted for that purpose, whether before or after the receiver's appointment.^ The rule established recently in Alabama is, that while the appointment of a receiver confers upon him no power to com- pel the recognition of his rights as receiver outside of the jurisdiction of the court making the appointment, yet the favor or courtesy of permitting him to sue as such receiver in the courts of another state will be extended when the claims sought to be enforced do not conflict with the rights of citizens or creditors in the state where the suit is brought, and the to the commencement of this suit Comstock «. Frederickson, 51 Minn, by a Chancery Court in Memphis, 350. Tennessee, in a proceeding then ' Catlin v. Wilcox Silver Plate Co., pending, in which the institution 133 Ind. 477. In this case the plain- was interested, but to which neither tiff, a citizen of Connecticut, at- the defendants in error nor Avery tached in Indiana a debt due from were parties. It was held, that the a resident of Indiana to a parner- decrees of the Chancery Court of ship located in Illinois. Previoua Tennessee appointing Moseby re- to the attachment the partnership, ceiver and directing Avery to con- being insolvent, had made a general vey to the former said land was assignment to a, receiver, in obedi- inoperative in Texas, and therefore ence to an order of a court of com- the attachment was valid. potent jurisdiction of Illinois. It ' Holbrook v. Ford, 158 111. 633. was Aeld, that the receiver's title ' Paine v. Lester, 44 Conn. 196 ; was Inferior to the lien of the at- taching creditors. SEC. 5.] THE STATUS OF A EECEIVEK. 43 enforcement of the claim is not in contravention of the policy of its laws.^ Wisconsin ^ has recently adopted substantially the same rule as Alabama, which, it will be observed, is in accord with that followed in New Jersey and Ohio, a rule that not only evinces the respect due to the judicial tribunals of sister states, but draws the line exactly where it should be as between foreign and domestic creditors and the protection to be afforded them respectively. The complexity of our system of government, the intimate business relations of citizens of the respective states, and the great tide of inter-state commerce, as well as an enlightened public policy demanding an equitable dis- tribution of the estates of insolvent corporations, properly compel the courts to recognize the existence of a broad and liberal rule under the name of comity and the justice of its ' Bogeis v. Haines, 96 Ala. 586. In Boulware ®. Davis, 90 Ala. 307, the receiver of an insurance com- pany, organized under the laws of Virginia, and appointed by a court of that state, brought suit in Ala- bama to foreclose a mortgage upon real estate given to the company ten years prior to the receiver's ap- pointment. The mortgagors de- feuded upon the ground that the receiver had no standing in court, but it was held that as between the parties litigant themselves — no creditors being interested — the re- ceiver should be allowed to proceed with hiB action. " Gilman «. Ketcham, 84 Wis. 60. In this case the plaintiff, a resident of New York, brought the action against a corporation organized un- der the laws of New York, and gar- nisheed residents of Wisconsin, who were indebted to the corporation. About two months prior to this occur- lence, in proceedings begun in the New York Supreme Court, and reg- ularly instituted and conducted for the voluntary dissolution of the cor- poration, there was appointed a temporary receiver of the property of the corporation, and an order was made restraining creditors of the corporation from bringing any ac- tion against it for the recovery of money and from taking any further proceedings in any such actions theretofore begun. This order was served upon the plaintiff prior to his commencing this action. About one month after its commencement the temporary receiver was ap- pointed permanent receiver with the usual powers and duties of re- ceivers and became vested with the property of the corporation. After his appointment as permanent re- ceiver he interpleaded as claimant in this case, claiming the right to the money garnisheed. This claim was upheld and the Court, among other things, said : " No principle of public policy or rights of citi- zens of Wisconsin intervening, by a fair and liberal spirit of comity our courts ought to give the same force and effect to the proceedings in question as they would have in the courts of New York." 44 THE STATUS OF A EECEIVEE. [CHAP. I. enforcement. Such a rule is in accord with sound public pol- icy. It places the judicial decrees of a state superior to the claims of parties who are not citizens of the state, the aid of whose courts they invoke in order to nullify the force of such decrees. It also gives the proper force and effect to that provision of the Federal Constitution which requires full faith and credit to be given in each state to the judicial proceed- ings of every other state. Its enforcement does not impeach the sovereignty of the respective states, but produces a friendly intercourse between them, and it should only be denied when contrary to the policy of a state, or prejudicial to its real interests or the interests of its own citizens. The Supreme Court of the United States has sanctioned and approved of the extension of comity to this extent,^ and even in New York the Court of Appeals seems of late to favor a more liberal rule than the one which has theretofore been enforced in that state. In a recent decision of that court the law is declared to be that, " foreign receivers and assignees, taking their title to property by virtue of foreign laws or legal proceedings in foreign courts, may come here and main- tain suits in our courts when they do not come in conflict with the rights or interests of domestic creditors." ^ And again in in the same case that court said : " Its (a trustee) position is at least as favorable as that of foreign assignees of bankrupt and insolvent debtors, or of receivers of insolvent foreign cor- porations, who may come here and, by the comity of nations, maintain actions here when they do nothing to the prejudice of domestic creditors." These cases wherein this language is used have been regarded elsewhere ^ as qualifying the rule laid down in the case of Hibernia National Bank.* A distinction is, however, made between a common law receiver and a statutory receiver. The former has no legal status to act in his official capacity outside of the territorial jurisdiction of the court appointing him; but the latter, a ' Cole V. Cunningham, 133 U. S. And see In re Waite, 99 N. T. 107 ; Reynolds v. Adden, 186 U. S. 433, 489. 358. 8 Oilman v. Ketcham, 84 Wis. 60, ' Toronto General Trust Co. «. C. 68 ; Peters v. Foster, 56 Hun (N.T.), B. & Q. R. Co., 133 N. Y. 37, 47. 607, annotated. ^ 84 N. Y. 367. SEC. 5.] THE STATUS OF A EECEIVEE. 45 statutory receiver, is an officer of the state and, as such, repre- sents the state. His authority does not arise from the decree of the court, but from the statute ; and if his duties are to hold and dispose of the property of a corporation in trust for creditors, he is, in fact, the corporation itself for aU the pur- poses of winding up its affairs ; and in the absence of limita- tions imposed by the law of a foreign state upon the privilege of a corporation to do business within its territory such a receiver has the power and he is of right entitled to be recog- nized in the tribunals of a foreign state within whose territory some of the property or effects of such corporation may be.^ ' Relfe B. Bundle, 103 V. S. 232 ; Co., 31 Fed. Eep. 305 ; Bockover «. Parsons v. Charter Oak Life Ins. Life Ass'n of America, 77 Va. 85. 46 WHEN A RECEIVER WILL BE APPOINTED. [CHAP. II. CHAPTER II. When a Receivek will be Appointed. Sec. 6. Upon an ex parte application. 7. Upon corporate insolvency. 8. Upon default in mortgage obligations. 9. Upon misconduct of directors. 10. Upon application of judgment creditors. 11. Upon the absence of persons authorized to manage the corporate property. 12. Of foreign corporations. 13. Of national banks. 14. Under special circumstances as stated. 15. Of the respective rights of State and Federal Courts to appoint Receivers. Sec. 6. Upon an ex parte application. — It may be ob- served, primarily, that it is not enougb to defeat tbe interven- tion of the equitable power of the court to appoint a receiver that there is a remedy at law; that remedy must be complete, prompt and efficient. If the rights involved can only be enforced at law by protracted, strenuous and expensive liti- gation, and those rights can be more promptly and efficiently asserted in equity, a sufficient reason is presented for the intervention of equity.^ Where the application is made to the court ex parte to appoint a receiver the utmost particularity must be evidenced in the presentation in the petition of the distinctive facts and circumstances which render necessary such a summary pro- ceeding.^ In the absence of a substantial compliance with this essential prerequisite, the appointment may be attacked in collateral proceedings.^ ' Crane i). McCoy, 1 Bond (U. S. ests of all. Delaware, Lackawanna, C. C), 432; Skinner v. Maxwell, 66 etc., R. Co. ■». Erie R. Co., 21 N. J. N. C. 45 ; Lafond v. Deems, 1 Abb. Eq. 398. N. C. (N. T.), 318. Where several ' Verplank «. Merch. Ins. Co., 2 railroads were tenants in common Paige (N. Y.), 438 ; People ■». Albany of a right of passage through a tun- & Susq. R. R. Co., 7 Abb. Pr. N. 8. nel and disputes arose between the (N. T.), 265, 390, s. o. ; 55 Barb. 344; loads as to their respective rights, Aifirmed 57 N. Y. 161; French v. a receiver was appointed to preserve QifEord, 30 Iowa, 148. and protect and regulate the inter- ' Turgeau v. Brady, 24 La. An. 348. SEC. 7.] UPON CORPORATE INSOLVENCY. 47 Among the circumstances which may influence the mind of the court to consider favorably an ex parte application may be mentioned the following: inability to find any officer of the corporation upon whom service of notice of a motion for the appointment of a receiver may be made ; ' or where destruc- tion, loss, or injury to corporate property or its removal be- yond the jurisdiction of the court will probably occur unless the court interfere before there is time to give notice ; ^ or where a corporation has gone into liquidation, leaving its assets and property in the hands of its former directors for nearly three years without an accounting to the stockholders during that period.' Sec. 7. Upon corporate insolvency.— It is, of course, essen- tial to remember, in this connection, the exact significance of the term corporate insolvency. Insolvency means a general inability to answer, in a course of business, the liabilities existing and capable of being enforced ; * not an absolute ina- liility to pay one's debts at some future time upon a settlement and winding up, but being in a condition not to pay one's debts in the ordinary course, as persons carrying on trade usually do.° Thus, if the inability of a bank to meet its undertakings arises solely from an unexpected crisis, and it exhibits resources abundantly sufficient to enable it to meet its engagements, and discharge its liabilities in the ordinary and usual method of conducting that business, it cannot be pronounced insolvent.' The general rule upon the subject may very safely be said to be that the appointment of a receiver is not at aU a neces- sary sequence of corporate insolvency ; but, where no specific course is prescribed by statute, rests in the sound discretion of 'Dayton v. Borst, 7 Bosw. 115; ■• Brouwer «. Harbeck, 9 N. Y. 594. Affirmed 31 N. Y. 435 ; Maish v. ' Thompson v. Thompson, 4 Cash- Bird, 59 Iowa, 307. ing (Mass.), 137, 134 ; Sewell v. Cape ' People i>. Norton, 1 Paige (N.Y.), May and Sewell's Point E. R. Co., 17 ; Sanford «. Sinclair, 8 Paige (N. 30 Am. & Bng. E. R. Cases (N. J.), Y.), 373; Port Huron E. Co. ■». 155 ; Bank of Columbia «. Attorney- Judge, etc., 31 Mich. 456 ; Hardy «. General, 3 Wend. (N. Y.), 588. McClelland, 53 Miss. 607. • Ferry v. Bank of Central New s Warren «. Fake, 49 How. Pr. York, 15 How. Pr. (N. Y.), 445. (N. Y.), 430. 48 WHEN A KECEIVEE WILL BE APPOINTED. [CHAP. II.. the court, regulated by legal principles.^ Indeed, it may fur- ther be said, that the general rule is that the circumstances justifying the equitable intervention of the court by the ap- pointment of a receiver must be unusual and extreme.^ The considerations which will g^ide the discretion of the court will be the interests of the public, the creditors and the stock- holders, and a receiver will be appointed or not as these inter- ests shall best seem to be subserved.^ To illustrate : where a corporation is insolvent and its property is in possession of parties who deny the right of the petitioner, a stockholder, and those like him, to share in or participate in the manage- ment of the property, the court wiU, in order to give relief to the petitioner and others in similar relations, take posses- sion of and control the property through the appointment of a receiver.* And where an insurance company, confessedly insolvent, made an assignment of all its effects in liquidation to a trustee, who has confessed his inability to administer the property in accordance with the deed, by taking steps to ob- tain the aid of another court of chancery, a case is made for the appointment of a receiver upon the application of a credi- tor.° And it is not within the power of the corporation, after service of legal process upon it, to deprive the court of juris- diction, by making an assignment for the benefit of creditors. The court will, notwithstanding the assignment and uncon- trolled by it, pass upon the merits of the question of appoint- ing a receiver, and appoint one if a proper case is presented.* In New York, under a statutory provision, the court may appoint a receiver of a corporation which has for one year suspended its ordinary and lawful business.^ The ordinary ' Pond v. Framingham & Lowell ' City of RocheBter ■». Bronson, 41 R. R. Co., 130 Maas. 194 ; Farmers How. Pr. (N.Y.), 78; Nichols v. Perry Loan & Trust Co. ■». Chicago & At- Pat. Arm Co., 3 Stockt. (N. J.), 126. lantic R. R. Co., 37 Fed. Rep. 146 ; * Bill v. New Albany, etc., R. Co., Smith «. Port Dover & L. H. R. R., 3 Bissell (U. S.). 390. 13 Ontario Appeal, 388; Denike «. ' ■Q^^'k v. Insurance Co., 4 Hughes N. T. & R. Line, etc., Co., 80 N. T. (U. S. C. C), 415. 599 ; Nichols «. Perry Patent Arm » Belmont Nail Co. v. Columbia Co., 3 Stockt. (N. J.), 136 ; Meyer v. Iron & Steel Co., 46 Fed. Rep. 8. Johnston, 33 Ala. 340. ' Code of Civil Procedure, sees. ' Pullan V. Cincinnati & Chicago 1785, 1810 ; Conro ■». Gray, 4 How. B. R. Co., 4 Bias. (U. S. C. C), 35, 47. Pr. (N. Y.), 166. SEC. 8.] UPON DEFAULT IN MORTGAGE OBLIGATIONS. 49 and lawful business, as contemplated by the statute, is not the mere adjustment of its business, nor the collecting in of its corporate funds with a view to the final closing up of its con- cerns, but the business referred to is the business for which the corporation was incorporated ; ' and it is no answer to the application that the directors of the corporation have been annually elected.^ Sec. 8. Upon default in mortgage obligations. — It is not a matter of right, but rests in the sound discretion of the court, whether or not a receiver of the property of a corporation shall be appointed on the foreclosure of a mortgage for default in the payment of interest.' Yet when the necessity therefor becomes apparent, the court ought not and will not hesitate to extend its equitable jurisdiction through the appointment of a receiver. To illustrate : where a deed of trust, executed by a railroad company, mortgaged its income and profits, as weU as its railroad and other property, to secure the payment of the principal and interest of its bonds, and authorized the trustees, in default of the payment of the interest, to take possession of the mortgaged property, and apply the income to the pay- ment of the interest ; in such a case it is the right of the bondholders, upon the application of the trustees, under the terms of the trust deed, to have a receiver appointed to take possession of the trust property.* If the trustees fail to dis- charge their duty and to take possession of the trust property, ' Ward i>. Sea Ins. Co., 7 Paige principal and interest of the bonds. (N. Y.), 294. It declared that after three months' ' Matter of Jackson Marine Ins. default in the payment of the prin- Co,, 4 Sanf. Ch. (N. Y.), 559. cipal or interest on the bonds, or 2 Williamson v. New Albany, etc., any part of either, upon the written K. R. Co., 1 Bissell (U. S.), 198 ; Mer- request of one-tenth of the holders cantile Trust Co. ■». Missouri, K. & T. of the bonds, it should be compe- Ry. Co., 36 Fed. Rep. 221 ; Haas ». tent and lawful for the trustees to Chicago Building Society, 89 111. enter upon and take possession of 498. the trust property, and upon the * Allen v. Dallas & Wichita R. R. written request of one-tenth of the Co., 3 Woods (U. S. C. C), 316. holders of the bonds, it should be Judge Woods, in delivering the the duty of the trustees to enter opinion in the case, says : " In this upon and take possession of the case the trust deed pledged the re- trust property, and to use and ceiptB and income of the railroad employ the said railroad and the property for the payment of the property and appurtenances proper 50 WHEN A RECEIVEK WILL BE APPOINTED. [chap. IL it is incumbent on the court, and the court will, upon the application of one or more of the bondholders, appoint a receiver to act in their stead.' This right is independent of for its use, to make all necessary repairs, pay all proper expenses of the management thereof, including taxes, and to apply the proceeds to the payment, ^ro rata, of the princi- pal and interest due on the bonds. * * * * These provisions were in- serted in the deed of trust to give credit to the bonds, to enhance their value and induce capitalists to pur- chase them. They constituted a part of the consideration which the railroad company offered to pur- chasers of its bonds. A mere de- fault in the payment of the debt is no ground for the appointment of a receiver, but this is not true where there is a stipulation in the mort- gage that the mortgagee shall have the rents. Whitehead v. Wooden, 43 Miss. 523; Morrison v. Buckner, 1 Hempst. 443. Are all these pro- visions of the deed of trust to be disregarded ? If not, are the rights of the bondholders impaired by the fact that the trustees, instead of taking possession of the trust prop erty, as they had a right, and it was their duty to do, have applied to this court to assist them in the exe- cution of the trust whose duties they had assumed ? These trustees might, as is sometimes done, have first taken possession of the trust property, under the authority of the trust deed, and upon written de- mand of one-tenth of the bond- holders, and afterwards filed their bill, asking the court to protect their possession and aid and in- struct them in the discharge of their trust. Such a course would have been perfectly proper and competent. But having chosen to file their bill in the first instance. neither they nor any bondholder has lost any right, and it is the clear duty of the court to give them all the rights conferred by the deed of trust." In that case the charter of the company conferred on it a large grant of land, but provided that unless twenty miles of its road were completed and in order for use be- fore a date named, both the charter and the land grant should become forfeited. About two miles of the twenty miles of its track remained to be built, and little over one month of the time limited for the completion of the twenty miles remained. The company was insolvent and unable to procure the means to build the remaining two miles, the contractor for building the road had failed and had abandoned his contract, and there was imminent danger of the forfeiture of the charter of the com- pany and its grant of lands. The Court said : " Independent of the peculiar terms of the trust deed, the situation of the trust property, as shown by the evidence, was such as, in my judgment, justify and require the appointment of a re- ceiver." See, also, Newport & Cin. Bridge Co. ii. Douglass, 13 Bush (Ky.), 673; Dow «. Memphis & L. K. R. Co., 30 Fed. Rep. 360, s. c. ; 17 Am. & Eng. R. R. Cases, 324; McLane «. Placerville, etc., R. B. Co., 66 Cal. 606 ; Shepley «. Atlantic & St. L. R. Co., 55 Me. 395 ; De Win- ton «. Mayor of Brecon, 36 Beav. (Eng.), 583; Fripp o. Chard B. Co., 11 Hare (Eng.), 241. ' Warner b. Rising Pawn Iron Company, 3 Woods (TJ. S. C C), 514; Putnam v. Jacksonville, L. & SEC. 8.] UPON DEFAULT IN MORTGAGE OBLIGATIONS. 61 ^ny probable deficiency of the trust property to pay the debts secured by the deed of trust. The application for a receiver in such a case is simply a demand by the beneficiaries of the deed that the trust be executed according to its terms.^ Although no default has taken place in the payment of inter- est — which is, however, imminent and manifest — where a rail- road corporation has become entirely insolvent, unable to pay its floating debts, unable to pay the sums due its connecting lines, unable to borrow money, and is in peril of the breaking up and destruction of its business — upon the application of one or more of its bondholders, a temporary receiver will be ap- pointed to protect the property of the corporation.^ And when a railroad, heavily mortgaged, has made several defaults in the payment of interest and its business is decreasing, with proba- bility of a future decrease from competition with new lines, and it is in need of repairs and improvements, and the bondholders are not in harmony, and a foreclosure is about to be decreed, and no other way exists for applying the rents and profits of the road to the payment of its mortgage indebtedness — these are sufficient reasons to justify the appointment of a receiver, upon the application of the mortgagee.' Or when the mort- gage property is inadequate security for the mortgage debt and the company is insolvent and appropriating its earnings to its own use, a receiver wiU be appointed during the pendency of a bill filed by the mortgagee ^ to be put in possession of the St. L. R. Co., 61 Fed. Rep. 440; 20 Fed. Rep. 260, s. c; 17 Am. & Ralph «. Circuit Judge, 100 Mich. Eng. R. R. Cases, 324 ; Cheener v. 164 ; State ex rel. v. Ross, 122 Mo. Rutland K. Co., 39 Vt. 653 ; Des 485. Moines Gas Co. ■». West, 44 la. 23. ' Wilmer v. Atlanta & Richmond In Farmers Loan & Trust Co. v. Air Line By. Co., 2 Woods (U. B.C. Winona & S. W. R. Co., 59 Fed. C), 409, 415; McKellar v. Rogers, Rep. 957, the insolvency of the com- 52 N. Y. Superior Court, 360; Shaw pany was denied, but it appeared V. Norfolk Co. R. Co., 5 Gray (Mass.), that a majority of its stock was in 162 ; Sacramento & Placerville R. the hands of a construction corn- Co. «. Sup. Court, 65 Cal. 453 ; Dum- pany, which had substantially the villev. Ashbrooke, 3Russ(Eng.),99. same officers, and whose interests ' Brassey v. New York & New were adverse to those of the mort- England R. R. Co., 23 Blatchf. (TJ. gage bondholders, and that the com- S. C. C), 72. pany was unable or unwilling to ' Mercantile Trust Co. v. Missouri, pay the interest upon its bonds ; K. & T. By. Co., 36 Fed. Rep. 221. therefore it was deemed proper to * Dow V. Memphis & L. R. R. Co., appoint a receiver. 52 WHEN A KECEIVER WILL BE APPOINTED. [CHAP. II., mortgage property ; or after a decree of foreclosure has been made and before the sale.' The rule in New York is that where the property has ceased to be an adequate security for the amount unpaid upon the mortgage, and the person personally liable for the debt is. insolvent, a case is presented for the appointment of a receiver. This rule is placed upon the ground that when default has been made in the conditions of the mortgage, the mortgagee at once becomes entitled to a foreclosure of the mortgage and a sale of the mortgaged premises ; this process requires time, and on general principles of equity, the court may appoint a. receiver of the rents and profits accruing in the meantime, thus anticipating the decree and sale.^ But this rule is limited to a case where the whole amount of the mortgage is due ; for if the whole amount is not due and it does not appear that the premises are so situated that the mortgagee is entitled to have the whole sold as one parcel — in the absence of a pledge of the rents and profits of the whole premises to keep down the accru- ing interest and installments, the mortgagee is not entitled to a receivership for the protection of that portion of the mort- gage debt which is not due, or of that portion of the premises as to which his right to sell has not yet accrued.^ Where a corporation has been declared bankrupt and inter- est has accumulated on its bonds exceeding the value of the property mortgaged to secure them, and purchasers of the equity of redemption, at the assignee's sale, are in possession of the property, receiving the income which the mortgage entitles the mortgagee to take, and are using the property for their own exclusive use and benefit ; * or where no interest has been paid on the first mortgage bonds for ten years, and the railroad has twice changed hands, and the officers of the com- ' Benedict ■». St. Joseph & W. R. Ch. (N. Y.), 465 ; Bank of Ogdens- E. Co., 14 Am. & Eng. R. R. Cases burgh v. Arnold, 5 Paige (N.T.),38; (U. S. C. C), 609 ; Haas «. Chicago Hollenheck «. Donnell, 94 N. Y. 342. Building Society, 89 111. 498. * Kelly «. Trustees of Alabama E, = Hollenbeck v. Donnell, 94 N. Y. Co., 58 Ala. 489; Ex parte Brown, 58- 343 ; Burlingame v. Parce, 13 Hun Ala. 536 ; Qest ii. New Orleans R.. (N. Y.), 144. Co., 30 La. Ann., Part I, 28. ^Quincy v. Cheeseman, 4 Sandf. SEC. 9.] UPON THE MISCONDUCT OF DIRECTORS. 53 pany refuse to exhibit the books to the bondholders and trus- tees of the mortgage, a receiver will be appointed.' Sec. 9. TTpon the misconduct of directors. — The inherent power of a court of equity to appoint a receiver of the property of a corporation at the instance of one or more stockholders, charging fraud and mismanagement on the part of the officers in charge, to the imminent danger of the interests of such stockholders, is now too weU settled to admit of question. The doctrine was first denied in this country by Chancellor Kent, and his judgment was followed in New York and California^ and lately in Maryland also.' It was argued that the appoint- ment of a receiver would not only deprive the majority stock- holders of the management of the corporate property, but that the appointment would necessarily result in the dissolution of the corporation; and inasmuch as a court of equity has no jurisdiction, independent of statute, to dissolve a corporation, the court could not accomplish indirectly what it had no power to do directly. But it is now agreed that the appointment of a receiver does not work a dissolution of the corporation. The corporation remains in esse notwithstanding its property is in the hands of a receiver. It may sue and be sued, and make and perform contracts. It loses none of its corporate vitality. It is true that the corporate officers are deprived of the management of the corporate property during the receiver- ship. But this is because it is not safe in the hands of corrupt and irresponsible officials. And while it is true that the gen- ' PuUan V. Cincinnati & Chicago power is a discretionary one, to be B. R. Co., 4 Biss. (U. S. C. C), 85, 47. exercised with great circumspection, ' Attorney General v. Utica Ins. and only in cases where there is Co., 2 Johns Ch. 370; Verplanck v. fraud or spoliation, or imminent Mercantile Ins. Co., 1 Edwards Ch. danger of the loss of the property, 84; Neal v. Hill, 16 Cal. 145; French if the immediate possession should Bank Case, 53 Cal. 495. not be taken by the court; and these ' Mason •». Supreme Court of the facts must be clearly proved. But Equitable League, 77 Md. 483. It where these conditions have been is diflBcult for us to reconcile this fully met, courts do not hesitate to case with the following doctrine ex- appoint receivers over the property pressed by the same court : " The of corporations for the beneiit of all principles applicable to the appoint- concerned during the controversy." ment of receivers have been defi- Davis «. United States Electric nitely settled in Maryland. The Power and Light Co., 7'? Md. 35, 41. 54 WHEN A RECEIVEK WILL BE APPOINTED. [CHAP. II.. eral doctrines of equity jurisprudence forbid the interposition of courts of equity in eases where the law affords ample relief, it is also well settled that equity has full power to enforce trusts and to prevent fraud. Corporate property is essentially a trust fund to be used for the benefit of creditors and share- holders. The officers of a corporation, in the management of its property, stand in a fiduciary relation. It therefore follows that if trust funds or properties are being mismanaged and in imminent danger of being lost to the stockholders and creditors through the collusion and fraud of such officers, modem equity will not hesitate to assume charge and control of the property through a receiver.^ The power of a court of equity in this respect wiU be exercised with great caution and only when the exigencies of a ease clearly warrant it, and the proper relief cannot be had by injunction or some other preventive remedy. Following this doctrine, the Supreme Court of Michigan, in a- recent case, held that a court of equity, in the exercise of its general equity jurisdiction, has the power, at the instance of one or more of the stockholders of a corporation which has utterly failed of its purpose, not because of matters beyond its control, but because of fraudulent mismanagement and misap- propriation of its funds, to dissolve the corporation and appoint a receiver of its property.^ This adjudication is easily defended ' Porter «. Industrial Information sets amount to less than two-thirds Co., 5 Misc. Rep. (N. T.), 363. In of the capital paid in, a shareholder this case the directors of an insol- is entitled to have the corporate as- vent corporation refused to bring sets placed in the hands of a re- proceedings for its dissolution so ceiver. Towle ■». American Bldg., that the rights of the creditors and Loan and Inv. Society, 60 Fed. Kep. stockholders might be equally pro- 131. Insolvency and misconduct of tected ; thereupon the plaintiflF, a the officers of a corporation, where- stockholder, brought this action in by its assets are being fraudulently equity to compel a proper distribu- misapplied to the injury of credit- tion of the assets, and, upon his ors, justify the court appointing a application, it appearing that all the receiver upon the application of rights of the creditors to the assets, general creditors. Doe «. North- escept those of judgment creditors, west Coal & Trans. Co., 64 Fed. Eep. might be absolutely lost, the court 93a appointed a receiver to preserve the = Miner «. Belle Isle Ice Co., 93 assets. Mich. 97. In this case a minority When the officers of a build- stockholder filed his bill to wind mg and loan association have so up the corporation and for a re- mismanaged its afEairs that its as- ceiver. The corporation for seven SEC. 9.] UPON THE MISCOKDUCT OE DIRECTORS. 55 under tlie general rule of equity jurisprudence that it is the duty of a court of equity to adapt its practice and course of proceeding to the existing state of society. In this age of corporations the rights and interests of minority stockholders require the existence of such powers in the court to protect them against the frauds of the majority or the unfaithful offi- cers who seek to carry out their designs or to serve their own purposes in antagonism to the best interests of the corporate body. Nor does the appointment of a receiver in and of itself work a dissolution of the corporation. The appointment is only intended to protect the rights of creditors and shareholders in the property of the corporation, by wresting it from the con- trol and management of corrupt and irresponsible officials and placing and retaining it in the custody of the court for such time and until the interests of the parties may justify discharging the receiver and restoring the property and funds of the corporation to proper officers appointed for that purpose. The power of the court in this respect will very properly be exercised with extreme care and only when the exigencies of the case clearly warrant it ; and when it is after- wards made to appear that it is for the best interest of the parties interested, the court wiU, with no less hesitancy, restore the property and effects of the corporation to its proper officers.' years had not paid a dividend be- its stockholders ; that it is for this cause the owner of a majority of purpose, and no other, that the cap- the stock had controlled the corpor- ital has been advanced ; and if cir- ation in his own interest and had cumstances have rendered it impos- fraudulently mismanaged its affairs sible to continue to carry out the to his own profit. The Court, by purpose for which it was formed McGrath, J., said : " The general with profit to its stockholders, it is rule undoubtedly is that courts of the duty of its managing, agents to equity have no power to wind up a wind up its afEairs. To continue corporation, in the absence of stat- the business of the company under utory authority. This rule is, how- such circumstances would involve ever, subject to qualifications. It both an unauthorized exercise of has been held that when it turns the corporate franchise and a breach out that the purposes for which a of the charter contract. Morawetz corporation was formed cannot be Corporations, g§ 317, 407." attained it is the duty of the com- ' Supreme Sitting of the Order of pany to wind up its ailairs ; that Iron Hall «. Baker, 134 Ind. 393; the ultimate object of every trading and see People v. Ulster County corporation is the pecuniary gain of Savings Inst., 64 Hun (N. Y.), 434. 66 WHEN A KECEIVER WILL BE APPOINTED. [CHAP. II. Such facts justify a court of equity, aside from any statutory provision, in appointing a receiver to protect the interests of stockholders against the malfeasance of the officers in charge of the corporate business and their fraudulent misapplication of its property and funds.^ The following eases may be considered typical examples warranting the equitable intervention of the court: Where the president and secretary of a corporation mortgaged its property, when it was nearly or quite insolvent, to secure their antecedent claims against the corporation in fraud of creditors and threatened to sell out in gross all the property of the corpo- ration without notice, and in this way to close up the business of the company, it was held, that a receiver was properly appointed upon the application of a stockholder.^ Where a bank had gone into liquidation and closed up its business, leaving its assets and property in the hands of its former directors for nearly three years, without any accounting with the stockholders during that time ; in an action by a stock- holder against those directors individually, charging them with abusing and neglecting their trust, and wasting the effects of the corporation, it was held, a proper case for the appointment of a receiver.^ Where a board of directors, without authority of law and without the sanction of a lawful meeting of the stockholders, make a lease of a railroad and the property of the corporation — if a biU be filed by a stockholder for himself and others to set aside the lease the court will appoint a receiver to take charge of and manage the road until it can be ascertained to whom the management and control of the road should be intrusted.^ Where a biU filed by stockholders and creditors charged the fraudulent execution, by the president and his associates, of a mortgage upon the property of a corporation ' In re Lewis, Petitioner, 53 Kan. Works Co. v. Foster, 54 Ala. 623; 660 ; Davis i>. United States Electric Miner v. Belle Isle Co., 93 Mich. 97, Power & Light Co., 77 Md. 35; H3, 117; Rothwell v. Robinson, 44 Pond V. Framingham & Lowell B. Minn. 538, 540. Co., 130 Mass. 194 ; Ward «. Salem ' Haywood v Lincoln Lumber Co., St. R. Co., 108 Mass. 333 ; French 64 Wis. 639. V. GifEord, 30 la. 148 ; Hinckley «. ' Warren v. Fake, 49 How. Pr. Blethen, 78 Me. 321 ; Fisher v. Con- (N. Y.), 430. cord R. Co., '50 N. H. 300; Hands. * Stevens v. Davison, 18 Gratt. Dexter, 41 Ga. 452 ; Briarfleld Iron (Va.), 819. SEC. 9.] UPON THE MISCONDUCT OF DIEECTOKS. 57 insolvent, and that the corporation had not transacted any business, and asked for relief against such fraudulent acts, it was held, that a receiver should be appointed.^ A receiver will also be appointed where the money paid by bondholders for the bonds of a corporation is, with the assent and conniv- ance of the directors, being squandered, wasted and embezzled by its officers and agents, instead of being used for the pur- pose to which it was pledged, and thereby the bondholders, as well as the hona fide stockholders, are in danger of losing all of their money by such frauds and embezzlement, and the corporation has been rendered wholly insolvent thereby;^ or where the executive committee of a corporation repeatedly vote to themselves large sums of money, in addition to their regular compensation, for their services as promoters and originators of the company.' If the officers of a turnpike company and a majority of its stockholders are able, by reason of that fact, to control the road, and refuse to keep the road in repair, although its reve- nues are adequate, thus endangering the rights of the minority stockholders, and rendering the property non-productive, it is the duty of the court, when asked to do so, to take such steps as will secure to the minority stockholders their rights in the property, and this can only be accomplished by the appoint- ment of a receiver.^ In New York, by statute, the attorney-general must bring an action against a corporation and its officers where mis- management by them is alleged ; ° and the officers cannot, by causing a suit to be begun by one of their confederates, and having another confederate appointed as receiver, prevent i;he attorney-general from bringing his action and having a ' Avery «. Blees Mfg. Co., 37 N. J. cation of stockholders. Fisher b. Eq. 413. Concord Railroad, 50 N. H. 300. And see the case of parties com- ' Forbes «. Memphis, El Paso & bining to obtain control of the man- Pac. E. Co., 2 Woods (U. S. C. C,), agement of a railroad, and inaugu- 333. rating a system of management ' Blatchford v. Boss, 54 Barb. (N. wrongfully turned to the benefit of Y.), 43. the managers and their associates, ^ Wayne Pike Co. ■». Hammons, in which the court appointed a re- 139 Ind. 368. ceiver of the road upon the appli- 'N. Y. Code Civil Pro., sections 1808, 1810. 58 WHEN A RECEIVER WILL BE APPOINTED. [CHAP. II. receiver appointed therein ; ^ the court will, on notice being- brought home to it of the attorney-general's action and the appointment of a receiver therein, discharge the receiver pre- viously appointed in such other action.^ Sec. 10. Upon application of judgment creditors. — A judg- ment creditor is not invariably bound to issue execution upon his judgment and have a return of nulla hona, before an appli- cation will be entertained by a court of equity for the appoint- ment of a receiver.^ His application will be entertained and a receiver appointed, when his bill alleges in substance that the property of the company is so heavily mortgaged that if h& should attempt to enforce payment of his debt by seizure and sale on execution there would be no bidders at more than a nominal amount, while, if the property were placed in titfr hands of a receiver by the court, and held together and care- fully used, there would be a large surplus each year for the payment of his debt.^ It is, moreover, a well-settled rule of equity that when a judgment creditor is unable to collect the amount of his judg- ment, against a corporation, by common law execution, a court of equity wUl appoint a receiver of the property.* ' People v. BrufE, 9 Abb. N. C. matter of right, to have its property (N. Y.), 153. put in the hands of a receiver,. ' Keeler «. Brooklyn Elevated R. merely because of its failure or re- R. Co., 9 Abb. N. C. (N. T.), 166. f usal to pay its debts. Whether a ' Conro V. Gray, 4 How. Pr. (N. receiver shall be appointed is always Y.), 166. In this case the corpora- a, matter of discretion, to be exer- tion ceased to act, and the president cised sparingly and with great cau- and principal stockholders assum.ed tion in the case of quasi public oor- to use the property as their own, porations operating a public high- aud the president assigned the per- way, and always with reference to sonal and a portion of the real estate the special circumstances of each of the corporation to different as- case as it arises. All that we say in signees in trust to pay his Individ- this connection is, that under the ual debts. Held, that the proper circumstances presented in this remedy for the creditors was to ask case, the appointment of the re- fer a receiver. ceiver is within the power of the ■• Sage ■». Memphis, etc., R. B. Co., court." 135 U. S. 361. The Court said in ' Covington Draw Bridge Co. v. this case : " We do not mean to Shepherd, 31 How. (U, S.), 113; Ad- say that a single judgment creditor, ler v. Milwaukee Patent Brick Mfg. or any number of such creditors, of Co., 13 Wis. 57; Turnbull «. Prentiss a railroad company are entitled, as Lumber Co., 55 Mich. 387; Furness SEC. 12.] OF FOREIGN CORPORATIONS. 59 Sec. 11. Upon the absence of persons authorized to take charge of the property of the corporation. — It is proper to appoint a receiver to take charge of the effects of a corpora- tion, and to preserve them for the benefit of the stockholders generally, when the holders of a majority of the stock of the corporation neglect to elect officers to take charge of its prop- erty.' If the officers in charge find the corporation to be insolvent and danger to its assets imminent, they may lawfully resign their respective offices, in order that the court may take possession of its assets for their equitable distribution among the creditors, and such resignations become effective without any affirmative act of the corporation.^ And in a case where the charter of a corporation vests the liquidation of its affairs in the stockholders through commissioners elected by them, and who consent to the appointment of receivers by the court at the suit of creditors praying therefor, the court will appoint receivers.' So when a corporation is in course of liquidation imder the laws of a state, and the term of the office of the liquidator expires without there being any legal provision for the appointment of another, the court may properly appoint a receiver.'' Sec. 12. Of foreign corporations. — The power of equity to appoint a receiver of a foreign corporation has already been referred to and some examples given of its exercise.^ To these other examples may be added : A receiver will be appointed where the officers having complete control of a foreign corpora- tion in process of voluntary dissolution, are all amenable to the jurisdiction of the court, and — having in their possession cer- tain funds of the corporation, which their own insolvency has put in jeopardy, and neither they nor the funds being amen- ». Chaterham R. Co.,25 Beav. (Eng.) should not interfere with, the re- 614 ; Palmer i). Clark, 4 Abb. N. C. ceiver previously appointed. (N.T.), 35. And see the case of Thau ' Lawrence ■». Greenwich Fire Ins. V. Bankers and Merchants' Tel. Co., Co., 1 Paige (N. Y.), 587; Dobson v. 56 N. Y. Superior Court, 588, where Simonton, 78 N. C. 63. a court appointed a receiver after * Smith d. Danzig, 64 How. Pr. another court of . concurrent juris- (N. Y.), 330. diction had appointed one of the ^ In the Matter of the Louisiana same corporation ; but provided in Savings Bank, 35 La. An. 196. the order of appointment that it * Starke D. Burke, 5 La. An. 740. " See ante, p. 5, notes 4 and 5. '60 WHEN A EECEIVER WILL BE APPOINTED. [CHAP. II. able to the jurisdiction of the state under whose laws the cor- poration was created and exists — refuse to make application of such funds to the payment of creditors and stockholders in conformity to the proceedings for dissolution, or to put the same in a place of safety.^ Where the property of a foreign corporation is transferred to a domestic corporation, upon no other consideration than the issue of shares of stock of the corporation, which go to the shareholders of the foreign cor- poration subject to the payment of its debts, a receiver will be appointed, upon the application of a sequestrator of the for- eign corporation appointed in a judgment creditor's action by a foreign tribunal.^ The well-settled principle that the authority of a court can- not extend beyond the territorial limits of its state, in the exercise of its remedial power, will not deter it from acting to the verge of those limits in a case within its acknowledged jurisdiction, nor prevent it from taking possession of railroad property, where such railroad extends into other states. If the corporation, in violation of its duty, is applying, and intends to continue to apply, its revenues — the only means of paying a prior mortgage incumbrance — to the payment of junior incumbrances, the court ought to interfere, so as to secure the revenues to the prior incumbrancer.' Sec. 13. Of national banks. — The Comptroller of the Cur- rency of the United States is vested with the power of ap- pointing a receiver of a national bank, only in the following cases.* First, for not keeping stock at minimum.^ Second, for not keeping good its surplus.* Third, for not keeping good its reserve.^ Fourth, for not selecting a place for the redemption of its notes.* Fifth, for holding its own stock over six months.' Sixth, for failure to pay up capital stock, and to allow the same to become, and to remain, impaired by losses." ' Redmond v. Hoge, 3 Hun (N. Y.), In re Manufacturers' National Bnk., 171. 5 Bissell (U. S. C. C), 499. ' Barclay v. Quicksilver Mining ' U. S. Revised Statutes, sec. 5141. Company, 9 Abb. N. S. (N. Y.), « Sec. 5151. 283. 1 Sec. 5191. 2 State of Maryland «. Northern » Sec. 5195. Central R. Co., 18 Md. 193. ' Sec. 5201. * U. S. Revised Statutes, title 63. " Sec. 5205. SEC. 13.] OF NATIONAL BANKS. 61 Seventh, for improperly certifying a check.' Eighth, for non- payment of its circulating notes.^ Ninth, whenever it shall be dissolved, and its rights, privileges and franchises declared forfeited, as prescribed in section 5239 of the Eevised Stat- utes.' Tenth, whenever any creditor shall have obtained a judgment against it in any court of record, and'made applica- tion, accompanied by a certificate from the clerk of the court stating that such judgment has been rendered and has remained unpaid for the space of thirty days.* Eleventh, when the comptroller shall become satisfied of the insolvency of a bank.^ The National Bankrupt Act of 1867 did not repeal or super- sede the provisions of the National Currency Act for winding up insolvent national banks.^ This power conferred by the banking act upon the Comp- troller of the Currency, does not exclude the authority of a court of equity to appoint a receiver in other cases.' In cases not within the special provisions of the act, a national bank may be proceeded against in the same manner as any other corporation. Thus where a national bank is in- 1 Sec. 5208. « Sec. 5234. » Act of CongreBS, June 30, 1876, g 1. Section 5289 of the Revised Statutes provides, in this respect, that : " If the directors of any na- tional banking association shall knowingly violate, or knowingly permit, any of the oflBcers, agents or servants of the association to violate any of the provisions of this title, all the rights, privileges and franchises of the association shall be thereby forfeited. Such viola- tion shall, howrtver, be determined and adjudged by a proper circuit, district or territorial court of the United States, in a suit brought for that purpose by the Comptroller of the Currency, in his own name, be- fore the association shall be de- clared dissolved." * Act of Congress, June 30, 1876, §1. 'Idem. Section 5220 of the Re- vised Statutes does not aflEect the right of the comptroller to appoint a receiver under this act. Wash- ington National Bank «. Eckels, 57 Fed. Rep. 870. ' In re Manufacturers' National Bank, 5 Bissell (U. S. D. C), 499. ' Wright V. Merchants' National Bank, 1 Flippin (U. S. C. C), 568. The Court, in this case, said : " If a judgment creditor may not invoke the aid of a court of equity he is powerless to enforce his claim, un- less he can persuade the Comp- troller of Currency to interfere in his behalf. But even if the power had been given to ihe Comptroller of the Currency to appoint a re- ceiver in cases like the present, in the absence of restrictive language, it is at least doubtful whether it should be regarded as forestalling the jurisdiction of the courts." Merchants, etc.. National Bank v. Masonic Hall, 63 Ga. 549. 62 WHEN A RECEIVER WILL BE APPOINTED. [CHAP. II. solvent and its officers have been making preferential pay- ments, a court of equity, on the application of a depositor who has recovered judgment and issued execution which was returned nulla iona, wiU appoint a receiver to marshal and distribute its assets.^ In the case of a national bank which had gone into voluntary liquidation under section 5220, and a court of competent jurisdiction had, under the amendment ^ to the act passed June 30, 1876, on the application of a creditor's bill, appointed a receiver, and taken possession of the assets, and initiated proceedings to inforce the liability of stock- holders, it has been doubted whether the comptroller had any authority to appoint a receiver after the court had ajjpointed a receiver.^ But before the court becomes vested with jurisdic- ' Irons v. Manufacturers' National Bank, 6 Bissell (U. S. C. C), 301. * Section two of this amendment reads as follows : " When any national banking association shall have gone into liquidation under the provisions of section 5220 of said statutes, the individual liability of the shareholders, provided for by section 5151 of said statutes, may be enforced by any creditor of such association, by bill in equity in the nature of a creditor's bill brought hy such creditor on behalf of himself and all other creditors of the association against the share- holders thereof in any court of the United States having original juris- diction in equity for the district in which said association may have been located or established." a Harvey v. Lord, 11 Bissell (TJ. S. C. C), 144, Judge Blodgett said : " I may also say, in the same con- nection, that I have great doubts whether the comptroller had any authority to appoint a receiver after the court had appointed a receiver, and taken steps under a creditor's bill to enforce the stockholders liability. The statute gives the comptroller authority to appoint a receiver in certain cases, and by the amendment above quoted provides expressly that where a bank has gone into voluntary liquidation and is in process of winding up its affairs, any creditor may enforce the liability of the stockholders by a creditor's bill ; and if the comp- troller had not acted and appointed a receiver for the purpose of en- forcing the stockholders' liability, I have no doubt but what the action of the court supercedes the action of the comptroller in the premises, and gives the authority solely to the court to enforce the individual liability of the stockholders. It cannot, I think, be maintained that Congress intended by the act of June 30, 1876, to leave the comp- troller any authority over the assets of a national bank which had gone into voluntary liquidation under section 5220, after a court of com- petent jurisdiction had, under a creditors' bill, appointed a receiver and taken possession of the assets, and initiated proceedings to enforce the liability of stockholders, be- cause that would bring about a conflict between the officers of the court and those of the comptroller. SEC. 14.J UNDER SPECIAL CIRCUMSTANCES. 63 tion and has appointed a receiver, it has no power to restrain the Comptroller of the Currency from appointing one. The power vested in the comptroller is discretionary and also final.^ And until a receiver has been appointed by a Federal Court to take charge of the assets of a national bank which has ceased to discharge its functions, and is disposing of its assets — which cannot be reached by levy and sale under a common law -execution — among its stockholders, thereby endangering the safety of those assets and the judgment debt of a creditor, neither law nor comity requires a State Court to suspend its equitable remedy to reach the assets of the bank and enforce its own final process until the Federal Court shall act.^ If the bank is insolvent and in process of voluntary liquida- tion, and its affairs are being mismanaged by its managing agents, to the injury of its creditors and stockholders, and some of the creditors and stockholders are being favored to the injury of others, a proper case is made for the appointment of a receiver at the instance of one of the stockholders not favored, in a case where the bank only has been made a defendant.^ Sec. 14. Under special circumstances as stated, — A single •disinterested resident receiver will be appointed in the place of two receivers who were originally appointed as the representa- tives of different interests which subsequently became hostile, leading to dissensions and unnecessary expense in the manage- ment of the property.^ Where a railroad company is compelled, owing to lack of funds, to stop the construction of its road-bed before its com- pletion, the court will, in order to prevent a valuable land grant in favor of the company from lapsing, appoint a receiver The grant of power to enforce the * Merchants and Planters, Na- liability of the stockholders is tional Bank «. The Trustees of plenary and ample, and I see no Masonic Hall, 63 Qa. 549. need for any function of the comp- ' Elwood v. First National Bank troller when the afEairs of the bank of Greenleaf, 41 Kan. 475. are once properly in the hands of * Meier i). Kansas Pacific Ry. Co., the court." 5 Dillon (U. S. C. C). 476. And see ' Washington Nat. Bank v. Bck- Phinizy v. Augusta & K. R. Co., 56 •els, 57 Fed. Bep. 870. Fed. Rep. 373. 64 WHEN A KECEIVEK WILL BE APPOINTED. [CHAP. II. at the instance of bondholders, whose principal security is such lands/ When a judgment at law is obtained against a bridge com- pany, under which the tolls are sold in execution, a court of equity has the power and will cause possession to be taken of the bridge, appoint a receiver to collect toUs and pay them into court, for the purpose of discharging the judgment at law.^ Sec. 15. Of the respective rights of State and Federal Courts to appoint receivers. — This subject is discussed here- after in Chapter V., under the head Of the Jurisdiction and Powers of Various Courts over Receivers, to which the reader is referred. ' Kennedy v. St. Paul & Pacific K. ' Coyington Drawbridge Co. s. R. Co., 2 Dillon (U. S. C. C), 448 ; Shepherd, 21 How. (U. S.), 113. Allen V. Dallas & Wichita R. R. Co., 3 Woods (U. S. C. C). 316. SEC. 16.] UPON AN EX PAKTE APPLICATION. 65 CHAPTER III. When a Eeceiver will not be Appointed. Sec. 16. Upon an ex parte application. 17. Upon the insolvency of a corporation. 18. Upon default in mortgage obligations. 19. Upon wrongful conduct of officers. 20. Upon the application of general creditors. 31. Upon the dissolution of a corporation. 23. Under special circumstances as stated. Sec. 16. Upon an ex parte application. — Courts of equity are exceedingly unwilling to appoint a receiver on an ex parte application. It is now the settled practice not to appoint a receiver ex parte, thereby depriving a corporation of the pos- session of its property, before it has had an opportunity to be heard in relation to its rights, except in those cases where it is out of the jurisdiction of the court or none of its officers can be found ; or where, for some other reason, it becomes absolutely necessary for the court to interfere — before there is time to give notice to the corporation — to prevent the destruc- tion or loss of property.^ ' Verplank v. Mercantile Ins. Co., ceiver ex parte, is not sufficient. 2 Paige (N. Y.), 438 ; People v. Sus- He must state the facts on which quehanna R. R. Co., 55 Barb. (N. his opinion is founded, to enable Y.), 369 ; Bisson v. Curry, 35 Iowa, the court to judge of its correctness. 73; Whitehead «. Wooten, 43 Miss. Verplank ■». Mercantile Ins. Co., 3 523; Rogers «. Dougherty, 30 Ga. Paige (N. Y.), 438. 271; Caillard v. Caillard, 25 Beav. The allegations of a bill, for an (Eng.), 512; Crowder v. Moore, 53 injunction and receiver, that the Ala. 330; Howe 13. Jones, 57 Iowa, complainants are informed of cer- 130; Cook ■». Detroit, etc. R. Co., tain matters, without stating when 45 Mich. 453; State of Florida ■». or where the information was ob- Jacksonville, Pensacola and Mobile tained, do not make such a case R. Co., 15 Fla. 201 ; Railway Com- of fraud and imminent danger as pany v. Jewett, 37 Ohio St. 649. to justify the granting of the in- The affidavit of a stockholder of the junction, or the appointment of a corporation that he is satisfied of receiver ex parte. Bloudheim ■».. the necessity of appointing the re- Moore, 11 Md. 365. 66 RECEIVER WILL NOT BE APPOINTED. [CHAP. III. The non-residence and delay necessary to give notice to the officers of a corporation which has leased its property to an- other corporation is not a sufficient reason for failing to give notice to the lessee company which is in possession of the prop- erty. And it may safely be said to be a rule, ahnostly univer- sally recognized, that upon an ex -parte application, not only the reason for the appointment of a receiver must be shown, but also the reason for not giving notice of the apphcation to the adverse party, and that in no case will a court of equity appoint a receiver upon such an application when the failure to give notice is sought to be excused by opinions, as to the probable effect the delay in giving notice would have, without also stating the facts upon which those opinions are founded.' The same rule is enforced upon an application for the ap- pointment of receivers of an extinct corporation. Such ap- pointment cannot properly be made except in a proceeding to which the successor or substitute of the defunct corporation is a party and has notice.^ It has been held that a general alle- gation " that if notice of this application be given to the defendants, the books, records and papers of said bank wiU be so falsified or spirited away that they cannot ascertain the said frauds," is not sufficient to justify an appointment without notice.^ Or an allegation that " it greatly fears," if the de- fendants are permitted to remain in possession of said prop- erty after the commencement of this suit, that the same will be disposed of so as to be placed beyond the reach of your orators, and their debt wiU be wholly lost to them," is not sufficient. The facts and circumstances from which the court can see some adequate cause for such fears must be stated.* Sec. 17. Upon the insolvency of a corporation. — In the absence of any statute giving the power, a court of equity has no authority to act as a court of insolvency for the liquidation of the affairs of an insolvent corporation. It has no distinc- ' Wabash R. Co. v. Dykeman, 133 Diem, 70 Miss. 695 ; Va., Tenu. and Ind. 56; Moritz «. Miller, 87 Ala. 331; Car. Steel & Iron Co. ■». Wilder, 88 Chicago & Southeastern R. Co. ». Va. 942. Cason, 133 Ind. 49 ; TurnbuU «. « Young «. Rollins, 85 N. C. 485. Prentiss Lumber Co., 55 Mich. 387; » French D. Gifiord, 30 la. 148. State ex rel. Brittin ■», City, 43 La. ■• Fricker ®. Peters and Calhoun An. 839: Meridian News Co. ■». Co., 31 Fla. 354. «EC. 17.] INSOLVENCY OP A COEPORATION. 67 tive jurisdiction over corporations, to restrain them in the exercise of their powers, or control their action, or prevent them from violating their charter, in cases where there is no fraud or breach of trust alleged as the foundation of the claim for equitable relief.^ Therefore, allegations of insolvency alone •do not present a case for appointing a receiver.^ This rule does not become otherwise because the application , for the appointment of a receiver of an insolvent corporation is made by the corporation itself or with its consent. There is jio inherent power in a court of equity upon such an applica- tion to take charge of and administer the affairs of an insol- vent corporation through a receiver, and in the absence of statutory authority therefor, a receivership so created is abso- lutely void and subject to collateral attack.* In New Jersey power is conferred upon the court to appoint a receiver of an insolvent corporation upon the application of a stockholder or creditor, but a bill alleging merely that the company is insolvent, and has suspended its business for want of funds to carry on the same, is not sufficient. The facts and circumstances must be set out from which the insolvency of the corparation may be inferred,^ and if it appears that the directors are closing its affairs, and that such directors are in aU respects trustworthy, a receiver should not be appointed.* ' Pond V. Pramingliani & Lowell and the appointment of receivera. R. R. Co., 130 Mass. 194. In this The Court decided that it could not case the bill alleged that the plant- be maintained. See also Baker v, iffs were creditors of the defend- Backus, 33 111. 79. ant corporation, which it was stated ' Lawrence Iron Works Co. «. was insolvent; that all its prop- Rockbridge Co., 47 Fed. Eep. 755; erty was mortgaged to trustees for McGeorge ii. Big Stone Gap Imp. the benefit of one class of creditors ; Co., 57 Fed. Eep. 263. that it owed large amounts to other ' State ex rel. ■». Ross, 133 Mo. creditors, one of whom had attached 435 ; Whitney ■». Bank, 71 Miss- al! its property ; that it was about 1009 ; Jones v. Bank of Leadville, to execute a lease to said attaching 10 Col. 464 ; Smith v. Superior Ct., creditor, for the term of nine hun- 97 Cal. 348. dred and ninety-nine years, at a * New Foundland Ry. Const. Co. rental which did not pay the in- ». Schack, 40 N. J. Eq. 322 ; Edison terest upon its indebtedness ; and «. Edison United Phonograph Co., that the execution of said lease 53 N. J. Eq. 630. would be injurious to the interests ^ City Pottery Co. v. Yates, 87 N. of its creditors and stockholders. J. Eq. 1. The prayer was for an injunction 68 KECEIVER WILL NOT BE APPOINTED. [CHAP. III.. The court will be guided in its discretion by this test ; — does the protection of the public or the interest of the creditors or of the stockholders require the appointment ? If they do not, a receiver will not be appointed.^ Sec. 18. XTpon default in mortgage obligations. — In no case ought a receiver to be appointed if it is clear that on a foreclosure and sale the mortgaged property wiU bring enough money to pay the debt, and the existence of a reasonable doubt as to whether the conditions of the mortgage have been broken, is sufficient to cause the court to refuse a receiver ; ^ for one ought not, ordinarily, to be appointed unless the right of foreclosure is clear and indisputable, and this upon the general ground that one lawfiiUy and by the contract of parties in possession of the property should not be disturbed in that possession except in a clear case of a right so to do.^ The court will not, in deference to the mere technical rights of a very small minority of bondholders of a corporation, appoint a receiver, where it appears that such action wiU imperil, if not destroy, the interests of others whose rights are entitled to equal consideration,^ or where a mortgage upon income and tolls provided that the possession of a canal shall remain in the company unless it is shown affirmatively that default is. ' Rawneley v. Trenton Mut. L. & In the payment of interest upon. Fire Ins. Co., 1 Stockt. (N. J.), 347. those bonds there had been a de- 'Pullan V. Cin. & Chi. R. Co., 4 fault. A vast majority of the bond- Biss. (U. S. C. C), 35 ; Bice v. St. holders, covering all the mortgages- Paul & Pac. E. R. Co., 24 Minn. 464. upon the road, insisted that a cer- ' American Loan and Trust Co. v. tain funding scheme was the best Toledo, C. & S. Ry. Co., 39 Fed. arrangement for all concerned, and Eep. 416. In this case a subse- that under that arrangement the quent agreement was entered into rights of all parties would be best and under that it was claimed by secured. The complainant and his the road, but denied by the plaint- colleagues did not approve of the iff, that the time to pay interest scheme and refused to join the had been extended. It was held other bondholders. The managers by the court that the claim pre- in execution of the scheme had sented a reasonable dispute which been paying interest to those bond- should be first determined, holders who had given their assent * Tysen «. Wabash Railway Co., to that scheme, and declined to pay 8 Biss. (U. S. C. C), 247. The plain- interest to complainant and those tiff, in this case, was the owner of standing with him who refused to certain bonds, for the security of become parties to the funding which mortgages were executed, scheme. Neither were the mana- SEC. 18.] DEFAULT IN MORTGAGE OBLIGATIONS 69 the result of some other cause than failure of business, and this fact is not shown to the satisfaction of the court.* In a well-considered case it was held that a court of equity would not appoint a receiver of a railroad merely upon a show- ing that there has been a default in the payment of interest, secured by a mortgage of the properties and income of the •company, where, upon such default, the trustees, under the mortgage were entitled to immediate possession, had demanded possession, and had been refused. It is necessary, in addition to this, to show that ultimate loss will happen to the benefi- ciaries under the mortgage by permitting the property to remain in the hands of its owners until final decree and sale, if such decree and sale be made.^ Indeed, in such case the gers applying all of the net rev- enues arising from the operation of the road to the payment of interest in the order of priority of mort- gages. Complainant claimed that this was a misapplication of the income, and of itself, in connection ■with the supposed inadequacy of the security for all the bonds, would make it the duty of the court to take charge of the property by a receiver. Held, that the Court (Haelan, J.) would not appoint a leceiver. ' Stewart v. Chesapeake and Ohio •Canal Co., 4 Hughes (U. S. C. C.),47. ' Union Trust Co. «. Railroad Company, 4 Dillon (U.S. C. C), 114. In this case Mr. Justice Milleb said : " If the contract contem- plated any very protracted tenure of this possession by the trustee, as, for instance, during the forty years which the bonds have to run before maturity, and a bill were filed look- ing mainly to the specific enforce- ment of this part of the contract, «quity might be bound to do so. But that is not this case. The possession can, by the terms of the contract, be only temporary, and is auxiliary to other and more import. ant relief. If the default continues for three months, the trustee in possession is bound to advertise and seU the property, so that his possession under the contract can be but for a short time, and is only to enable him to sell, and deliver the property, and take care of it in the meantime. The frame of the pres- ent bill is very diflerent from this. It abandons the right of foreclosure by a sale by the trustee, and seeks the regular and safer mode of the chancery court. It does not ask that plaintifEs be put into posses- sion as of right belonging to the trustee, but that a receiver, plaint- iff or any one else, take possession, as the officer of the court. It is plain that any receiver we may appoint is our officer, amenable to the orders of the court, responsible to it for all he does, and completely under its control, his authority rest- ing in the appointment of the court, and not in the contract of the mort- gage deed. Hence he cannot sell the road as required by the mort- gage, but such sale, if made, is by decree of the court, nor can he pay the overdue coupons to the bond- holders without an order from the 70 RECEIVER WILL NOT BE APPOINTED. [CHAP. III. appointment of a receiver would be but the enforcement of a penalty, and equity does not enforce penalties. Equity relieves against penalties, and when there is a hard and unconscionable contract a court of equity wiU withhold its aid and leave the party seeking to enforce such a contract to his remedy at law. Indeed, a court of equity will go even further, for if the party claims and attempts to exercise powers given him in the con- tract, which, under the circumstances, are unjust, he will be enjoined.' In Michigan the statutory law takes away from the mort- gagee the right to the possession until foreclosure is completed by sale, and the sale has become absolute by confirmation; and the mortgagor is entitled to the rents and profits pending foreclosure, which he cannot be deprived of by the appoint- ment of a receiver.^ Following this statute and as expounded by the highest court of that state, the Federal Courts in that state, it has been held, wiU not appoint a receiver on the application of a mortgagee, pending the foreclosure of a mort- gage executed by a corporation, merely upon the groimd that the security is inadequate. But the court was careful to ob- court. Ttis is no specific perform- gage from the corporation upon ance of that contract for possession, some of its property, even though and no such relief is prayed for in it ho insolvent at the time ; such the bill." See also Rice «. St. Paul creditor, it was held, may enforce & Pacific R. Co., 24 Minn. 464. In such mortgage by exercising a^ Digener v. Stiles, 6 N. T., Supp. power of sale therein contained. 474, no claim being made that the And though the indorsers may In- mortgage was not amply secured, cidentally be benefited by enforc- the court refused to appoint a re- ing the mortgage, yet this consti- ceiver, notwithstanding the mort- tutes no valid reason why the mort- gage so provided, upon the ground gagee should be enjoined or why that it would be inequitable to take the mortgaged property should be the property from the mortgagor placed in the hands of a receiver, before final judgment. appointed to take charge of all the ' Williamson v. New Albany, etc., assets of the corporation other than R. R. Co., 1 Bissell (U. S. C. C), the property covered by the mort- 198 ; Blair v. St. Louis H. & K. R. gage, and to receive any surplus Co., 20 Fed. Rep. 348. which might arise from a sale of the In the case of a creditor of a man- mortgaged property. Werhl v. At- ufacturing corporation holding a lanta Furniture Co., 89 Ga. 297. promissory note on which some of And see Burgwyn Tobacco Co. v. the stockholders or directors were Bentley, 90 Qa. 508. indorsers, and secured by a mort- " Wagar «. Stone, 86 Mich. 364. SEC. 19.] UPON WRONGFUL CONDUCT OF OFFICERS. 71 serve that this rule does not extend to a case where the prop- erty is being destroyed or wasted by the mortgagor.' Sec. 19. Upon wrongful conduct of officers. — The infidelity or misconduct of some, or of all, of the trustees or managers of a corporation, affords no ground for taking away the rights of the shareholders who constitute the corporation, either by dis- solving it or taking away its management, and placing it in the hands of an officer of the court. In such a case, the prin- ciples of remedial or preventive justice go no further than to enjoin or forbid the misconduct, or to remove the unfaithful officer.^ ' Union Mutual Life Insurance Co. ■0. Union Mills Plaster Co., 37 Fed. Eep. 286. Skvbkens, J., referring to the case of Wagar v. Stone, said : " Notwithstanding this decision, the Federal Court in this district con- tinued the practice of appointing receivers in such cases and for such purpose, in the same way as had been customary in the early equity practice, and a, number of prece- dents have been found in which my predecessor made such appoint- ments after the practice in the state courts had been settled the other way. The matter does not appear to have been debated before him on any actual dispute shown by the record, but it cannot be doubted that so well informed a judge was cognizant of the ruling of the state court on the subject, and I am con- vinced that he followed the original practice upon the theory that it was a matter of practice merely, and that it was the duty of this court ■sitting in equity to follow its own course, instead of conforming to local practice regulations of the state ; and such, doubtless, is the general rule. But it seems quite clear that the duty of following the original course of the court in equity does not extend to the ex- tremity of overthrowing substan- tial rights. When it meets such it bends so far as is necessary to protect them, but otherwise holds on in its customary way, simply adapting itself to the emergency. This Is the doctrine which was so forcibly enunciated in the now familiar case of Brine v. Insurance Co., 96 U. S. 637. The analogy of that case, and the applicability of the reasoning of the Supreme Court in deciding it, to the present ques- tion are obvious, as I think, and lead to the conclusion that it is not a matter of practice simply; that the right of the mortgagor to the rents and profits pendente lite is a sub- stantial one under the laws of Mich- igan, which must be recognized by the courts of the United States in administering the rights of parties to a mortgage." ^ Waterbury «. Merchants' Union Express Co., 50 Barb. (N. Y.), 157 ; Verplanck o. Mercantile Ins. Co., 1 Edwards Ch. (N. Y.),84; French ». eifEord, 30 la. 148 ; Neal v. Hill, 16 Cal. 145. And see the case of an English mining company, which was sought to be dissolved under the act of Parliament known as the " Companies Act, 1862." Republican Mountain Silver Mines v. Brown, 58 Fed. Sep. 644. 72 EECEIVEE WILL NOT BE APPOINTED. [CHAP. III. To illustrate : Where tlie bill charges neither insolvency on the part of the corporation nor asks for its dissolution, but merely prays that a receiver be appointed of the books, papers, funds and rights of action of the corporation, the court is not authorized to appoint; the effect of such an action would simply be the removal of the directors of the corporation, and a court of equity has no such visitorial power inherent in it ; such power must be expressly conferred by the law-making power.^ , It is only in a strong case, when the majority are clearly violating the chartered rights of the minority, and putting their interests in imminent danger, that a court of equity will, at the instance of a minority of the stockholders in a corpora- tion, interfere with the management of its affairs, and appoint a receiver, and in such a case, a bill with mere general charges of fraud, illegality or mismanagement is not sufficient to authorize the court to appoint a receiver.^ ' Belmont D. Erie Railway Co., 52 Barb. (N. Y), 637; Ward «. Salem St. E. K. Co., 108 Mass. 332 ; Hink- ley 1). Blethen, 78 Me. 221; Con- verse V. Dimock, 6 Am. & Eng. Cor. Cases (U. S. C. C), 418; Hamilton v. Accessory Transit Co., 3 Abb. Pr. (N. Y.), 255. " Briarfield Iron Works Co. ». Fos- ter, 54 Ala. 622; Downing v Dun- lap Coal Co., 93 Tenn. 221. To illus- trate : Where there is no pretense that the corporation is undertaking any outside of its charter, but the burden of the complaint is that the majority of the stockholders, through the officers, are managing the company fraudulently, not for the benefit of all, but in the interest of a portion of the stockholders, and this is sought to be sustained by the fact that the corporation granted to one of its officers $20,000 in its stock, and the latter subsequently repudiated the agreement and set up a claim for $20,000 expended by him for the corporation, which the latter consented to and surrendered to its treasurer thirty-four thousand shares of the stock, to be used by him to raise funds, under the direc- tion of a committee, to put the property in order and pay the debts, it was held, that this was not suffi- cient to take the property of the corporation out of the hands of the stockholders, and the appointment of a receiver was error. Hand i>. Dexter, 41 Ga. 457. In Briarfield Iron Works v. Foster, supra, an administrator sought the appointment of a receiver over the property of a corporation, in which the decedent was a stockholder, and of which he was a creditor, on vague, uncertain, and, in some respects, inconsistent allegations, based merely on information and belief of danger to the interests of the decedent. The only direct charge of danger — the removal of property, and its danger of deteri- oration from want of proper care — was denied by affidavits. Seld, SEC. 19.] UPON WRONGFUL CONDUCT OF OFFICERS. 73 In seeking such relief, the bill or complaint should so speci- fically set forth the acts of mismanagement, which amount to charges of fraud, that the court can see from a reading of the charges that if the matters and things therein specifically set up are true, its affairs are, by its officers and directors, inten- tionally and fraudulently mismanaged, and that the allegations of fraudulent mismanagement are not mere conclusions of the pleader.^ Nor will things done or attempted in the past, alone that it was error for the chancellor Iron Co., 96 Ala. 472. But mere to appoint a receiver. A bill was filed by creditors of a corporation engaged in converting iron ore into iron, and alleging that it had issued part of an authorized issue of bonds, secured by a deed of trust of all its property ; that the stockholders and directors had voted that the property be sold at public auction ; and appended to the bill as an exhibit was a circular issued by the directors appealing to the stockholders to come to the relief of the corporation by purchasing its bonds, and expressing the belief that at forced sale the property would not yield more than enough to pay the bonds already sold. The bill further alleged that the com- pany was insolvent and that the proposed sale was a fraudulent scheme to enable the bondholders to secure the entire property, to the exclusion of all other creditors or stockholders, and that the directors were fraudulently conniving with the bondholders to sell all the prop- erty for the amount of the bonded indebtedness, and had advertised to take the outstanding bonds in pay- ment for the property at the pro- posed sale. The facts relied on to show fraud were not set out. It was held that no case was shown for the appointment of a receiver, and that injunction was probably the proper remedy. Fort Payne -Furnace Co. v. Fort Payne Coal & dissatisfaction of a minority of the stockholders of a corporation with its management by the majority, in the absence of fraud or insolvency, is not sufficient to authorize the court to appoint a receiver at the instance of the minority. Fluker V. City Ry. Co., 48 Kan. 577; Ranger V. Champion Cotton Press Co., 53 Fed. Rep. 609. If directors levy an assessment on its stock, and on failure to pay it advertise for sale the stock of only one stockholder, who held nearly one-third of the entire stock, although other stockholders were also delinquent but had promised to pay ; and at a meeting of the di- rectors, at which only the president, secretary and treasurer were pres- ent, they voted themselves salaries, which, however, they never col- lected. These facts were held not sufficient to justify appointing a re- ceiver. Hardee v. Sunset Oil Co., 56 Fed. Rep. 51. ' Wheeler i). Pullman Iron and Steel Co., 43 111. App. 626 ; Davis «. United States Electric Power and Light Co., 77 Md. 35; Crombie •». Order of Solon, 157 Pa. St. 588; Hinckley v. Pfister, 83 Wis. 64; Edi- son V. Edison United Phonograph Co., 52 N. J. Eq. 620. In Louisiana it is held, that courts have no jurisdiction to appoint re- ceivers for corporations in the ab- sence of express statutory authority 74 RECEIVER WILL NOT BE APPOINTED. [CHAP. III. and having no continuing effect at the time the appointment is asked for, jiistify the appointment of a receiver. He will only- he appointed because of present conditions and well-founded apprehensions as to the future. In determining the effect of the'se, past conduct and past conditions, though not at all decisive, may be taken into consideration.^ Those shareholders who feel themselves aggrieved should first seek redress at the hands of the board of directors or managing body before they seek the aid of a court of equity. And unless they do this, or show good cause for not doing so, an application for the appointment of a receiver will invariably be denied.^ In New York and California, it has been held in an action by a stockholder to procure a dissolution of the corporation, charging a conspiracy to cheat and defraud himself and other stockholders, by a majority of the trustees, that the court has no power to appoint a receiver,' and no such power is conferred by statute in those states.^ Sec. 20. Upon the application of general creditors. — A receiver of a corporation wiU not be appointed, in an action brought against it by a creditor at large who asks for a disso- except in cases of extreme necessity, ducting its business prosperously at such as when the corporate property the Columbian Exposition under a is abandoned, or when there are no contract with the latter's managers,, persons authorized to take charge whereby it should pay to the Ex- or conduct its affairs. Baker v. Lou- position twenty-five per cent, of its isiana Portable R. Co., 34 La. An. receipts from a restaurant ; that by 754. , reason of such false entries and ' Vienna Bakery Co. ■». Heissler, other acts of the president the Ex- 50 111. App. 406. The bill in this position managers might declare the case charged substantially that com- contract forfeited and prevent the plainants were owners of one hun- company from continuing its busi- dred shares of stock of the bakery ; ness on the Exposition grounds and that the president was causing false thereby great loss would result to entries to be made in its books, the stockholders; and that they which he refused to let complain- could obtain no redress from the ants examine; that he was abstract- directors. A receiver was appointed, ing from $400 to $500 daily from but upon appeal this was held erro- the daily receipts ; that numerous neous and the appointment set aside, debts due and payable by the com- * Roman v. WoolfoDs, 98 Ala. 319. pany were left unpaid and that tho ^ Howe v. Deuel, 43 Barb. (N. T.), company was threatened with suit 504; People v. Erie Railway Co., 36. and the possible winding up of its How. Pr. (N. Y.), 129. afEairs; that the company was con- ^Neal v. Hill, 16 Cal. 145. SEC. 20.] APPLICATION OF GENERAL CREDITORS. 75 lution of the corporation and the distribution of its effects, on the ground of its insolvency, and that its trustees, instead of taking proceedings for the dissolution of the company, intend to facilitate the recovery of judgments against it by certain creditors, with a view to give them a preference, and thus to effect alienations of the property contrary to law.' There must be a judicial determination that a debt exists, and the inability to collect that debt by execution. To illustrate: Where a creditor recovered a judgment against a corporation by default and an execution issued upon the judgment had been returned unsatisfied and the judgment creditor commenced an action to sequestrate the property of the corporation and a temporary receiver thereof was ap- pointed, and upon motion of the corporation the judgment was opened and the corporation was allowed to appear and defend, but upon condition that the judgment and execution issued thereon should stand as security and the receivership continue, it was held, on appeal, that although the court allowed the judgment and execution to stand as security, the judgment- was no longer an adjudication that anything was owing by the corporation, and that the order appointing the receiver should be vacated.^ Whenever the ordinary remedies provided by law are open, to creditors, a receiver will, of course, not be appointed ; ' nor ' Galway v. U. S. Steam Sugar control of its afEairs, and that tlie Refining Co., 36 Barb. (N. Y.), 256. assets of said corporation may be And see Varnum i). Hart, 119 N. T. squandered to such an extent that 101. it can pay no part of its liabilities," ^ Bodbourn v. Utica, Ithaca & E. upon motion for a receiver before Ey. Co., 28 Hun (N. T.), 869. judgment in the action, it was Jteld, 2 Parmly ®. Tenth Ward Bank, 3 that it was error to appoint a re- Edwards Ch. (N. Y.), 895; Eamsay ceiver. French Bank Case, 53 Cal. 1). Erie Ry. Co., 38 How. Pr. (N. Y.), 495, 550. 193. By special provision of its charter. To illustrate : In an action by an a railroad company was empowered attorney to recover for the value of to confer upon its mortgagees the his services against an insolvent right of possession of mortgaged bank which had not sufficient funds property upon the common law con- to pay its depositors and creditors, ditions, or upon any other conditions and the complaint alleged " that that might be agreed upon and ex, there is great danger that designing pressed in the mortgage. The effect and irresponsible men maj obtain was that by these charter provisions 76 RECEIVER WILL NOT BE APPOINTED. [CHAP. III. will the court appoint a receiver when a judgment creditor, applying therefor, has at his command the ordinary means at law of enforcing the collection of his judgment.^ If there are no assets a receiver will not be appointed.^ it was made competent for the company, by the terms of a mort- gage or trust deed, to confer upon its mortgagee or trustees a right to the possession of mortgaged property upon default in the pay- ment of money secured thereby, and such a right as would entitle the mortgagee or trustee to sustain an action under the Minnesota prac- tice in the nature of ejectment to obtain possession if it is withheld. The railroad executed a mortgage to trustees who were authorized by its terms, upon default of perform- ance of any of its conditions, to take possession of the property and collect and receive the rents and profits. In an action by the trustees, brought to foreclose said mortgage, the latter applied for a receiver in aid of foreclosure and pending the suit. Held, that upon the foregoing facts the case was one in which the plaintiffs had a complete and ade- quate remedy at law in respect to the very matters on account of which the appointment of a receiver was sought, and that therefore the plaintiffs were not entitled to have such receiver appointed. A further clause in the mortgage authorized the trustees, upon the company's default, to take posses- sion of the mortgaged property, and to have, hold, and use the same, " operating by their superintend- ents, managers, receivers or serv- ants, or other attorney or agents.'' Held, that the " receivers " here mentioned were not technical re- ceivers, to be appointed by a court, liut the receivers of the trustees. Rice «. St. Paul & Pacific R. Co., 24 Minn. 464. " Railroad Co. ■». Soutter, 3 Wall, (U. S.), 510, 583; Delaware, Lack. & Western E. R. Co. ■». Erie R. Co., 31 N. J. Eq. 398 ; Vermont & Canada R. Co. V. Vt. Cent. R. Co., 50 Vt. 500. ' Barton v. Enterprise Loan and Building Association, 114 Ind. 336. The defendant in this case, over which a receiver was sought to be appointed, was incorporated under a statute providing that loans may be made to shareholders at a rate of interest not exceeding ten per cent, per annum; that the money shall be offered in open meeting and awarded to the shareholder bidding the highest premium. It also provided that the by-laws prescribe the manner of awarding loans and the rate of interest. Under the by-laws adopted, this corporation, from the time of its or- ganization, pursued this plan: "At each monthly meeting the money in the treasury was put up at auc- tion with respect to preference in advancements, and whoever, at such auction, was willing to make the greatest discount to the association, or to take at the time the least amount of money per share for the interest that otherwise he might have had at the end of its term in the association's assets — he to continue to the end of the association in pay- ing the prescribed dues and interest upon his shares of stock on the sum recoverable in full of each future payment of interest, as authorized by sections one and two of article 14, Sij amended, of the by-laws — SEC. 20.] APPLICATION OF GENERAL CKEDITORS. 77 Mere allegations charging that the corporation is insolvent, that other creditors are threatening to sue, and that it has no property out of which a judgment, if obtained, can be satisfied, and that the action is brought in behalf of the plaintiff and all other creditors who are willing to unite therein, are wholly insufficient to justify the appointment of a receiver, even though the corporation itself consents to the appointment.^ Indeed, the appointment of a receiver is so far reaching in its effect that courts of equity not only refuse to grant relief by the way of a creditor's biU, so long as the creditors of a cor- poration have not availed themselves of the legal remedies open to them, but proceed with extreme caution under legisla- tive enactments enlarging their general jurisdiction to appoint corporate receivers. Such enactments, it is held, are to be strictly construed, following the general principle that statutes in derogation of the common law must be so construed.^ Legislation which authorizes simple contract creditors, whose claims have not been reduced to judgment, and who have no express lien by mortgage, trust deed or otherwise, to institute proceedings in the courts of the state against insolvent cor- was to receive sach money. The thereby has the right to have the amount so paid, provided he kept order appointing the receiver an- up his dues, met such assessments nulled on certiorari. Smith v. Supe- as aforesaid, or paid out as provided rior Court, 97 Cal. 348. for in sections one and two, as ' People's Home Savings Bank v. amended, of article 14 of the by- Superior Court, 103 Cal. 27; Va., laws, being his absolutely, and he Tenn. and Car. Steel and Iron Co. surrendering in consideration there- v. Wilder, 88 Va. 942; Hinckley i). of the interest that otherwise he Pfister, 83 Wis. 64. might have received in the said as- InBrabbrook Tailoring Co. e. Beld- sociation assets." The stockholders ing Bros. & Co., 40 111. App. 326, the agreeing to this arrangement, it was bill of the complainants alleged A«W, that the shareholders all agreed that they were creditors of the de- that the members who took the fendant corporation; that judgment money and paid dues and interest, for over $30,000, by confession, had and agreed to take the money ad- been entered against it, and that all vanced to them in full for their its property had been levied on uu- stock, should not be required to pay der execution ; it then charged that back the money advanced, and such judgments were void; that the therefore there were no assets for company was insolvent and had distribution. ceased to do business two days prior ' In California, under such cir- to the filing of the bill, the day in- cumstances, a creditor aggrieved tervening being Sunday ; it then 78 KECEIVEE WILL NOT BE APPOINTED. [CHAP. III. porations, has not, it is decided, the effect of abrogating the rules of law and equity under which the Federal Courts enter- tain jurisdiction and grant relief to creditors of an insolvent corporation. It is the settled rule of the Federal Courts that simple contract creditors cannot come into a court of equity and have a receiver appointed of the property of an insolvent corporation. The fact that unpaid stock subscriptions are sought to be reached does not change the rule.^ In the settlement of the affairs of a dissolved corporation, it is not a matter of right on the part of a minority of the stockholders to have a receiver appointed and a sale ordered of its corporate assets. If the circumstances are such that the appointment of a receiver is neither necessary to protect nor to ascertain the interests of parties, a court of equity wiU neither appoint a receiver nor order a sale, but wiU be justified in making a decree ascertaining the value of the assets in some fair and equitable manner, and make a distribution to share- holders on that basis.^ prayed for the appointment of a receiver, etc. A • receiver was ap- pointed, and upon appeal hi8 ap- pointment was sought to be sus- tained under sec. 25, chap. 33 of the Eev. Statutes of Illinois, which provides that ' ' when a corporation shall cease doing business, leaving debts unpaid, suits in equity" may be brought against all persons who were stockholders at the time, or liable in way for the debts of the corporation,'' etc, " And courts of equity shall have full power, on good cause shown, to dissolve or close up the business of any cor- poration, to appoint a receiver thereof, etc." It was, however, Tield, that the appointment was erro- neous, and that " to justify the appointment of a receiver upon a bill filed under this section, some- thing more is necessary than a mere allegation that it has ' ceased doing business.' It must be shown that such cessation has been for such time that the court may infer more than a temporary suspension ; or facts must be set forth from which it appears that the suspension is more than an interruption of its usual course by reason of some emergency." ' HoUins «. Brierfield Coal and Iron Co., 150 U. S. 371. It has been held, further, that the fact that an execution has been issued and re- turned unsatisfied is not sufficient; the return must show as reason for its being unsatisfied that the officer could find no property whereon to make a levy. Buckeye Engine Co. D. Douau Brewing Co., 47 Fed. Rep. 6. ^ Baltimore & Ohio R. Co. v. Can- non, 73 Md. 493. In this case it ap- peared that a voluntary relief asso- ciation, formed by the employees of a railroad, was afterwards incor- porated by special act of the legis- lature, and about seven years later, when it was large and prosperous, SEC. 21.J DISSOLUTION OF A CORPORATION. 79 Sec. 21. Upon the dissolution of a corporation. — Some, if not all, of the states have enacted a statute which provides that upon the dissolution of any corporation the directors or managers of the affairs of such corporation, at the time of its dissolution, shall be the trustees of its creditors and stock- holders, with power to settle the affairs of the corporation and be vested with the title of its property and be responsible to the creditors and stockholders of such corporation to the extent of its property and effects that shall come into their hands. Where such a statute is in force a receiver should not be appointed of the defunct corporation without notice to the trustees who take the property of the corporation as trustees for stockholders and creditors. By operation of law a vested right of action accrues to aU creditors and stockholders, imme- diately on the dissolution, against such trustees for the value of aU property which did or may, by the exercise of reason- able diligence, come into their hands. This is a liability which after it once attaches is beyond the constitutional power of a legislature to release or discharge. It is therefore necessary that the trustees, who are invested with this trust and conse- quent liability, should have notice of any proceeding affecting the property and assets of the corporation.' So, if the decree of a foreign government, dissolving a cor- poration and annulling its charter, is recognized as binding on the corporation and its stockholders, and by its terms the prop- the legislature repealed its charter, ascertained and paid to them in to take effect on a subsequent day. money, and this the railroad com- A few days before the charter ex- pany stood ready and able to per- pired the association transferred all form. Ninety-five per cent, of the its property to the railroad company, members of the old association be- which had guaranteed its obliga- came members of the new. The tions, and the latter agreed to apply remaining members wished to re- the same to the liabilities of the ceive in money the value of their association, and thereafter for the interests, and one of them brought benefit and advantage of a new as- this action for receivers and a sale sociation, which was to take the and distribution of its assets. The place of the old, and also, that in court below appointed receivers, case any members of the old asso- but upon appeal it was held erro- ciation should refuse to become neous and the receivers were or- members of the new association, dered to be discharged. See also the value of their respective mem- Davis v. Gemmell, 73 Md. 530. berships and interests should be ' People v. O'Brien, 111 N. Y. 1. 80 RECEIVER WILL NOT BE APPOINTED, [CHAP. III^ erty of the corporation is to be seized and held subject to thfr order of commissioners therein appointed, to whom all right and title to the property is intended to be passed, a stockholder can not, in the courts of such foreign country, apply for a receiver, and he therefore cannot apply for a receiver outside of their jurisdiction.^ And of course if a receiver's powers and authority are not limited, as those of a common law receiver usually are, to the territorial jurisdiction of the court appoint- ing him, but extend to foreign territory, the tribunals of the latter territory also wiU not appoint a receiver over the prop- erty of the corporation located within its dominions and over which such foreign receiver has full authority and control.^ Sec. 22. Under special circumstances as stated. — It is not the province of a court of equity to take possession of the property, and conduct the business of corporations, except when the exercise of such extraordinary jurisdiction is indis- pensably necessary to save or protect some clear right of a suitor, which would otherwise be lost or greatly endangered, and which cannot be saved or protected by any other action or mode of proceeding. There is no case in which the court ap- points a receiver merely because such appointment can do no harm.' And a receiver wiU not be appointed when none of the actual holders of the stock or bonds of a railroad company, who would be affected similarly with the applicant, were before the court, on the ground of a possible injury to such stock- holder, especially where he has nothing more than a disputed equitable claim for deferred stock ; ^ or where the holders of alleged shares of the capital stock of a corporation declare that they had been illegally issued, and it appears that the moneys received by the corjporation, on the issue of the shares, had not been kept separate from its general funds and could not be traced and identified.^ '' Hamilton i>. Accessory Transit Dover, etc., R. R. Co., 13 Ontario Co., 36 Baib. (N. Y.), 46. Appeals, 388 ; Clapp v. Interstate St. ^ Parsons v. Charter Oak Life Ins. R. Co., 61 Fed. Rep. 537. Co., 31 Fed. Rep. 305. < Overton ■». Memp. & Little Rook 'Orphan Asy. Soc McCarter, 1 R. Co., 3 McCrary (U. S. C. C), 436. Hopkins, N. Y. Ch. 439 ; Blondheim ' Whelpley •■». Erie Ry. Co., 6 1) Moore, 11 Md. 365 ; Smith ■». Port Blatchf. (XJ. S. C. C), 371. SEC. 22.] UNDER SPECIAL CIRCUMSTANCES. 81 And where the funds from the sale of a railroad are in the hands of trustees, appointed by the legislature, who hold their trust ex officio, as high public officers of the state, and especially where one part of the trust involves duties of a public character, the court will be very reluctant to take the fund out of their hands, and will not do so except for the most cogent reasons, such as gross fraud and imminent danger to the trust fund. It will avail itself of every other means of compelling the trustees to perform their duty before resorting to this extreme measure.' Neither will the court appoint a receiven in an improper case, even on the consent of both parties to the suit, especially when the rights of third parties may be concerned ; ^ or where the property of a corporation is in the possession of a person not a party to the suit.^ So, where the title to an unused railroad track is in dispute, and both parties to the controversy claim possession, and neither is in actual physical possession, a court of equity will not interfere in a suit to quiet title by appointing a receiver, even where the defendant has attempted to take forcible pos- session, until the right to possession is established at law.* The mere disagreement of the parties as to the management of the property furnishes no foundation for the appointment of a receiver ; that can only be done as an incident to some relief falling within the jurisdiction of the court.^ In an action to prevent the consolidation of railroad com- panies, the election of directors for the new company, at a meeting of the stockholders, will not justify such an appoint- ment against either of the companies, on the ground that part > Vose «. Reed, 1 Wood (U. S. C. " St. Louis, Kansas City & C. C), 647. See also Pyles v. Furniture E. Co. v. Dewees, 23 Fed. Rep. Co., 30 W. Va. 123. 519. ' Whelpley v. Erie Ry. Co., 6 » American Loan & Trust Co. v. Blatchf . (U. S. C. C), 271. Toledo, C. & S. Ry. Co., 29 Fed. Rep. ' Searles v. Jacksonville, Pensa- 416 ; City of Rochester v. Bronson, cola & Mobile R. E. Co., 3 Woods 41 How. Pr. (N. T.), 78; Hinckley «. (U. S), 622; Einstein v. Eosenfeld, Blethen, 78 Me. 221. See also D., etc., Mills, 38 N. J. Eq. 309. See L. & W. R. Co. ■». Erie R. Co., 21 N. also Bigelow v. 0nion Freight R.R., J. Eq. 298. 187 Mass. 478. 82 RECEIVER WILL NOT BE APPOINTED. [CHAP. III. of the stockholders participating in the meeting have been inhibited from doing so by injunction.^ If one receiver appointed to administer the assets of an in- solvent corporation is performing his duties, the court will not, upon the application of a creditor who does not apply for relief in the suit wherein the appointment is made, appoint a second receiver. Such creditor may obtain his remedy without resort- ing to an independent suit.^ And if receivers of a railroad are appointed upon the appU- cation of judgment creditors, and subsequently suit is brought by the trustees of a mortgage upon the property to foreclose it, the court wiU extend the receivership to the foreclosure suit and consolidate them and will not appoint independent receivers therein.^ While the court may upon its own motion nominate a re- ceiver when the case requires it, such a proceeding cannot be inaugurated and conducted by outside parties, who have no connection with the case, or interest in the subject matter of the litigation. A person not having any interest cannot pro- pose a receiver, and it is contrary to the orderly and regular proceedings of a court of justice to allow a stranger to partici- pate in a motion for such an appointment.^ In Wisconsin, a banking corporation, created and existing under the general banking law of that state, may make a vahd assignment of aU its property and assets for the payment of its debts in the manner prescribed by statute. It is also pro- vided by statute that upon the recovery of a judgment against any corporation and the return of an execution unsatisfied, either in whole or in part, the judgment creditor may petition the court and the latter may sequestrate the property and effects of the corporation and appoint a receiver of the same. A case involving the effect of the appointment of a receiver, under the latter statute, after a bank had made a valid assign- ' Railway Co. -o. Jewett, 37 Ohio ' Lloyd ». Chesapeake, 0. & S. W. St. 649. R. Co., 65 Fed. Rep. 351. And see = National Bank of Augusta v. Clapp d. Interstate St. Ry. Co., 61 Richmond Factory, 91 Ga. 384. And Fed. Rep. 537. see New York, P. & 0. R. Co. v. N. ^ O'Mahouey ■». Belmont, 63 N. Y. N. T., L. E. & W. R. Co., 58 Fed. 133. Rep. 368. SEC. 22.] UNDER SPECIAL CIRCUMSTANCES. 83 ment under the first statute referred to, was lately considered by the Supreme Court of Wisconsin and the conclusion was reached that the appointment of a receiver in such a case does not annul the assignment or supersede it, and that the prop- erty and effects of the bank in the hands of its assignee can- not be sequestered or the receivership extended over it ; that i;he receiver took nothing under his appointment and that the assignee had full authority to administer the property under the assignment law.^ ' Garden City Banking & Trust Co. v. Geilfuss, 86 Wis. 613. 84 WHO MAY AND MAT NOT BE APPOINTED. [CHAP. IV.. CHAPTER lY. Who mat and who mat not be Appointed Receiver.. Sec. 33. Who will be appointed. 34. Who will not be appointed. Sec. 23. Who may be appointed. — A receiver is strictly and solely the officer of the court. It is his duty so to con- duct the business that the lawful rights and legal interests of all persons in the property and in the business shall be pro- tected, as far as possible, with equal and exact justice. This is much more likely to be done by a receiver who has no interest in the capital stock of the corporation, none in its- debts, and no obligation to those who have. Such a person, acting under the control of the court, seeking its advice, and bound in a sufficient surety for the faithful performance of his. duty, is the proper one for such an office.^ It is not necessary that the receiver should be an individual ; trust companies often have the power conferred upon them, by special enactment, to assume the exercise of such trusts, when it might be difficult to procure the assumption thereof by individuals, on account of the large security required, and the difficulty of obtaining persons competent to give such security and to manage such affairs.^ It is not an inflexible rule that one who is a creditor, stock- holder or an officer of an insolvent corporation shall not be its receiver. Formerly not only the exigencies of a particular case, but also the consent of parties interested, was necessary to justify the court in appointing a stockholder or an officer of an insolvent corporation as its receiver, but this rule has been modified, and the court now very often appoints an officer of the corporation its receiver.^ The proper management of the ' Meier ■». Kansas Pacific Eailway , ^ Bank of Monioe «. Schermerhorn,. 5 Dillon (U. S. C. C), 476. 1 Clarke's Ch. (N. T.), 366; Atkins v. ' In the Matter of Knickerbocker Wabash, St. Louis & Pacific R. Co., Bank, 19 Barb. (N. Y.), 603 ; In the 39 Fed. Rep. 161 ; Finance Co. of Matter of Empire Bank, 10 How. Penn. «. Charleston, C. & C. R. Co.,. Pr. (N. T.), 498. 45 Fed. Rep. 486. SEC. 23.] WHO MAY BE APPOINTED. 85 assets of a corporation may demand the appointment of one who is familiar with them and their past management. The selection therefor must rest largely upon the duties to be performed, the ■difficulties to be encountered and the condition of the corpo- rate property. The qualifications of a stockholder or of an ■officer of the corporation to encounter these difficulties and perform the duties required under the exigencies of a particu- lar case, may make his appointment desirable, if not essentially necessary, and the mere fact that he was affiliated with the past management of the corporation will not disqualify him to ^et as receiver.' Thus, a trust company, having been ap- pointed receiver of a savings institution, sued a bank to recover money due the savings institution. The bank being insolvent, the trust company was also appointed its receiver.^ So a public officer of the State of Missouri, authorized in bis official capacity to wind up an insolvent corporation located in said state, and doing business in the State of Tennessee and some thirty other different states, was held not disqualified to be appointed a receiver of the assets of the corporation within the State of Tennessee, although he had been made a party defendant to a general creditor's bill removed from the State Court for the purpose of winding up the corporation under the insolvent laws of Tennessee.' In New York the statute relative to voluntary dissolutions ■of corporations has authorized the appointment of officers or stockholders of the corporation, as weU as other persons, as receivers, if they are not otherwise disqualified.* ' Fowler v. Jarvis-Conklin Mort- impropriety in making the trust gage Co., 63 Fed. Eep. 888, 66 Fed. company, acting for that institution, Eep. 14; Ealston ■». Washington & receiver also of the bank. But C. R. Co., 65 Fed. Rep. 557 ; 01m- this was not the case. The receiver stead ■». Distilling and Cattle Feed- of the bank was to act for all the ing Co., 67 Fed. Rep. 24 ; People v. creditors of the bank, and was dis- Illinois Building and Loan Ass., 56 interested, except as to the one claim 111. App. 643. o-t the savings institution." ' In the Matter of Knickerbocker ' Taylor v. Life Association of Bank, 19 Barb. 603, the Court said : America, 3 Fed. Rep. 465. ■" If the appointment of a receiver * Code Civil Procedure, § 3439 ; was only for the purposes of the In Matter of the Eagle Iron Works, suit on behalf of the savings insti- 8 Paige, 880. tution, there would be a manifest 86 WHO MAT AND MAT NOT BE APPOINTED. [CHAP. IV* Sec. 24. Who may not be appointed. — When called upon to appoint a receiver for a corporation totally insolvent, who- is to be the mere servant of the court and upon whose fidelity and ability the court must rely to manage the property in- trusted to him during the pendency of the suit, the court ought not, and ought not to be expected, to appoint a person under whose charge and control the resources of the corpora^ tion have been exhausted, and the necessity created for a receiver.^ An individual who was appointed secretary of an insolvent savings bank by its directors, and was used by them in a month thereafter to make and verify a false statement declar- ing its solvency, and who was named by them as its receiver in a suit which they caused to be instituted to wind up its affairs,. is not a fit and proper person to execute such a trust.^ The law partner of the solicitor for complainant is not a. ' Richards v. Chesapeake & Ohio R. R. Co., 1 Hughes (U. S. C. C.),28; Buck v. Insurance Co., 4 Hughes (U. S. C. C.),415; Atkins v. Wabash, St. L. & P. Railway Co., 39 Fed. Rep. 161. In Attorney-General v. Bank of Columbia, 1 Paige (N. Y.), 511, Chancellor Walwokth said : " If there had been fraud or mis- management on the part of the officers of the institution, by which they had made themselves person- ally liable to the creditors, it would be the duty of the receiver to inves- tigate the subject and expose the fraud if any existed. Although the chancellor, from a knowledge of the character of the gentlemen who had controlled the afiairs of this institution, was satisfied no fraud had been committed, yet he still had a duty to perform as regarded the public. Those creditors who had been stripped of their property by the failure of the bank, had a right to claim from the court the appointment of a receiver upon whose impartial investigation they might rely, and who could have no interest in opposition to theirs. * * * If the law will not in- trust the concerns of an insolvent institution in the hands of its direc- tors jointly, as trustees for the cred- itors, certainly the court ought not to intrust them to a part only as receivers. Public policy requires that the directors shall understand distinctly that if they so manage the concerns of the institution as to produce insolvency, the property and effects of the institution will be taken from them entirely, and be placed in the hands of those who will investigate their conduct fear- lessly and impartially." See also Keeler v. Brooklyn Elev. R., 9 Abb. N. C. (N. T.), 166; Free- holders, etc., V. State Bank of New Brunswick, 28 N. J. Eq. 166 ; Fripp V. Chard R. Co., 11 Hare (Eng,), 240. ° People V. Third Avenue Savings Bank, 50 How. Pr. (N. T.), 23. See also Smith v. N. T. Consolidated Stage Co., 18 Abb. Pr. (N. T.), 419. SEC. 24.J WHO MAY NOT BE APPOINTED. 87 proper person for receiver ; he is presumptively as much in- terested as the solicitor.^ And generally neither a party to a suit, the master of the court, nor a trustee, whose business it is to watch a receiver, should be appointed.^ Private preferences must yield to pub- lic consideration ; and no man can claim it for himself or his particular friend, especially where so many absent parties not known to the record, and who are and doubtless wiU remain quite ignorant of the proceedings, are interested in the subject matter of the controversy. They have a right to rely, exclu- sively and without professional intervention, on the care and vigilance and unbiased judgment of the court.^ ' M. & M. Nat. Bank v. Circuit v. Bill, 63 111. 408 ; Kilgore v. Hair, Judge, 43 Mich. 292 ; Baker v. Ad- 19 S. C. 486 ; Finance Co. of Penn. ministrator of Backus, 32 111. 79. v. Charleston, C. & C. R. Co., 45 'Young V. Rollins, 85 N. C. 485; Fed. Rep. 436. Bank of Monroe v. Schermerhorn, 'In the Matter of Empire City 1 Clarke's Ch. (N. Y.), 366; Benneson Bank. 10 How. Pr. (N. Y.), 498. 88 POWEK OF COURTS OVEK KECEIVEKS. [CHAP. V. CHAPTEE V. Of the Jurisdiction and Power of Various Courts OVER Receivers. {A.) Of the Jurisdiction of Courts : Sec. 25. Of the jurisdiction of tlie court first acquiring control. 36. Where a Federal Court will retain exclusive control. 37. Where a State Court will retain exclusive control. 38. Matters and claims of which the court will not take j urisdiction. (B.) Of the Powers of Courts over Receivers : 39. The court will protect the possession of the receiver. 30. The court may authorize the receiver to conduct the business. 31. The court may restrain litigation against the receiver. 33. The court may direct litigation by the receiver. 33. The court may create liens prior to mortgage indebtedness. 34. Over the receiver's executory contracts. 35. Over and upon the sale of the property. 36. Upon the transfer of title. 37. Over the time for filing claims. 38. To punish receivers for contempt. 39. Over receivers of national banks. (-4.) Of the Jurisdiction of Courts : Sec. 25. Of the jurisdiction of the court first acquiring control — The general rule is well understood to be that the court which first takes cognizance of the controversy is enti- tled to retain jurisdiction until the end of the litigation, and, incidentally, to take possession of the subject matter of the controversy to the exclusion of all interference by other courts of concurrent jurisdiction, both in relation to the disposition of the subject matter of the action, the commencement of suits against the receiver without permission, and the general con- trol and removal of the receiver. All attempts to interfere with the property involved without permission of the court first acquiring jurisdiction, although done under color of legal process, may be treated as a contempt and so punished. There may be some question as to when a court acquires jurisdiction, whether possession of the property involved in SEC. 25.J or THE JURISDICTION OF THE COUET, ETC. 89 addition to cognizance of the controversy, is not equally neces- sary for exclusive jurisdiction, but when jurisdiction is once obtained the above principles certainly apply.' The decisive test, as expressed by the weight of authority, is that where, the controversy in both actions is the same, the court first acquiring jurisdiction of the controversy will retain it ; and that it is not necessary that it should also take actual possession of the property through its receiver to obtain exclu- sive jurisdiction.^ ' Jerome v. McCarter, 94 TJ. S. 737; Young v. Montgomery & Eu- faiila R. R., 2 Woods (U. S. C. C), 606; Wiswall v. Sampson, 14 How. (U. S.), 53 ; Chittenden i>. Brewster, 3 Wallace (U. S.), 191; Judd v. Bankers and Merchants Tel. Co., 24 Blatchf. (U. S. C. C), 420; O'Ma- honey v. Belmont, 62 N. Y. 133; Minchin v. Second National Bank of Paterson, 86 N. J. Eq. 436 ; Safford V. People, 85 111. 558 ; State ®. Jack- sonville R. Co., 15 Fla. 201 ; Spin- ning ■». Ohio Life Ins. and Trust Co., 3 Disney (Ohio) , 836 ; May v. Print- up, 59 Qa. 129 ; Adams «. Mercan- tile Trust Co., 66 Fed. Rep. 617; State ex rel. ■». Ross, 132 Mo. 463 ; Port Royal & Augusta R. Co. v. King, 93 Ga. 63; Hatch v. Bankcroft- Thompson Co., 67 Fed. Rep. 803. In Milwaukee & St. Paul R. Co. v. Milwaukee & Minn. R. Co., 30 Wis. 165, an action to foreclose a junior mortgage upon the property of a railroad which was in the possession of a receiver appointed by a Fed- eral Court in an action to foreclose a prior mortgage, it was attempted to avoid the principle stated in the text, by insisting that it was one object of the suit to inquire into the regularity of the foreclosure made in the Federal Court, and to set aside and vacate that foreclos- ure, and the conveyance made to the defendant company. And it was said that the court should take jurisdiction for the purpose of de- termining and settling those ques- tions, and then, if there was any doubt about its right to enforce its j udgment while the receiver was in possession, it should direct the party to apply to the court in which the receiver was appointed for leave to execute its judgment. The court decided, however, that the more appropriate tribunal for settling those rights was in the Federal Court, which had already taken the possession and control of the rail- road property by its receiver, and which, in distributing the fund, could fully protect the interests of all parties. In North Carolina the rule is that the Superior Court of one county will not take cognizance of any question affecting the property of a corpora- tion in the hands or a receiver ap- pointed by the Superior Court of another county. Brown ■». Carolina Central R. Co., 83 N. C. 128. 2 Gay lord v, Ft. W., M. & C. R. R., 6 Bissell (U. S. C. C), 386 ; Bill v. New Albany, etc., R. R., 2 Bissell (U. S. C. C), 390 ; Howlett v. Cen- tral Car. Land and Imp. Co., 56 Fed. Rep. 161 ; Leggett v. Glenn, 51 Fed. Rep. 381 ; Young v. Rollins, 85 N. C. 485. In the latter case the action was brought on behalf of the plain- tiff and other stockholders for the 90 POWEE OF COURTS OVER RECEIVERS. [CHAP. V, Or, if the object of the action be the control and dominion of the property involved in the litigation, the court which first acquires possession, or that dominion which is equivalent to possession, draws to itself the exclusive right to dispose of it. That dominion, which is equivalent to possession, is acquired by the appointment of a receiver in a court of competent jurisdiction.' But here the United States Supreme Court has drawn a line between courts of concurrent and co-ordinate jurisdiction and courts whose jurisdiction is not concurrent, and the sub- ject matter in litigation in the one is not within the cognizance of the other. In the former case no doubt is entertained that the court first obtaining jurisdiction is entitled to retain it without interference, and cannot be deprived of its right to do so although it may not have first obtained physical possession of the property in dispute. While in the latter case, the jurisdiction not being concurrent and the subject matter in litigation in the one not being within the cognizance of the other, that court having cognizance of the subject matter is not prevented from proceeding in due course, even though such other court has appointed a receiver of the same subject matter. Actual or even constructive possession by such re- ceiver may, for the time being and in order to avoid unseemly collision, prevent it from disturbing such possession ; when, however, there is neither one or the other, there is no obstacle purpose of witlidrawmg the funds In order to determine the question of a railroad company from its di- of priority, the court will inquire rectors and placing them, for greater into the fractions of a day. People security, under the control of a re- v. Central City Bank, 53 Barb. (N. ceiver. During its pendency and be- Y.), 412, 417. fore a receiver was appointed there- ' Shields v. Coleman, 157 U. S. in, a judgment creditor brought an 168 ; Central Trust Co. ■». Chatta- action in another court of Georgia nooga, etc., R., 63 Fed. Rep. 950; against the company for the like Central Trust Co. v. South Atlantic purpose of securing its assets by & O. R., 57 Fed. Rep. 3; Union the appointment of a receiver, and Trust Co. v. Rockford, etc., B. Co., therein a receiver was appointed 6 Bissell (U. S.), 197 ; Texas Trunk prior to the appointment made in R. Co. ■». Lewis, 81 Tex, 1 ; Texas this action. Held, that the receiv- Trunk R. Co. •». Texas, 83 Tex. 1 ; er's appointment in the judgment Curry v. Houston & T. C. R. Co., 52 creditor's action was invalid. Fed. Rep. 671. SEC. 25.J or THE JURISDICTION OF THE COURT, ETC. 91 to its taking possession.^ This rule would seem to accord with the one laid down in cases in which the controversy is not the same. In those cases there is no conflict of jurisdiction as to the question or cause and the court which first acquires juris- diction of the property by actual seizure through its receiver, will enforce that jurisdiction and assume the actual possession to which it has the right ; and until the property is seized, no matter when the suit was commenced, the court does not have jurisdiction of the property, and another court of concurrent jurisdiction may appoint a receiver, and, through him, take possession of the property.^ This rule extends even to cases ' In proceedings for the voluntary dissolution of a corporation a re- ceiver of its property and effects was appointed by the Supreme Court of the State of New York. The receiver filed his bond three days thereafter. After his appoint- ment, on the same day, certain cred- itors of the corporation libelled several vessels, which were the property of the corporation, by filing libels in the U. S. District Court for the Eastern District of New York, and upon process issued from that court the marshal took possession of such vessels, and re- fused to deliver up possession to the receiver. The receiver then made a motion in the State Court, in the proceedings wherein he was appointed, to restrain the libellants from further steps in the U. S. Dis- trict Court. It was liMd, that the libellants acquired no rights under their process, and they were re- strained from further proceeding under it. Matter of Schuyler's Steam Tow Boat Co., 136 N. Y. 169. But upon writ of error being sued out it -was held that the State Court had no jurisdiction in personam over the libellants, as holders of maritime liens, when the libels were filed ; that the question of jurisdidtion was one for the District Court to decide in the first instance;, that the District Court had jurisdic- tion ; and that the order under re- view was in efEect an unlawful interference with proceedings in that court. Moran v. Sturges, 154 U. S. 256. And see Roxbury v. The Lotta, 65 Fed. Rep. 319. It has also been held that a steamship in the possession of a receiver of an in- solvent corporation appointed by a State Court is not exempt from mar- itime liens for liabilities incurred in another state in the course of transporting merchandise and pas- sengers, nor from seizure for en- forcement of such liens upon libels in a United States District Court in that state without leave of the court appointing the receiver. Glee- son v. The Willamette Valley, 62 Fed. Kep. 393. And see Paxson d. Cunningham, 63 Fed. Rep. 132. 5 East Tenn., etc., R. Co. v. At- lanta & F. R. Co., 49 Fed. Rep. 608. Where, pending a bill filed in a Federal Court and before the ap- pointment of a receiver by it, a State Court of co-ordinate jurisdic- tion appoints a receiver of a rail- road who takes possession of its property, and subsequently and without notice of such appointment the Federal Court appoints a re- ceiver to take possession of the m POWER OF COURTS OVER RECEIVERS. [CHAP. T. Avhere the bill charges fraud and collusion in the proceedings in the court which had acquired jurisdiction; in such case same property, sucli order of ap- pointment will not be recinded upon notice being brought to the Federal Court of the previous appointment \>y the State Court. The possession of the receiver of the State Court is wrongful, and should give way to the prior Jurisdiction of the Fed- eral Court. Gaylord v. Fort Wayne, M. & C. R. R. Co., 6 Bisa. (U. S. C. C), 286. In this case it was also insisted that because a demurrer had been sus- tained to the original bill filed, with leave to amend, and between the date of the filing of the bill and the amendment, the receiver was ap- pointed by the State Court and took possession, therefore the Federal Court lost jurisdiction of the subject matter, and could not permit the imperfect allegations to be amended, and thereby affect the assumed right of the State Court. It was, however, decided that this did not change the jurisdiction, as the amendments related back to, and became part of, the original bill. See also Wilmer ■». Atlanta & Richmond Air Line Railway Co., 3 Woods (U. S. C. C), 409, 436. In this case, on the motion for the ap- pointment of a receiver. Judge Woods said : " The inquiry then recurs, can this court, having ob- tained jurisdiction over the person of this corporate body, exercise jurisdiction over its real and per- sonal property outside the limits of the state, by the appointment of a receiver to take possession of the «ntire property, both within and without the state? There is a precedent for the exercise of such jurisdiction. In Ellis v. Boston, Hartford & Erie R. R. Co., 107 Mass. 1, the court appointed a receiver for the entire line of the defendant company's road, which extended from Boston, in Massachusetts, to Fishkill, in New York. When the property is situated outside the ter- ritorial jurisdiction of the court, the court may require assignments to be made by the defendant to the receiver. Chipman v. Sabbator, 7 Paige Ch. (N. T.), 47; Cagger «. Howard, 1 Barb. Ch. N. T.), 369; Story on Conflict of Laws, § 463; Railroad Co. v. Railroad Co., 15 How. (U. S.), 243. As the property of the defendant company is one entire and indivisible thing, and as it is all covered by one deed of trust, there seems to be no good reason why this court should not appoint a re- ceiver for the whole, even though a part of the property may extend into another state. The court hav- ing jurisdiction of the defendant can compel it to do all in its power to put the receiver in. possession of the entire property. If other persons outside the territorial jurisdiction of this court have seized the prop- erty of this defendant, the receiver may be compelled to ask the assist- ance of the courts of that jurisdic- tion to aid him in obtaining pos- session, but that is no reason why we should hesitate to appoint a receiver for the whole property. We think the courts of other juris- dictions would feel constrained, as a matter of comity, to afford all nec- essary aid in their power to put the receiver of this court in posses sion." See also Andrews i). Smith, 19 Blatchf. (U. S. C. C), 100. In this case the defendants, citizens of Ver- mont, were trustees, and represen- SEC. 25.J OF THE JUEISDICTION OF THE COURT, ETC. 93^ another court of even co-ordinate jurisdiction will not interfere,^ for the aggrieved party has an ample remedy, as a party in tatives of trustees, under the first mortgage of the V. C. E. E., ■who had been in possession, after a default of payment, of that and the V. & C. E. E., subject to a prior lien upon the income of both roads to secure the payment of rent to the V. & C. E. E. The orators, citizens of MaSr sachusetts, holders and owners of the first mortgage bonds, brought this bill, alleging, in substance, that the defendants, as such trustees, had received from the income of the roads large sums of money, more than enough to pay the rent, which they applied to their own uses and to other purposes, and failed to pay over to the bondholders, to whom the money belonged. The plea of the pendency of proceedings in a Court of Chancery of the State of Vermont was made to the jurisdic- tion of the court. The proceedings in the Court of Chancery of the State were brought to enforce the lien for rent, and resulted in the ap- pointment of these trustees of the first mortgage while so in posses- sion as receivers to raise funds to pay off the rent before applying the income to these mortgage bonds. Afterwards an agreement was made between the parties, changing the basis of the rent and providing for certain things to be done, and spe- cific payments to be made, and that then the trustees should pay, first, the rent, second, the first mortgage bonds, third, the second mortgage bonds, and then the mortgagor, and that there should be a decree in the cause, to be binding on all parties in Interest in both roads, A decree was made accordingly, founded on this consent. While the trustees were thus in possession, they re- ceived the money sought by the orators. Afterwards they were, at their own request, discharged from the possession of the property by an order of court placing it in other hands, which provided for the set- tlement of their accounts, and that they should remain subject to the order and protection of the court until their accounts should be settled. An account was taken by masters of that court of all their re- ceipts and expenditures while so in possession of the roads and property, which included all the items claim- ed by the orators, and which was pending in that court. The Court, after an exhaustive examination of the proceedings pending in the State Court, said : " When the com- promise agreement was made, the trustees were, as has been before stated, in possession, and were also receivers to raise the rent due the lessor from the income. That agreement made provision for all rent then due, and provided a new basis for it thereafter for certain specific payments, and for the appli- cation of the residue of the net in- come ; and then that all claims and demands between the parties here- to, not herein otherwise provided for, shall be waived and abandoned, and no further claim or proceeding shall be made or had in respect thereto. The agreement was carried into effect, but the trustees were not otherwise formally discharged as receivers ; and because they were not formally discharged, it is said that the receivership continued. But a receiver is the hand of the court, and whatever property he holds is held for the court. After that agreement there was no prop- M POWER OF COURTS OVER RECEIVERS. [CHAP. V. interest, in the proceedings in the court which has jurisdiction, upon sufficient cause shown, to obtain redress, by intervening in his own behalf.' erty left in the custody of the court for a receiver to have. The parties had provided for the custody and disposition of the property, and left nothing for the court to do about it. There was no occasion for the court to discharge them, for the parties themselves had accom- plished the discharge. Had any party insisted upon their continuing as receivers as against the bond- iolders the request could well have been granted." The court held that it had jurisdiction of the contro- versy and would retain it. In Minchin v. Second National Bank of Paterson, 36 N. J. Eq. 436, a bill, filed by a creditor and stock- holder of a New Tork corporation, insolvent, stated that a bill was filed by the complainant and other cred- itors against the corporation, and some time thereafter a receiver was appointed under the act concerning corporations ; that after the filing of the bill, but before the appoint- ment of the receiver, a creditor of the corporation sued out of the Circuit Court of Hudson County, in New Jersey, an attachment against the corporation, under which all its property and assets in that county, which were all it had in New Jersey, were levied upon and seized; that the defendant Grier, unwarrantably assuming to act for the corporation, caused its appearance to be entered in the attachments, and so created a preference in favor of the attaching creditor, who, at the time of his proceedings in the attachment, knew of the proceedings in insolvency, and knew also the fact that the cor- poration was insolvent; that the attachment suits were removed to the Circuit Court of the United States for the District of New Jersey and that application in behalf of the receiver had been repeatedly made in both of the above mentioned courts, to vacate and set aside the appearances, and dismiss the attach- ments, and the courts declined to grant them. The bill prayed that the attachment creditor be enjoined from further prosecuting the at- tachment suits, or procuring or in- sisting on a sale of the attached property, and that the auditor might be restrained from selling, and might deliver up the property to the receiver. Seld, upon demurrer, that the auditor in attachment was an officer of the Federal Court which had obtained prior jurisdic- tion over the property under the attachments, and the complainant's bill could not be maintained. ' Young «. Montgomery & Eu- faula E. Co., 2 Woods (U. S. C. C), 606, 619; State ». Marietta & Cin- cinnati R. Co., 35 Ohio St. 154 ; New York, P. & O. K. ■». New York, L. E. & W. R., 58 Fed. Rep. 268. In Judd ». Bankers & Merchants Tel. Co., 34 Blatchf. (U. S. C. C), 420, the bill asserted that grave irregulari- ties had taken place in the pro- ceedings of the State Court, which was, by its receiver, in the possession and control of the property of the corporation, and that the suits had been controlled by parties acting coUusively, to advance their own interests, at the expense of the com- plainant and those similarly situ- ated. The Court said : " If the com- plainant's interests have not been properly protected in the proceed- ings in the State Court, he has an .SEC. 25.] OF THE JURISDICTION OF THE COURT, ETC. 95 But when the controversy in the two actions is not the same, as, for example, the forclosure of two distinct mortgages upon the same property, even though a court possessing juris- diction has acquired actual possession of the property through its receiver, another court of concurrent jurisdiction may sub- sequently take cognizance of and proceed with an action to foreclose a second mortgage upon the same property, though it wiU not, and cannot lawfully, go so far with the proceedings as to take the possession of the property from the other court, or in any manner to interfere with the possession of it by that court, or its receiver.^ Exclusive jurisdiction once obtained by a court carries with it the exclusive right to administer the trust property within its territorial jurisdiction and to direct the receiver according to law and equity and the practice of the court. Without its permission, the judicial proceedings of another court, whether it be one of concurrent jurisdiction or existing under the laws of a foreign state, are not binding upon the court or its receiver, and do not, in any manner, affect the trust property. This principle also applies to the appointment of an ancillary receiver, be he the same individual or not, by another court in foreign territory. There is, however, this exception : the judi- cial proceedings in the courts of the foreign state wherein the ancillary receiver is appointed, are binding upon the receiver and the court that is primarily administering the trust estate, only to the extent and in respect to so much of the estate as is within the limits of such foreign state. Limited to this extent, such proceedings, and the judgments and decrees therein ren- ample remedy as a party in interest, that the trustees, named in the in the proceeding there, upon sufiB- mortgage, to foreclose which this cient cause shown, to obtain redress action was brought, were made par- T)y intervening in his own behalf." ties defendant, and appeared. It ' Mercantile Trust Co. ■». Lam- was hdd, however, that the State -oille Valley R. Co., 16 Blatchf. (U. Court did not acquire jurisdiction S. C. C), 324. In this case it was over the plaintiff, and that the trus- pleaded as a defense that the plaint- tees did not represent it so as to iff, a non-resident of Vermont, was preclude it from maintaining this made a party defendant in the cross- action, and the court would not stay bill filed by the trustees of plaint- the proceedings until the proceed- ifE's mortgage to the action pend- ings in the State Court should be ing in a State Court of Vermont, completed. And see Qriswold v. -and served outside of the state, and Central Vt. R. Co., 9 Fed. Rep. 797. 96 POWER OF COUKT8 OVER EECEIVEKS. [OHAP. V,. dered, are conclusive. Beyond this they are not conclusive or binding upon the court that has gained exclusive jurisdiction over the estate. It must not be inferred, however, that the judgment or decree of a court, be it foreign or not, to which has been delegated matters pertaining to the receivership, or wherein such matters are permitted to be litigated, by the court of primary jurisdiction, is not conclusive. On the con- trary, the delegation of such authority to, or permission to liti- gate in, another court of competent jurisdiction, gives the latter jurisdiction and makes its judgment and decrees binding upon the court of primary jurisdiction as well as upon the re- ceiver and the trust estate.^ No court has been more committed to this doctrine of exclusive jurisdiction and the rights flowing therefrom, than has the Supreme Court of the United States. That court recently declined to entertain jurisdiction of an action brought by a stockholder against the officers of a cor- poration for fraudulent misappropriation of its property, where it appeared that a receiver had been appointed of the property of the corporation by a State Court and that court had denied the petition of the receiver asking for authority to bring suit against such officers, as well as an application of the plaintiffs for leave to make the receiver a party to the action brought in the Federal Court.^ ' Reynolds ■». Stockton, 140 U. S. United States, deriving its author- 254, annotated ; City of Fort Dodge ity from another government, V. Minn. & St. L. R., 87 Iowa, 389. though exercising jurisdiction over In this case the receiver of a rail- the same territory. The whole road was required by mandamus to property of the corporation within construct a crossing over a street, the jurisdiction of the court which and the court did not regard that a appointed the receiver, including all rule of comity required it to await its rights of action, except so far as the orders of the court of another already lawfully disposed of under state wherein the same person was orders of that court, remains in its appointed receiver. custody, to be administered and dis- ' Porter «. Sabin, 149 U. S. 473. tributed by it. Until the adminis- Mr. Justice Gray, writing the opin- tration of the estate has been com- ion, said: "The reasons are yet pleted and the receivership termi- stronger for not allowing a suit uated, no court of the one govem- against a receiver appointed by a ment can, by collateral suit, assume State Court to be maintained, or the to deal with rights of property or administration by that court of the of action, constituting part of the estate in the receiver's hands to be estate within the exclusive jurisdio- interfered with, by a court of the tion and control of the courts of the. SEC. 26.] WHERE A FEDERAL COURT, ETC. 97 Sec. 26. Where a Federal Court will retain exclusive control. — When a Federal Court has acquired jurisdiction of the subject matter of a controversy and, subsequently, a suit involving the same controversy is brought in a State Court, such an interference on the part of the State Court with prop- erty at the time within the jurisdiction of the Federal Court is unauthorized, and even though the State Court has appointed a receiver and ordered a foreclosure and sale of property of the corporation and delivery thereof to the purchasers, it is nevertheless within the conirol of the Federal Court to adjudi- cate upon the equitable rights of aU who have ever been before it.^ The rule is well established that when property is in the possession of a Federal Court through its receiver, all proceed- ings in a State Court affecting it, without the authority of the Federal Court, are invalid.^ And no action can be main- tained in the State Court to recover possession of such property.^ To illustrate: when a railroad is in the possession of the receiver of the Federal Court, a telegraph company can acquire no title to its right of way by condemnation proceedings in a State Court without the consent first obtained of the Federal Court.* Under the United States Bankrupt Act of 1867, it was held that the act suspended all state insolvent laws applicable to like cases, and that this effect followed its enactment, and did not require the actual institution of proceedings in bankruptcy other. The State Court, upon fur- ' Bill v. New Albany, etc., E. B., ther hearing or information, may 3 Bissell (U. S. C. C), 390. hereafter reconsider its former or- * Milwaukee & St. Paul R. Co. v. ders, so far as no rights have law- Milwaukee & Minn. R. Co., 20 Wis. fully vested under them, and may 165; Gelpeke «. Milwaukee & H. R. permit its receiver to sue or be sued Co., 11 Wis. 454 ; Ohio & Mississippi upon any controverted claim. But R. Co. ». Fitch, 30 Ind. 498 ; State should it prefer not to do so, the of Kansas v. Miller, 54 Kan, 344. right of action of the corporation ^Fort Wayne, Muncie & Cincin- against its delinquent officers, like nati E. Co. v. Mellett, 93 Ind. 535 ; the property and rights of the cor- Central Nat. Bank v. Hazard, 49 poration, will remain within the Fed. Rep. 293. exclusive jurisdiction of that court, * W. U. Tel. Co. v. A. & P. Tel. so long as the receivership exists." Co., 7 Bissell (U. S. C. C), 367. Werner v. Murphy, 60 Fed. Rep. 769. 98 POWER OF COURTS OVER RECEIVERS. [CHAP. V. to produce such result ; that even though a State Court decreed a dissolution of a corporation and appointed receivers of its property, proceedings in bankruptcy against the corpora- tion, subsequently commenced, could be maintained, notwith- standing the decree of the State Court, and such receivers could be restrained by the Federal Court from executing the trusts of their receivership.^ It was also held under the same act that the Federal Court whose jurisdiction was first invoked, and whose power was ample to accomplish all the purposes of the law, and protect the rights of aU parties interested, should and would retain its jurisdiction to the exclusion of aU other Federal Courts, though the bankrupt was a railroad corpora- tion whose line of railroad extended through the territory of two different states and districts.^ The rule stated, that the court which first takes cognizance of the controversy is entitled to retain jurisdiction to the end of the litigation, and incidentally to take the possession of or control the res — the subject matter of the dispute — to the exclusion of all interference from other courts of co-ordinate jurisdiction, applies to State and Federal Courts as weU. as to the several courts of a state. The proper application of this rule does not require that the court which first takes jurisdic- tion of the case shaU also first take, by its officers, possession of the thing in controversy, if tangible and susceptible of seizure, for such a rule would only lead to unseemly haste on the part of the officers to get the manual possession of the property. To avoid such a result, the broad rule is laid down that the court first invoked wiU not be interfered with by another court while the jurisdiction is retained.' If a Federal ' The Independent Insurance Co., proceedings in bankruptcy, cannot 1 Holmes (U. S. C. C), 103 ; Watsou be dispossessed by order of the dis- «. Citizens Savings Bank, 2 Hughes trict court in the bankruptcy pro- . Gray, 16 Wallace (U. S.), 203, 318; Attorney-General v. Guard. Met. Life Ins. Co., 77 N. T. 372 ; Columbian Book Co. v. De Gol- yer, 115 Mass. 67 ; Vermont & Can- ada E. Co. v. Vermont Central B. Co., 46 Vt. 793; Spinning B. Ohio Life Ins. and Trust Co., 2 Disney (Ohio), 368; Russell v. E. Anglican E. Co., 3 Mac. & G. (Eng.), 104; Gest SEC. 29.] COURT WILL PROTECT ITS RECEIVER. 103 When a railroad is in the hands of a receiver, and the em- ployees of another road who have struck, or any other persons, prevent the employees of the receiver from working, they com- mit a contempt of court, and will be treated in as summary a manner as if the contempt were committed in the actual pres- ence of the court ; ^ and the accused are not, of right, entitled to a trial by jury.^ It is not necessary that actual violence be employed; if by overawing the others through intimidation, threats, or preconcerted demonstrations of force, the receiver is prevented from operating the road, they are equally guilty of a contempt of court.^ If any property is abstracted from the custody of its re- ceiver, the court has power, by summary process, to compel the restoration of such property, or its value, whether the person abstracting it be or be not a party to the suit con- cerning it.* And the receiver's title or ultimate right of possession can- not be tried in such a proceeding or in a proceeding for contempt.'' 0. New Orleans, St. Louis & Chicago R. Co., 30 La. An. 28. > Secor ■». F. P. & W. R. Co., 7 Bissell (U. S. C. C), 513; In re Hig- gins, 27 Fed. Rep. 443 ; Waterhouse V. Comer, 55 Fed. Rep. 149 ; Thomas V. Cincinnati, etc., R., 63 Fed. Bep. 803. 2 King i>. Ohio & Miss. B. Co., 7 Bissell (U. S. C. C), 529. ' United States ■». Kane, 25 Am. & Eng. R. R. Cases (TT. S. C. C), 608 ; In re Wabash B. Co., 24 Fed. Rep. 217. * Erie Railway Co. v. Heath, 8 Blatchf. (U. S. C. C), 536. In this case shares of stock of a corporation were in the hands of a receiver, certificates therefor were issued by the corporation to the receiver, and had, appurtenant to them, the priv- ilege of being certified by the reg- istering agent of the corporation, as representing shares duly regis- tered. Such privilege was a part of the property in the shares, and a valuable privilege. Q., by his acts in respect to such shares, deprived them, while they were in the cus- tody of the receiver, of such privi- lege, and procured such privilege to be conferred on a like number of other shares of the stock of the cor- poration while they were his prop- erty. Seld, that G. must restore the property abstracted, by making provision for the restoration of such privilege to the receiver's shares, or, in default thereof, make good the pecuniary value of the spolia- tion. Russell ■». East Anglican R. Co., 3 Mac. & Gord. (Eng.) 103. ' In the Matter of Day — Benson, Receiver, 34 Wis. 628. The receiver in this case was in possession of shingles which were, it was claimed by D. , delivered to the receiver by mistake, and they, in fact, belonged to D. In a proceeding against D. for a contempt in taking such shin- 104 POWEK OF COURTS OVEK EECEIVEKS. [CHAP. V. But the court cannot proceed by summary process against a person not a party to the suit, who seizes upon property before the receiver's appointment.' And there is no precedent in equity for a decree requiring a party to the suit to deposit with a receiver, as security for the performance by that party of the final decree in the case, the value of the property alleged to have been fraudidently disposed of or converted.^ If, however, the officers of the corporation are concealing its assets for the purpose of converting the same to their own use, the court has power to compel them in a summary manner to surrender the assets, and in a proper case may, pending the proceeding and the final determination of the right to the assets, compel such officers to surrender them or their proceeds to the court.' Jurisdiction, however, must first be obtained over such officers, and, when once obtained, the court is au- thorized to deal with them summarily, as for contempt, if they refuse to turn over assets of the corporation in obedience to its order.'' Official notice of the appointment need not be gles from the receiver's possession, it was held, that the receiver's title or ultimate right of possession could not be tried in the proceeding, but only in some appropriate action to be instituted against him. And since D. had sold the shingles and they had been removed from the state, the court did not err in find- ing the value and ordering D. to pay the same to the receiver. ' Albany City Bank v. Schermer- horn, 9 Paige (N. Y.), 372. ^Jefirey v. Button Paper Co., 37 111. App. 96. 3 Brandt v. Allen, 76 la. 50; Young «. Rollins, 90 N. C. 125. In Brandt «. Allen the court did not attempt to adjudicate the claims of the re- spective parties, but contented itself with finding that the receiver had a probable right to the assets, and with making such orders as were designed to protect that right until there should be a final determina- tion of the questions at issue upon their merits. ^ Tolleson ■». People's Bank, 85 Qa. 171. In this case, the receiver ap- plied for an order requiring the president of the corporation to show cause why he should not be attached for contempt for failing to turn over to the receiver the assets of the cor- poration, in obedience to a previous order of the court directed to the corporation. The president, in an- swer to the rule nisi served upon him, appeared as an individual and denied, under oath, that he had any assets of the corporation, cross-ex- amined the witnesses on the hearing, and took part in the proceedings. The evidence showing that he had in his possession money of the cor- poration, which he had failed to turn over to the receiver, it was held that the court had jurisdiction and power to deal with him as for contempt. See also Ryan ii. Kings- SEC. 29.] COUBT WaL PROTECT ITS EECEIVEK. 105 given to the party complained, of ; if he is apprised of it in any way it is sufficient.^ When property is rightfully in the hands of a receiver it is in the custody of the court, and cannot he distrained for rent without permission of the court by whom the receiver was appointed ; and any person who takes the property out of the possession of the receiver, without such permission, after he has notice of the character in which such possession is holden, is guilty of a contempt.'' The principle is elementary, that any interference with the possession of property placed in the hands of a receiver is a contempt of the court having control of it. The judgment of another court, whether it be in an action brought after leave granted by the court in control of the receivership or whether it be under a statute permitting suits to be brought against receivers without its leave, wiU not be enforced by process issued out of the court which rendered the judgment. The holder of the judgment wiU be remanded to the court having original control of the receivership for the enforcement of his judgment. Any other means of enforcing the satisfaction of a like judgment, unless expressly authorized by statute, is a contempt of the court in control of the receivership.' And the court will restrain a railroad company, on an ex parte application, from proceeding to condemn lands in the possession of its receiver, where the railroad company has begun such proceedings without its leave.* This rule is not even confined to property actually in the hands of the receiver, for the court will not permit any one, without its sanction and authority be first obtained, to intercept or pre- vent payment to its receiver of anything which he has been appointed to receive, though it may not be actually in his bery, 88 Ga. 361 ; American Con- Albany City Bank v. Schermerhorn, struction Co. v. Jacksonville, etc., 10 Paige Ch. (N. T.), 263. R. Co., 53 Fed. Eep. 937. ' Noe v. Gibson, 7 Paige (N. Y.), ' Hull V. Thomas, 8 Edwards Ch. 513. (N. T.), 336 ; Lewis v. Singleton, 61 ' Abbey «. Receivers, etc., 5 Tex. Ga. 164; Skip «. Harwood, 3 Atk. Civ. Rep. 261. (Eng.), 564. * Tink «. Rundle, 10 Beav. (Eng.), A party must be aware that the 318; Fidelity Trust & Safety Vault appointment was made ; if he acts Co. ■». Mobile St. E. Co. , 53 Fed. Eep. innocently he will not be punished. 687. 106 POWER OF COURTS OVER RECEIVERS. [CHAP. V. hands.' And it is immaterial that such property may be out- side the jurisdiction of the court, and the interference to the receiver made in a foreign jurisdiction ; if the court has juris- diction of the person of the party interfering, it is sufficient to enable the court to adjudge him guilty of contempt.^ Juris- ' Hazelrigg v. Bronaugh, 78 Ky. 63; Smith v. New York Consoli- dated Stage Co., 18 Abb. (N. Y.), 419. In Richards i>. The People, 81 111. 551, subsequent to the appoint- ment of a, receiver of a, railroad company, Richards, with full knowledge thereof, and without leave of the court, brought suit and recovered judgment before a jus- tice of the peace, in the same state, against the railway company, and upon such judgment instituted gar- nishee proceedings before the jus- tice, against certain persons having funds of the company in their pos- session. An attachment having been issued against him for con- tempt, in answer to the interroga- tories filed in such proceeding, he disclaimed any intention of inter- fering with the receiver's posses- sion, but stated that he sought to take possession, by due course of law for the purpose of satisfying his judgment, of any property of the company not yet taken posses- sion of by the receiver, and to con- tinue to pursue his claim according to law, and to collect and apply thereon all claims owing to the re- ceiver, but not collected by him. Seld, that he was guilty of con- tempt. It was contended by coun- sel for Richards that no contempt was committed, since there was no actual interference with the re- ceiver's possession. The Court, however, said : " In this view of the case we cannot concur. It is based upon the mistaken theory that property or credits not yet actually reduced to the receiver'^ possession, although the title there- to has vested in him by virtue of his appointment, may be seized or attached by creditors of the original debtor, with impunity, and that in so doing they are guilty of no inter- ference with the rights of the re- ceiver. But it is to be remem- bered that the receiver is the offi- cer of the court, and that his poa- session is the possession of the court itself; and any unauthorized interference therewith, either by taking forcible possession of the property committed to his charge, or by legal proceedings for that purpose, without the sanction of the court appointing him, is a direct and immediate contempt of court, and punishable by attach- ment. * * * And in our view of the case, it makes no difEerence in the application of the rule whether the property is actually, or only constTuotively, in the receiver's possession. Here, the order ap- pointing the receiver directed him to forthwith take possession, and, if necessary, to sue for and recover all the property of the railway com- pany, whether real, personal or mixed, and whether in possession or action.'' ' Langford v. Langford, 5 L. J. (N. S.) Ch. (Eng.), 60 ; Chaffee v. Quidnick Company, 13 R. I. 442. The receiver, in this case, was di- rected to collect funds due the cor- poration in New York State. Upon the hearing of his appointment. P., an attorney and resident of New SEC. 29.] COURT WILL PROTECT ITS RECEIVER. 107 diction of the person, however, must be first obtained.' The fact that the receiver's appointment was erroneous and subject to revision, will not excuse the contempt.^ The court has authority to compel a receiver, as its officer, to allow a creditor of the corporation to inspect and make extracts from the corporation's books ; and this does not rest on the technical right of a stockholder or creditor, as between himself and the corporation, but upon grounds of justice and equity in administering the trust in the hands of the receiver.* This power is not confined to the books of the corporation but also extends to the books, accounts and papers of the receiver himself, relating to the receivership.* When the court makes a particular bank a depositary of the funds in the hands of its receiver, and the bank, with knowl- edge of the order of the court, accepts the deposit, it becomes pro hac vice an officer of the court, and such officers as have control of its funds, and having the means of payment belong- ing to the bank in their hands, may be proceeded against as York, represented the corporation. P. obtained in New York an at- tachment upon the funds in that state which were being collected by the receiver. The Court held that it had acquired jurisdiction of P., and directed him to release his at- tachment. In Sercomb -o. Catlin, 128 111. 556, after the appointment of a receiver of all the effects and property of an insolvent firm, C, the busi- ness manager of a foreign corpora- tion having a branch office in Illi- nois, caused an attachment to be issued in Washington, D. C, in favor of his corporation, against the insolvent firm for a debt, and had the same levied on a stock of jewelry which the insolvent firm had, shortly before the appointment of the receiver, consigned to an auctioner in Washington. C. re- fused to dismiss the attachment suit, as directed by the court, where- upon the court adjudged C. to be guilty of a contempt of court, and ordered his arrest and imprison- ment. Held, that the court had the power to make the order of im- prisonment. See, also, Vermont & Canada B. Co. «. Vermont Central E. Co., 46 Vt. 792; Holbrook o. Ford, 153 111. 633. ' Schnichlholz v. CuUum, 55 Fed. Rep. 885. ' Edrington «. Pridham, 65 Tex. 613 ; Spinning «. Ohio Life Ins. and Trust Co., 2 Disney (Ohio), 836; Ames «. Trustees of Birkenhead Docks, 20 Beav. (Eng.), 382; Russell V. East Anglican R. Co., 3 Mac. & Gord. (Eng.), 104; Cook v. Citizens National Bank, 73 Ind. 256 ; Rich- ards «. The People, 81 Illinois, 551 ; King v. Barnes, 50 Hun (N. Y.), 550. 5 In the Matter of the Application of John Tiebout, 19 N. Y. Week. Dig. 570; People ■». Cataract Bank, 5 Misc. Rep. (N. Y.), 14. * Fowler's Petition, 9 Abb. (N. C.) (N. Y.), 268. 108 POWEK OF CODETS OVER RECEIVERS. [chap. for a contempt in the event they should refuse to refund the money. But in order to adjudge such officers in contempt they must have charge of the funds of the bank and sufficient ■thereof to make a repayment. If the bank becomes insolvent though it was brought about by the misconduct of such officers in misappropriating its funds, and a receiver is appointed, the latter does not become the officer of the court directing the deposit, and the officers of the bank cannot thereafter be proceeded against as for a contempt in failing to refund.^ The rule entitling a cestui que trust to have the trust visited upon any property into which the trust funds have been in- vested by the trustee in breach of his duty, or by any third person with notice of the trust, is equally applicable to receiv- ' Southern Development Company •». Houston & T. C. Ry. Co., 27 Fed. Kep. 344. The Court in this case said : " The adjudged cases on this point brought to the attention of the court are unsatisfactory. The statement in Bapalye on Contempts (section 15) that ' a private corpora- tion, made the depositary of the funds of the court, is an oflBoer of the court, within the power of the court to punish hy contempt process for misconduct,' is supported by a ■dictum of the Supreme Court of Illinois in the case of In re West- ern Marine and Fire Ins. Co., 38 111. 389, in which case it is said : ' When a court makes an order appointing a particular person a depositary of the court's funds, and such person, knowing of such order, accepts the deposit, he unquestionably becomes pro hac vice an officer of the court. The court may order him to refund the money, and if he fails to do so. without showing some valid reason, may proceed against him as for a contempt. The same rule would apply to a corporation, and if its officers, having control of its funds, and having the means of payment belonging to the corporation in their hands, should refuse to pay, they, too, might be proceeded against as for a contempt.' It will be noticed by the foregoing that officials of a cor- poration delinquent as a depositary are to be held as in case of con- tempt, when they have control of its funds, and have the means of pay- ment belonging to the corporation in their hands. * * * If we take the law to be as broad as dedated by the Supreme Court of Illinois, iu the Western Marine and Fire Ins. case, it is not broad enough to meet the necessities of this case, for if it is conceded that the City Bank of Houston, by ' designation of the court and by acceptance, became an officer of the court, and that the funds deposited therein were court funds, and that therefore the bank is liable for misconduct in misap- propriating such funds, as in case of contempt,' there is neither reason nor authority for considering that each servant or agent of the bant also became pro ?iae vice an officer of the court, and therefore amenable to the court, as in case of contempt, for misconduct in dealing with the bank funds.'' SEG. 30.j COURT MAT AUTHORIZE RECEIVER, ETC. 109 erships. So long as the funds can be followed into the hands of any one who received them charged with notice of the trust, or into any unauthorized investment of them by the receiver, to which they can be traced, they may be recovered. But in the case of mere money, if it has been mingled with the funds of another person, so that it cannot be distinguished and identi- fied, and cannot be traced into any particular property, there is no longer any specific thing upon which the trust may attach, and in such a case nothing is left but the moneyed liability against such person who has used the fund Tvith notice of its trust character.' Sec. 30. Court may authorize the receiver to conduct the business. — It has become settled law that a court of equity may, and in most cases ought to, authorize the receivers of trust property to keep it in repair, and to manage and use it in the ordinary way until it can be sold to the best advantage of aU interested.^ The power of the court in this regard should be liberally construed and extended to aU trust properties to which it may be regarded as applicable. The only question to be solved in its application is whether the action proposed will result in the appreciation of the property for those interested.^ To illustrate: It has been held that a receiver pendente lite, wiU not be restrained, on the application of a municipality which consented to the use of its streets by a gaslight company upon a grant of the legislature to the latter of such use, from exercising the use of such streets ; such use is a franchise and part of the corporation's property.^ And the same rule is generally applied to the management and control of insolvent railroad properties by a receiver.' ' Qoldthwaite «. Ellison, 99 Ala. the receiver to take charge of and 497; Ellison v. Moses, 95 Ala. 321. manage and work a mine. In an- ^ Smith 11. New York Consolidated other case, for the dissolution of a Stage Company, 18 Abb. Pr. (N. T.), copartnership, the court directed 420 ; Vanderbilt v. Little, 43 New the receiver to continue the business Jersey Equity, 669 ; Wallace c. until the business could be sold at a Loomis, 97 U. S. 146 ; Barton «. reasonable price. Eskridge v. Eush- Barbour, 104 U. S. 126, 136 ; Mo- nuih, 3 Cal. Ct. App. 563. ran ®. Lydecker, 37 Hun (N. Y.), *City of Brooklyn v. Jourdan, 7 582. Abb. N. C.(N.T.),23. ' Fischer «. Superior Court, 98 Cal. ' See authorities cited in note 3 67. In this case the court directed mpra. 110 POWER OF COURTS OVER RECEIVERS. [CHAP. V. The court may authorize the receiver upon an ex parte appli- cation to lease the property. There can be no doubt, having in view the object of such receivership, which is to take the care and custody of the property and administer it during the htigar tion and to hold it to answer the final judgment in the action, that a lease beyond the customary term, according to the nature of the demised property, which might extend beyond the termination of the litigation, would be an unjustifiable exercise of judicial discretion. But to deny the power of the court to authorize a lease for a term certain in any case, or to hold that every lease so authorized is terminable ipso facto, on the termination of the litigation, would often prevent any leasing of the property at aU. When such property is in the hands of a receiver, pendente lite, and the termination of the suit is uncertain, it would often result in great loss if the court had no power to authorize a lease for the customary term, except upon the consent of all the parties interested.' In New York, power is conferred upon the court by statute, to direct a receiver of a life insurance company to continue the business of the company if it shall " be found that the securi- ties deposited by said company in the Insurance Department, and the assets and credits, including the future premiums that wiU mature on the outstanding policies and other obligations of said company, are sufficient, under the laws of this state, to pay aU. the policies, annuities and other obligations of said company as they may mature by the terms thereof, and the legal costs and expenses incident to the business." ^ Under this statute it has been held, that even though it should so be found, yet it is not an imperative duty of the court to direct the continuance of the business by the receiver, but the power is a discretionary one to be exercised by the court of original jurisdiction according to the circumstances of each particular case.' Sec. 31. The court may restrain litigation against the receiver. — The power of the court to restrain all persons from bringing or prosecuting suits or proceedings against its re- ' Weeks i). Weeks, 106 N. Y. 636. ^ Attorney General «. Atlantic "New York Laws of 1869, chap. Mutual Life Ins. Co., 15 Hun, 84; 903, sec. 7. affirmed 77 N. Y. 336. SEC. 31.J COUET MAY RESTRAIN LITIGATION, ETC. Ill <5eiver, or the corporation of whose property he is in possession, in a case where it has jurisdiction to appoint the receiver, is a necessary incident to that appointment, and cannot be success- fully disputed.^ Such an order commands nothing which was ' Matter of Christian Jensen Co., 128 N. Y. 550 ; Wilkinson v. North Eiver Con. Co., 66 How. Pr. (N. Y.), 433. The court may exercise this power upon a motion in the action or proceeding in which the receiver was appointed, and it is not neces- sary that a suit be commenced for that purpose. Attorney-General «. <5uaTdian Mutual Life Insurance Co., 77 N. Y. 273. In Phoenix Foundry & Machine Co. V. North Eiver Construction Co., 33 Hun (N. Y.), 156, subsequent to the commencement of this action, a receiver of the defendant was ap- pointed in another action against it, brought by a stockholder in behalf of himself and all other stockhold- ers, and an order was granted there- in, restraining all persons from hringing or prosecuting any suits or proceedings against the defendant, a, foreign corporation. Upon appeal from an order denying the motion made by the plaintiff in this action to vacate such restraining order, Smith, P. J., said : " Such authority may be exercised by an order made in the suit in which the receiver is appointed. An order of that nature, being for the protection of the fund which the court has in its posses- sion through its receiver, is not subject to every provision of the ^statute and of the rules of court which apply to injunction orders ^granted upon the application of a party for the protection of his indi- vidual rights. It is properly made in the action in which the receiver is appointed, and a creditor who Attempts to interfere with the fund by unnecessarily subjecting it to the costs of an action to enforce his claim, cannot set up that the order is ineffectual as to him because not made in his own action. If there are any controversies to be litigated, or accounts to be adjusted, between such creditor and the corporation, all can be done on the investigation of the claim in the winding-up suit, and the creditor is a party to that suit, through his representative, the receiver. In short, the order is made in the exercise of the inherent power of the court to protect its re- ceiver and the funds in his hands, and is not a creature of the Code." This doctrine was reaffirmed in Walton 1). Grand Belt Copper Co., 56 Hun (N. Y.), 311. In Woerishoffer v. North River Construction Co., 99 N. Y. 398, the party moving to vacate the re- straining order had brought an action against the corporation and therein obtained an attachment upon its property before the re- ceiver was appointed. Upon the motion, the court modified the re- straining order so far as it restrained the prosecution to judgment of its action by the moving party, and so far as it prevented it from collect- ing or enforcing any judgment it might obtain against property which may have been attached be- fore the appointment of the re- ceiver. In other respects the motion was denied, and the court concurred in the view expressed by Justice Smith, stated above. Upon appeal this order was sustained. 112 POWER or COURTS OVEB KECEIVEKS. [CHAP. V. not already commanded; it forbids nothing whicli otherwise was permissible ; it takes away no right or remedy which the appointment of a receiver had not already taken away. Its sole practical effect is to give notice of the appointment and the rights secured by it, and charge aU persons with a con- scious and wiUful contempt if they assail the possession of the court. The decisions are conflicting as to whether or not a receiver may, in the absence of a restraining order, be sued in an action at law, without first obtaining leave of the court appointing him. By some courts in some of the states the rule is declared to be that in all cases where there is no attempt to interfere with the actual possession of property, which the receiver holds under the order of a court, but only an attempt to obtain judg- ment at law, it is not necessary to obtain leave of the court. And this rule is based upon the assumption that it is not a question of jurisdiction ; that the only question is whether equity will exercise its own acknowledged jurisdiction of re- straining suits at law and itself dispose of the matter involved. In such a case it is said that a party who desires to prosecute an action at law against a receiver, may, in order to protect himself from the contingency of having his proceedings ar- rested by the exercise of this equitable jurisdiction, very prop- erly obtain leave to prosecute ; yet his failure so to do, is no bar to the jurisdiction of the court of law and no valid defense at law to an otherwise legal action.^ This doctrine, however, was expressly repudiated by the Federal Courts,^ prior to the Act of Congress of March 3, ' Kinney v. Crocker, 18 Wis. 75 ; by a State Court and served on a Allen 1). Cent. Railroad of Iowa, 43 railway company was binding on a lawa, 683; Hills «. Parker, 111 Mass, receiver of the company subse- 508; Camp v. Barney, 4 Hun (N. Y.), quently appointed by a Federal 373; Hirshfield B. Kalischer, 81 Hun Court, and that he would be pun- (N. Y.), 606 ; Mulcahey ■». Strauss, ishable by the State Court for con- 151 111. 70; Blumenthal v. Brainerd, tempt in disobeying the mandate of 38 Vt. 407 ; St. Joe & Denver City the writ. E. R. and Bond, Receiver, b. Smith, ' Thompson «. Scott, 4 Dillon (U. County Treasurer, 19 Kan. 325. See S. C. C), 508. In this case the Court also Phelan v. Ganebin, 5 Col. 14. clearly stated the reasons for the In SafEord v. People, 85 111., it was rule as follows : " The doctrine of held, that an injunction granted the Iowa decision contravenes the SEC. 31.] COURT MAT EESTKAIN LITIGATION, ETC. 113 1887, by which receivers appointed by the courts of the United States were made subject to suit, without leave first being whole scheme of equity jaiisdic- tion in the matter of appointing receivers, and in the taking of pos- session, through them, of the prop- erty in litigation. The court of equity takes cognizance of a suit against an insolvent company or corporation, and where the danger exists that the litigation may prove fruitless to creditors, by waste or a fraudulent disposition of the prop- erty, the court will take it into possession by the appointment of a receiver. The property thus be- comes a fund subject to the dispo- sition of the court, and under its ex- clusive control. Hence, every court of equity in such a case assumes to decide all controversies touching the subject matter of the suit and the fund; to determine the exist- ence and priority of all liens; to ad- just and settle all disputed claims ; marshal the assets, and finally to distribute the surplus among the general creditors pro rata, upon its own principle of equality among creditors. The very ground and reason of this jurisdiction is the in- adequacy of mere legal remedies. But, according to the Iowa decision, there is no reason why any party claiming satisfaction out of the fund, may not, without the consent of the receiver's court, assert his rights in any competent court, pro- vided he does not attempt to dis- turb the possession of the receiver ; and thus may the decision of the claims and controversies involved in the litigation be withdrawn from the court of equity, where they properly belong, and transferred to the courts of law. And the result would be that claims against the fund would be determined, not by the court having jurisdiction of the case and control of the fund, but by other and different tribunals. Judgment would thus be rendered against the receiver — in other words, against the fund ; and the court having the fund in its posses- sion would be compelled to treat such judgments as nullities or re- cognize and pay them. Before the court of equity could, perhaps, make a final determination of the rights of the parties before it, other courts might render judgments against its receiver to an amount sufficient to absorb the whole fund or property, and the litigation would prove barren of results to the parties in equity. Such judgments against the receiver would be either valid or invalid. If invalid, it follows that suits against the receiver, re- sulting in such judgments, would be perfectly futile and useless, and for that reason they ought to be stopped by the receiver's court ; for certainly such suits would harass and embarass the receiver, and ex- pose him to the heavy cost of liti- gation ; and if they resulted in no benefit to the parties prosecuting them, it would be simply idle, if not absurd, to all such actions to proceed against the receiver. But, doubtless, if the doctrine of the Iowa court be sound, judgments against the receiver would be valid to all intents and purposes, and they must be so treated by all courts in which they should be pleaded. This being the case, what follows? Why, that the court of equity, having control of the fund, would have no alternative but to recognize and pay the judg- ments and decrees rendered else- 114 POWEE OF COURTS OVER RECEIVERS. [CHAP. V. obtained in any court having jurisdiction over the subject matter. This rule is directly opposed to that of the best considered decisions, which is, that no suit, whether strictly in relation to the property or only indirectly affecting it — as, for example, a claim for damages — can be prosecuted against a receiver without leave of the court appointing him. The principle that the court which has possession and control of a fund, has the exclusive right to determine aU claims and liens asserted against it, is fundamental. Every court of equity, it is perfectly well established, although not compelled where against its receiver, and if the fund consisted, in whole or in part, of real estate, the judgments against the receiver would become liens upon the property, thus en- cumbering and casting a cloud upon the title. Under such condi- tions, the sale of the property, under the decree of the court of equity, to satisfy its judgments, would be hopeless and ineffectual, Thus would the whole purpose of the litigation in equity and of the taking possession of property through the receiver, be utterly de- feated." The proper practice is therefore declared to be that every person having a demand against the fund in the hands of the receiver may bring his demand into the court appointing the receiver, and that court will direct him to be ex- amined pro interesse suo before a master, and if, upon auditing his claims, the court finds it to be a, just one, it will direct the receiver to pay it without litigation ; if a doubtful one, it will give the claim- ant leave to prosecute it before some competent court, consulting therein the convenience of parties and exercising a judicial discretion. See also Kennedy b. I. C. & L. R, R. Co., 2 Flippin (U. S. C. C), 704. In Barton v. Barbour, 104 U. S. 136, it was held that leave to prosecute the suit is a jurisdictional fact, and want of leave deprives the court in which the suit is brought of juris- diction. In this case it was con- tended that the rule just stated de- prives a party of the constitutional right of a trial by jury. In answer the Court said : "But those who use this argument lose sight of the fundamental principle that the right of trial by jury, considered as an absolute right, does not extend to cases of equity jurisdiction. If it be conceded or clearly shown that a case belongs to this class, the trial of questions involved in it be- longs to the court itself, no matter what may be its importance or com- plexity. Thus upon a bill filed for an injunction to restrain the in- fringement of letters patent, and for an account of profits for past in- fringements, it is now the constant practice of courts of equity to try without a jury issues of fact relating to the title of the patentee, involv- ing questions of the novelty, utility, prior public use, abandonment and assignment of the invention pat- ented. The jurisdiction of a court of equity to try such issues accord- ing to its own course of practice is too well settled to be shaken. Rub- ber Co. •». Goodyear, 9 Wall, 788 ; Cawood Patent, 94 V. S. 695 ; Marsh v. Seymour, 97 U. S. 348." SEC. 31.J COURT MAY RESTRAIN LITIGATION, ETC. 115 to assume jurisdiction of all controversies to which its receiver may become a party, and while it is at liberty to delegate their determination to any court of appropriate jurisdiction yet may, nevertheless, assert its right to take all such controversies to itself.^ Nor is this doctrine altered by the constitutional right to sue in the Federal Courts in certain cases.^ It may compel a settlement of such controversies, in such way as shall be most expeditious and as wiU. avoid litigation and expense to the fund in charge of the court ; and it possesses full power to order a reference for this purpose, at any time, either with or without the assent of the receiver.' And if the receiver is himself empowered by statute to adjudicate claims against the defunct corporation, subject to review by the court appointing him, such power is not void as in conflict with the provision of a state constitution which vests the judicial power in courts of ' Parker v. Browning, 8 Paige (N. Y.), 388; Merritt v. Lyon, 16 Wend. (N. Y.), 405, 408 ; De Groot v. Jay, 30 Barb. (N. Y.), 483; Woeris- hoffer V. North River Constr. Co., 99 N. Y. 398 ; Wiswall v. Sampson, 14 Howard (U. S.), 53; Peale v. PMpps, 14 Id. 868; Palys ®. Jewett, 33 N. J. Eq. 216; Melendy v. Bar- bour. Receiver, 78 Va. 544 ; Jones «. Browse, 33 W. Va. 444; Van- derbilt ■». Little, 43 New Jersey Equity, 669 ; Keen v. Bieckenridge, 96 Ind. 69; GrofEenried v. Bruns- -wick & Albany R. Co., 57 Ga. 33; Meredith Village Savings Bank v. Simpson, 23 Kan. 414 ; Wray v. Hazlett, 6 Phila. (Pa.), 155; Rand- fleld v. Randfield, 8 De G., F. & J., . Bacon, 34 Barb. (N. should not be required to give secur- Y.), 154. ity. See also Conshohockeu Tube ■• Lehigh Coal & Nav. Co. v. Cen- Co. B. Iron Car Co., 167 Pa. 592; Dil- tral R. Co. of New Jersey, 43 N. J. lingham «. Hawk, 60 Fed. Rep. 494. Eq. 591. SEC. 33.] COURT MAY CREATE LIENS, ETC. 121 Tinder its charge as a trust fund for the payment of incum- brances, and to authorize such receivers to raise money neces- sary for the preservation and management of the property, and make the same chargeable as a lien thereon for its repay- ment before the first mortgage bonds, cannot be disputed. It is a part of that jurisdiction always exercised by the court by which it is its duty to protect and preserve the trust funds in its hands. It is, undoubtedly, a power to be exercised with great caution ; and, if possible, with the consent or acquies- cence of the parties interested in the fund.' When a court of equity is asked by railroad mortgagees to appoint a receiver of railroad property, pending proceedings for foreclosure, the court, in the exercise of a sound judicial discretion, may, as a condition of issuing the necessary order, impose such terms in reference to the payment from the in- come, during the receivership, of outstanding debts for labor, supplies, equipment or permanent improvement of the mort- gaged property, as may, under the circumstances of the par- ticular case, appear to be reasonable.^ Of course the fact that the payment of such debts is not a condition of the appoint- ment of a receiver, does not deprive the court of power to sub- sequently order them paid.^ But the United States Supreme Court has limited this equitable jurisdiction to those unsecured claims which, by the rulings of that court, have been declared to have an equitable priority; and has decided that when a court appoints a receiver of railroad property, it has no right to make that receivership conditional on the payment of other than those claims.'' The order of the court is a protection to ' Wallace v. Loomis, 97 U. S. 146 ; parte Carolina Nat. Bk., 18 S. C. 289; Miltenberger «. Logansport Ry. Co., Ellis v. Water Co., 86 Tex. 109. 106 U. S. 286 ; Stanton «. Alabama ^ Fosdick ■». Schall, 99 U. S. 335 ; & Chattanooga E. R. Co., 2 Woods Union Trust Co. v. Souther, 107 U. (U. S. C. C), 506 ; Bank of Montreal S. 591; Addison v. Lewis, 75 Va. V. C. C. & W. R. Co., 48 la. 518; 703; Dow v. Memphis & L. R. Co., Meyer «. Johnston, 53 Ala. 337; 20 Fed. Rep. 360. Hoover i>. Montclair & Greenwood ^ Blair v. St. Louis, H. & K. R. Co., Lake R. Co., 39 N. J. Bq. 4; Ex 33 Fed. Rep. 471 ; Fosdick «, Schall, parte Mitchell, 13 S. C. 83 ; McLane 99' U. S. 253; Union Trust Co. «. -». Placerville & Sacramento Valley Illinois Midland Co., 117 U. S. 436 ; R. Co., 66 Cal. 606 ; Hale «. Nashua * Kneeland v. American Loan and & Lowell R. Co., 60 N. H. 333; Ex Trust Co., 136 U. S. 89. 122 POWER OF COURTS OVER RECEIVERS. [OHAP. V> the receiver, and payments made by him within the terms of the order, perhaps cannot be subsequently questioned by par- ties in interest. Yet, the authority given to the receiver by the order of appointment to pay specified claims, does not bar the power of the court, in the event the receiver has not made payment, to consider and determine the justice and equity of granting all or any of such claims the right of priority, nor does it preclude parties in interest from challenging the pri- ority of any such claim. ^ The power of the court ought, how- ever, never to be used to enable railroad mortgagees to protect their securities by borrowing money upon receivers' certifi- cates, which create a permanent lien upon the property, in order to complete unfinished roads, except under extraordinary circumstances ; ^ such as to prevent the forfeiture of the fran- chise of the company and the loss of valuable property. And even in such a case the court may refuse to issue debentures as a means of credit in advance of actual construction, or to per- mit the receivers to incur, for construction purposes, any indebtedness beyond the amount of money furnished by the bondholders.' In New York, moreover, it is expressly held, that in the absence of a statutory provision, a court has no power to authorize a receiver to pay or issue his certificates of indebted- ness for the payment of labor and services in operating the road prior to his appointment, and to make certificates so issued a lien prior to the mortgage.^ To illustrate : In a well- ' Louisville, Evansville, etc., R. laborers from the moneys of such Co. 1). Wilson, 138 XJ. S. 501. corporation which shall first come ' Shaw V. R. R. Co., 100 tJ. S. 605. into his hand. N. T. Laws of 1885, 2 Kennedy v. St. Paul & Pacific R. chap. 376. That statute, however, is Co., 5 Dillon (U. S. C. C), 515. not applicable to wages earned be- ^ Metropolitan Trust Co. v. Tona- fore its passage ; nor is the prefer- wanda Valley & Cuba R. Co., 103 ence assignable prior to the appoint- N. Y. 245; Farmers Loan and Trust ment of a receiver. A superinten- Co. v. Bankers Tel. Co., 83 Hun (N. dent, attorney or agent is not pre- Y.), 560. ferred by the statute. People v. The legislature of New York sub- Remington & Sons, 45 Hun, 339. aequently enacted a law providing But a person employed to assist that a receiver of a corporation, the general manager of a corpora- other than insurance and moneyed tion in keeping its books and to corporations, shall pay the wages clean the ofllce and show-room of of the employees, operatives and the corporation, and to assist in SEC. 33.] COURT MAT CREATE LIENS, ETC. 123 considered case where a hotel company, insolvent and indebted in a large amount to laborers, whose wages were in arrears and who threatened, unless paid, to burn the hotel building, and it was found as a fact that except for the advancement of money on the certificates which enabled the receiver to pay off the arrears of wages, the hotel and other property would, in all probability, have been destroyed or seriously injured, it was decided that the debt so created by the receiver was not one as for preservation of the property ; that it could not be assumed that the ordinary agencies of the law were insufficient to fur- nish the requisite protection, and that the court therefore had no power, against the objections of the mortgage bondholders, to make the certificates prior liens over the mortgage.' Yet this rule is limited to outstanding debts for labor, supplies, putting together, taking apart and shipping wire wicket fence and weaving machines, is an employee within the meaning of the statute. Brown ». A. B. C. Fence Co., 52 Hun, 151. The word "wages" qualifies the word "employees," and is to be taken in connection with the words " operatives and laborers " ; the statute does not in- clude book-keepers, superintendents and foremen paid by the month, and who, if they perform manual labor at all, do so as incidental to their general employment. Matter of Stryker, 73 Hun (N. Y.), 327. • Raht 11. Attrill, 106 N. Y. 423. The lien of the mortgage, it was held in this case, attaches not only to the land in the condition in which it was at the time of the ex- ecution, but as changed or improved by accretions or by labor expended upon it while the mortgage is in ex- istence; and creditors whose debts were created for money, labor or materials used in the improvement, acquire no legal or equitable claim to displace or subordinate the lien of the mortgage for their protec- tion. The Court, per Andrews, J., said: " We have not lost sight of the recent very important cases decided in the Supreme Court of the United States, involving the question of the power which may be vested by the court in receivers of insolvent railroad corporations, and the right of the court to pro- vide for the payment of certain debts contracted before or after the appointment of a receiver out of the income, and if that is inade- quate, out of the corpus of the property. These cases and decis- ions are the outcome of the growth of railroad enterprises and business within a comparatively recent pe- riod. It has been held that under special circumstances the court may direct the payment of anti-receiver- ship debts for labor or supplies contracted within a limited period before the insolvency, the adjust- ment and payment of traffic bal- ances in favor of connecting roads, and may direct the receiver to oper- ate the road pending the foreclos- ure, and to that end purchase nec- essary rolling stock for the use of the road and make repairs and im- provements thereon, the expense of 124 POWER or COURTS OVER RECEIVERS. [CHAP. V. equipment or permanent improvement incurred before the receiver's appointment, and it is not denied that some power resides as a fundamental attribute of the equity jurisdiction of the court, for it was expressly decided in another case in the same state that the jurisdiction of a court of equity — having possession in a foreclosure action, through its receiver, of the property of a railroad company — to authorize the creation of debts for rolling stock and other purposes, when in its opinion it is necessary so to do to secure the continued and successful operation of the road, and to charge the debts so created as a first lien on the mortgaged property is now firmly established.^ which shall be a charge on the property in priority to legal liens. (Wallace v. Loomis, 97 U. S. 146; Fosdick e. Schall, 99 U. S. 235; Bar- ton v. Barbour, 104 U. S. 126; Milt- enberger «. Logansport By. Co., 106 Id. 286 ; Union Trust Co. v. Souther, 107 Id. 591 ; Burnham w. Bowen, 111 Id. 776; Union Trust Co. ■». 111. Mid. & R. Co., 117 Id. 434.) It cannot be successfully denied that the decis- ions in these cases vest in the courts a very broad and compre- hensive jurisdiction over Insolvent railroad corporations and their prop- erty. It will be found on examin- ing these cases that the jurisdiction asserted by the court therein is largely based upon the public char- acter of railroad corporations, the public interest in their continued and successful operation, the pecu- liar character and terms of railroad mortgages, and upon other special grounds not applicable to ordinary private corporations. It was said by Waitb, C. J., in Fosdick v. Sehall, that railroad mortgages and the rights of railroad mortgagees are comparatively new in the history of judicial proceedings. They are pe- culiar in their character and afiect peculiar interests; and, in Barton v. Barbour (supra), that the new and changed condition of things which is presented by the insolvency of such a corporation as a railroad company has rendered necessary the exercise of large and modified forms of control of its property by the courts charged with the settlement of its affairs and the disposition of its assets. These cases furnish, we think, no authority for upholding the order of August 17, or for sub- verting the priority of lien, which according to the general rules of law, the bondholders acquired through the trust mortgage on the property of the company. * * * It is best for all that the integrity of contracts should be strictly guarded and maintained and that a rigid, rather than a liberal, con- struction of the power of the court to subject property in the hands of receivers to charges, to the prejudices of creditors, should be adopted." ' Vilas ®. Page, 106 N. Y. 489. In this case, upon a sale made in an action to foreclose two railroad mortgages, the property was bid off by a committee representing the first mortgage bondholders ; but a small amount, if any, of the sum bid, was paid down. Subsequent to the sale, upon petition of the receiver ap- pointed in the action, and on affi- davit of plaintifE's attorney, an SEC. 33.] COURT MAT CREATE LIENS, ETC. 12& While the courts of New York have denied the power of the court to establish a priority of lien, for labor and services performed and material furnished before the appointment of a receiver, over the mortgage indebtedness, the Federal Courts and the courts of other states have exercised the power to some extent, and, it may be said, in all cases of railroad corpora- order was granted which authorized the receiver to expend a sum of money in the purchase of necessary rolling stock for the road, on a credit, provided the purchase should be approved by plaintiffs or their attorney, and directing that sufficient of the purchase money of the mortgaged premises be applied to pay the sum the receiver might contract to pay for the said rolling stock ; which sum the order pro- vided was thereby made " a first lien on the said mortgaged property and all proceeds thereof which may come into the court." Upon the authority of that order the receiver entered into a contract with V., which was approved by plaintiffs' attorneys, by which V. released to the receiver certain rolling stock, which he claimed title to under a levy and sale on execution against the road, and it was agreed that, in case it should be finally determined that said property belonged " abso- lutely and beneficially" to V., he should be paid a certain sum for the release, and that the same should be a first lien upon the mortgaged property. The receiver continued in possession of the mortgaged property operating the road, appar- ently in the interests of the pur- chasers, and using the property purchased of V., until the sale of the road was completed by a con- veyance to the purchasers, in which the property claimed by V. was ex- cepted, but the receiver executed a transfer of his title and interest and turned over said property to a new corporation, organized by the pur- chasers to take the title and to oper- ate the road ; and it was thereafter used on the road. The considera- tion for the conveyance was paid almost wholly by the surrender of bonds. The claim of V. was by the filed judgment, in the foreclosure suit determined in his favor, sub- ject to the right of redemption, if any existed. In an action by V. to enforce an alleged lien upon the road given by the agreement with the receiver as stated, held, that the order of the court directing the re- ceiver to purchase, was valid and binding upon the parties to the foreclosure suit and upon the bond- holders, the purchasers on the fore- closure sale ; as when it was made, title had not passed under said sale ; that said purchasers, by their con- duct and delay, acquiesced in the operation and management of the road by the receiver in the usual way; that the lien authorized by said order was not simply upon the proceeds of the sale, but upon the corpus of the property, and, as there were no such proceeds to which the lien could attach or be transferred, it remained attached to the property and followed It into the hands of the purchasers and all subsequent assignees with notice thereof ; that the agreement with V. was author- ized by said order. And see Wood- ruff V. Erie Ey Co., 93 N. Y. 609; Central Trust Co. of N. Y. v. Tap- pan, 6 N. Y. Supplement, 919. 126 POWER OF COURTS OVER RECEIVERS. [CHAP. V. tions.' Yet it by no means follows that such power will be exercised as a matter of course, or that the earnings of the road during the receivership wiU, by those courts, be directed to be in part appropriated to prior claims. Such a doctrine would lead to gross injustice in many cases. It is only where suitors have some special equities attached to their claims that such appropriation wiU be ordered. What is a sufficient equity to entitle a claimant to share in the earnings of the road during the receivership, depends largely upon the individual merits of each case. Upon an examination of the decisions of these courts, it wiU, it is believed, be found that the following general principles seem to have been regarded as tests in the disposition of the questions presented : 1. The mere fact that work and labor done or materials furnished to a road serve to keep it in running order and to communicate to it additional value, does not entitle the persons performing such work or furnishing such materials to be paid out of the earnings of the road while in the hands of a receiver, in preference to a mortgage indebtedness.^ ' In Seventli Nat. Bank v. Shen- andoah Iron Co., 35 Fed. Rep. 436, it was held, that an incorporated iron manufacturing company does not come within the equity princi- ples that give the employees of » railroad corporation a prior lien on its current earnings for the pay- ment of their wages. S. C. 42 Fed. Eep. 873 ; and see Reyburn i). Con- sumers Gas, Fuel and Light Co., 29 Fed. Sep. 561. ' Dunham d. Railway Co., 1 Wall. (U. S.), 354 ; Galveston Railroad v. Cowdrey, 11 Wall. (U. S.), 459; Den- nistou V. Chicago, Alton & St. Louis E. Co., 4 Bissell (U. S. C. C), 414 ; Hale 0. Frost, 99 U. S. 389 ; Skiddy V. Atlantic, Miss. & Ohio R. Co., 3 Hughes (U. S. C. C), 330 ; United States Trust Co. «. N. Y., West Shore and Buffalo R. Co., 35 Fed. Rep. 800 ; St. Louis, Alton & Terre Haute R. Co. v. Cleveland, Columbus. Gin. & Ind. R. Co., 135 U. S. 658. Street v. Maryland Cent. R., 59 Fed- Rep. 35. A railroad company held its roll- ing stock under an agreement to pay for it in installments, the title not to pass to the company until the whole sum agreed to be paid for it should be paid, and, in case of de- fault, all previous payments to be forfeited. It became insolvent and had no money to pay an installment which became due. Directors of the company, in order to save the rolling stock, advanced the money out of their private funds, on the strength of an agreement made by the members of the board with them that they should be subrogated to the rights of the vendors for their repayment. It was held, that they were not entitled to subrogation, subject to the superior right of the vendors as to the unpaid balance of the price, because the right of sub- rogation could not be enforced until SEC. 33.] COURT MAT CREATE LIENS, ETC. 127 2. When, however, after default in payment of interest on the mortgage and after notorious insolvency of the company, the whole debt had been paid, and the court would not determine be- ■fore the hearing of the cause the priority of their lien over the mort- gage indebtedness. Receivers of N. J. Midland R Co. ■». Worten- dyke, 27 N. J. Eq. 658; reversing S. C.;27 N. J. Eq. 110. So money advanced by a bank for the purpose of and appropriated for the payment of creditors does not make a claim of superior equity to that of the lien creditors, nor does the salary of u. president of the company. Addison 1). Lewis, 75 Va. 701 ; Fidelity Insurance, T. & S. D. Co. V. Shenandoah Valley R. Co., Va., 9 S. E. 759. A claim of an attorney against a railroad, for fees earned a year and a half before the appointment of a receiver, is not entitled to any pref- erence. Blair b. St. Louis, H. & K. R. Co., 33 Fed. Rep. 521 ; Finance Co. of Pa. ■». Charleston, C. & C. R. Co., 52 Fed. Rep. 526, 678. And see Bound •». South Car. R., 51 Fed. Rep. 58. So one who pays a judgment against a railroad a few weeks before the appointment of a re- ceiver, under an agreement that the amount so advanced shall be repaid by the company, is not entitled to priority ; or where a judgment is recovered against a railroad upon a claim not entitled to priority, and an appeal is taken, and the com- pany's attorney goes on the appeal bond, and a receiver of the road ia thereafter appointed, and after his appointment a judgment is re- recovered in the appellate court against the company and the at- torney, and the latter pays it, his claim is entitled to no priority over that of mortgage bondholders. Blair v. St. Louis, H. & K. R. Co., 23 Fed. Rep. 521, 523. When the order of the court ap- pointing a receiver of a company di- rects him to carry out and perform the company's contracts, creditors to whom money is due upon par- tially performed contracts are not entitled, under such order alone, to a lien therefor prior to that of mortgage creditors. Olyphant ®. St. Louis Ore and Steel Co., 28 Fed. Rep. 729. Claims for through fares and freight, to connecting lines, are noth- ing more than open accounts, which stand on the same footing as other unsecured debts. Jessup v. Atlantic & Gulf R. Co., 3 Woods (U. S. C. C), 441. Mortgagees, of course, may be estopped by their acts from assert- ing their liens against the claimant, but it must appear that the latter acted under such inducements from them and had such dealings with them as creates an estoppel, in or- der to give him priority. Kelly i). Receiver of the Green Bay and Minn. R. Co., 10 Biss. (U. S. C. C), 151. A vendor who sells to a railroad company a locomotive, upon condi- tion that it shall be paid for on de- livery, and delivers it without en- forcing the condition, and without asserting his right to repossess him- self of the locomotive, sues to re- cover the price, and by garnishment and judgment secures partial satis- faction, is not entitled to priority of payment of the balance of his claim out of the funds in the hands of a receiver of the company subse- quently appointed. Manchester Lo- 128 POWEK OF COURTS OVEK KECEIVEKS. [CHAP. V. the mortgagees still allow the company to remain in possession of the road and to contract for labor and material, credit wiU be deemed to be given to the mortgagees and not to the com- pany, and on the appointment of a receiver the income of the road, while in his hands, will be applied to all claims for work and material accruing since the insolvency and default' in pay- ment of interest.^ comotive Works v. Truesdale, 44 Minn. 115. A claim arising for ma- terials for original construction of a portion of a railroad more than six months before the appointment of a receiver is not entitled to priority of payment. American Loan and Trust Co. V. East and West R. Co., 46 Fed. Eep. 101. A general freight and passenger agent of a naviga- tion company is not entitled to be paid in priority to the mortgagees. Bound 1). South Carolina E. Co., 50 Fed. Bep. 313. 1 Douglas ®. Cline, 13 Bush. (Ky.), 609. In Duncan «. Trustees of the Chesapeake, etc., R. R. Co., 9 Am. Ry. Rep. (Va.), 368. Wblli-ord, J., gives the reason for the rule as fol- lows : The Chesapeake & Ohio R. Co. had been so long in default that the right of the bondholders to claim possession was fully consum- mate, and this was a matter of com- mon notoriety. It could not be ex- pected that the employees all along the track of this road should pause, amid their unceasing round of daily duty, to inquire whether the bond- holders had or had not asserted their rights and assumed control. It was enough for them to know that the service they were render- ing was Such service as any propri- etor would necessarily require, and they had a right to believe that the officers, left in notorious occupancy of the property and charged before the public with the responsibility of its care and custody, were abund- antly authorized to act for all whom it might concern in contracting for their services. The same principle will run through all the gradations of employment in this great corpo- ration. These employees, of every grade and dignity, had every right to believe that so long as the bond- holders stood aloof, without assert- ing their rights to possession, they were willing to accept and regard pro tanto as their agents, for the preservation and protection of the property, the officers who, placed in charge thereof by their default- ing debtor, could not, in good faith to the creditor or the debtor, aban- don their posts, or be derelict, while they held them to the trusts which they Imposed. These bondholders are now in a court of equity seeking satisfaction of their claims against the railaoad company. They have a right to be satisfied to the extent of an entire forfeiture of all the proprietary rights of the company ; but to concede to them, in enforc- ing such forfeiture, a right to repu- diate all responsibility to satisfy these highly meritorious claims of employees, etc., out of the property of its future earnings, would be grossly inconsistent with plain equity. In this forum they must be held to be estopped from denying the authority of the officers of the company under the cilcumstanceB, as agents for themselves as well as other parties in interest, to have incurred such liability." SEC. 33.] COURT MAT CBEATE LIENS, ETC. 129 3. When the current earnings of a railroad, which ought, in equity, to have been applied to pay current debts contracted before the receiver's appointment for labor, supplies, and the like, have been appropriated by the company to the payment of interest due mortgage creditors, to pay for additional equip- ments for the road, or for valuable and lasting improvements, it is competent for the court to restore what has been improp- erly diverted, and to direct such current debts to be paid out of the income in the receiver's hands before anything derived from that source goes to the mortgage creditors.^ See also Williamson's Admr. v. Washington City, etc., R. Co., 33 Gratt. (Va.), 624. But see contra, Coe «. New Jersey Midland R. Co., 31 N. J. Eq. 105, "l33. In Hale v. Frost, 99 U. S. 389, the Supreme Court of the United States declined to pass upon this point, holding it unnecessary to a decision in the case. In Miltenberger v. Logansport Railway Co., 106 U. S. 286. 807, 309, 310, 311, the Court, however, adverted to this rule and sustained an order directing the receiver to pay arrears due for operating expenses for a period of ninety days before his appointment. When a railroad company purchases the property and franchises of other railroad companies, and assumes payment of the indebtedness of the selling companies, the judgment creditors of the selling companies do not thereby acquire an equitable lien upon the properties so sold for the payment of their claims ; they merely acquire the right to look for payment to the purchasing com- pany. Hervey v. Illinois Midland Railroad Co., 28 Fed. Rep. 169. See also Litzenberger v. Jarvis-Conklin sTrut Co., 8 Utah, 15. ' Posdick B. Schall, 99 U. S. 235. Chief Justice Waitb, in sustaining the rule, said : " We think, also, that if no such order is made when the receiver is appointed, and it ap- pears in the progress of the cause that bonded interest has been paid, additional equipment provided, or lasting and valuable improvements made out of earnings which ought iu equity to have been employed to keep down debts for labor, supplies, and the like, it is within the power of the court to use the income of the receivership to discharge obli- gations which, but for the diversion. of funds, would have been paid iu the ordinary course of business. This, not because the creditors to whom such debts are due, have in law a lien upon the mortgaged property or the income, but because, in a sense, the officers of the com- pany are trustees of the earnings for the benefit of the different class of creditors and the stockholders ; and if they give to one class of creditors that which belongs to another, the court may, upon an adjustment of the accounts, so use the income which comes into its own hands, as, if practicable, to restore the parties to their original equitable rights. While, ordinarily, this power is confined to the appropriation of the income of the receivership and the proceeds of moneyed assets that have been taken from the company, cases may rise where equity will re- quire the use of the proceeds of the. 130 POWER OF COUETS OVER RECEIVERS. [CHAP. V. An assignment of these claims passes the right of the orig- inal holder to payment out of the fund in the hands of the receiver. sale of tlie mortgaged property in the same way. Then it often happens that, in the course of the adminis- tration of the cause, the court is called upon to take income which would otherwise be applied to the payment of old debts for current expenses, and use it to make per- manent improvements on the fixed property, or to buy additional equip- ment. In this way the value of the mortgaged property is not infre- quently materially increased. It. is not to be supposed that any such use of the income will be directed by the court, without giving the parties in interest an opportunity to be heard against it. Generally, as we know, both from observation and experience, all such orders are made at the request of the parties or with their consent. Under ■ such circumstances it is easy to see that there may sometimes be a propriety in paying back to the income from the proceeds of the sale ^hat is thus again diverted from the current debt fund in order to increase the value of the property sold. The same may sometimes be true in re- spect to expenditures before the re- ceivership. No fixed and inftexible rule can be laid down for the gov- ernment of the courts in all cases. Each case will necessarily have its own peculiarities, which must, to a greater or less extent, influence the chancellor when he comes to act. The power rests upon the fact, that in the administration of the affairs of the company the mortgage cred- itors have got possession of that which in equity belonged to the whole or a part of the general cred- itors. Whatever is done, therefore, must be with a view to a restoration by the mortgage creditors of that which they have thus inequitably obtained. It follows that if there has been in reality no diversion, there can be no restoration, and that the amount of restoration should be made to depend upon the amount of the diversion. If in the exercise of this power errors are committed, they, like others, are open to cor- rection on appeal." In Hale i). Frost, 99 U. S. 389, this equity was sustained in favor of parties who had, before the re- ceiver's appointment, furnished the company with car-springs, and spir- als and supplies for its machinery department, which the receiver con- tinued to use in carrying on the business of the road ; but not for material for construction purposes. So the claim of contractors for the construction of the road or its extension does not come with- in the category of those cases which the courts have declared a prior equity over creditors secured by mortgage. Addison v. Lewis, 75 Va. 701 ; Lehigh Coal and Nav. Co. ■0. Central R. Co., 29 N. J. Bq. 252; Porter v. Bessmer Steel Co., 120 U. S. 649. If, however, the revenues of the road are used to pay interest to its mortgage creditors during the time the expenses for construc- tion purposes were incurred, this amounts to a diversion, and such claims are entitled to superior equities. Williamson's Admr. v. Washington City, Virginia, Mid- ' Union Trust Co. v. Walker, 107 U. S. 596; Burnham v. Bowen, 111 Id. 776. SEC. 33.] COURT MAY CREATE LIENS, ETC. 131 It will be observed that the courts limit such claims to be paid out of the earnings of the road during the receivership ; but cases may arise where the income is not sufficient to pay these as well as the ordinary expenses of the receivership ; or where such income has been diverted to the improvement of the property. In such cases, exceptional it is true, the court has power to make such claims a prior lien upon the corpus of the property, payable out of the proceeds of the receiver's cer- tificates, or in such other way as to the court shall seem equit- able and just.^ land & Great Western Ry. Co., 33 Gratt. (Va.), 624 ; Poland v. Lamoille Valley R. Co. 53 Vt. 177 ; Calhoun v. St. Louis & Southeastern R. Co., fl Biss. (U. S. C. C), 330. A claim for rails bought on credit by a railroad company and necessary for the purpose of keeping its road going, is entitled to priority of pay- ment out of the earnings of the road in the hands of the receiver, as against the second mortgagee upon whose application the receiver was appointed, but it has no such priority as against the first mort- gagee, even though it has filed a cross bill in the suit. Bound «. South Carolina R. Co. 47 Fed. Sep. 30. A claim by a merchant for rations furnished to laborers, under a con- tract with the company, is a charge, to the amount diverted from the earnings for permanent improve- ments, upon the earnings in the hands of the receiver, or if these fail, upon the proceeds of sale. Finance Co. of Pa. «. Charleston, C. & C. R. Co. 49 Fed. Rep. 693. The Supreme Court of Texas has distinguished these latter cases and gone a long step further towards displacing vested mortgage liens. The rule lately enforced there is that, " when mortgages are executed upon an unfinished road, and they show upon their face that it was contemplated that the work of con- struction should be prosecuted to completion, and when the mort- gagors attach to the new road as fast as it is finished, we are of opin- ion that the new road should be considered a useful improvement, and that if the roads be put in the hands of a receiver before the work and materials are paid for, holders of the claims for such work and material should be paid from the net income of the road while under control of the court, if there be any." And the court not only gave preference to claims for work done and material used in construction of the new road, but ordered them paid out of the proceeds of the sale of the whole road, inasmuch as the net earnings derived from the oper- ation of the road by the receiver, and which would have been suffi- cient to pay these claims, had been expended under orders of the court to pay interest on bonds and in making permanent improvements upon the property. McUhenny v. Binz, 80 Tex. 1. • Miltenberger v. Logansport R. Co., 106 U. S. 268; Fosdiok v. Schall, 99 U. S. 235, 253, 354; Union Trust Company v. Morrison, 135 id., 591 ; Poland v. Lamoille Valley R. Co., 53 Vt. 144, 177; Finance Co. of 132 POWER OF COUETS OVER RECEIVERS. [CHAP. V. In some states, by statutory enactments, the claims of lab- orers, employees and material men must be paid by the receiver Pa. 13. Charleston, C. & C. E., 63 Fed. Kep. 305 ; Clark «. Central R. & B. Co., 66 Fed. Bep. 803. In Burnham v. Bo wen, 111 U. S. 776, the court allowed a, claim for fuel furnished the road priority, and charged the corpus of the prop- erty when it appeared that the cur- rent income of the road during the receivership was diverted to the im- provement of the property. Waite, Chief Justice, said : " When a court of chancery, in enforcing the rights of mortgage creditors, takes posses- sion of a mortgaged railroad and thus deprives the company of the power of receiving any further earnings, it ought to do what the company would have been bound to do if it had remained in possession, that is to say, pay out of what it re- ceives from earnings all the debts which in equity and good con- science, considering the character of the business, are chargeable upon such earnings. In other words, what may properly be termed the debts of the income, should be paid from the income, before it is applied in any way to the use of the mort- gagees. The business of a railroad should be treated by a court of equity under such circumstances as a ' going concern,' not to be embar- rassed by any unnecessary interfer- ence with the relations of those who are engaged in or affected by it. In the present case, as we have seen, the debt of Bowen was for current expenses and payable out of current earnings. It does not appear from anything in the case that there was any other liability on account of current expenses unprovided for when the receiver took possession, and there is nothing whatever to in- dicate that this debt would not have been paid at maturity from the earnings if the court had not inter- fered at the instance of the trustees for the protection of the mortgage creditors. It is said, however, that as no part of the income, before the appointment of the receiver, was used to pay mortgage interest, or to put permanent improvements on the property, or to increase the equipment, there was no such di- version of the funds belonging in equity to the labor and supply creditors as to make it proper to use the income of the receivership to pay them. The debt due Bowen was incurred to keep the road run- ning, and thus preserve the security of the bond creditors. If the trus- tees had taken possession under the mortgage, they would have been subject to similar expenses to do what the company, with their con- sent and approbation, was doing for them. There is nothing to show that the receiver was appointed be- cause of any misappropriation of the earnings by the company. On the contrary, it is probable, from the fact that the large judgment for the right of way was obtained about the same time the receiver was ap- pointed, that the change of posses- sion was effected to avoid antici- pated embarrassments from that cause. But, however that may be, there certainly is no complaint of a diversion by the company of the current earnings from the pay- ment of the current expenses. So far as anything appears on the record, the failure of the company to pay the debt to Bowen was due alone to the fact that the expenses of running the road and preserving SEC. 33.] COURT MAT CREATE LIENS, ETC. 133 prior to other claims, or are made an express lien upon the property of the road. But the protection afforded by such statutes, is in derogation of the rights of other creditors, and therefore cannot be extended beyond the class of creditors specified. Thus within the term laborer or employee, is not included a person who furnishes the labor or services of others, under a contract to do the whole business of a corporation, or a particular branch of it.' Neither is a civil engineer within the operation of such statute.^ And when the statute accords a priority to claims for " services rendered or materials fur- nished for the purpose of keeping said road in repair or in running the same," it does not include the officials of the road. the security of the bondholders were greater than the receipts from the business. Under these circum- stances, we think the debt was a charge in equity on the continuing income, as well that which came in- to the hands of the court after the receiver was appointed as that be- fore. When, therefore, the court took the earnings of the receiver- ship and applied them to the pay- ment of the fixed charges on the railroad structures, thus increasing the security of the bondholders, at the expense of the labor and supply creditors, there was such a diversion of what is denominated in Fosdick «. Sohall, the 'current debt fund,' as to make it proper to require the mortgagees to pay it back." ' Lehigh Coal and Navigation Co. V. Central R. of N. J., 39 N. J. Eq. 352. Within the terms laborers and employees is included a man em- ployed to superintend the construc- tion of pipe lines. Pendergast ■». Yandes, 134 Ind. 159. And it has been held that within the term em- ployee is included the manager of a lumber and manufacturing com- pany, as also a carriage-maker and blacksmith, having shops of his own, who did work from time to time for the company, the latter furnishing the material for most of the things made by him. Conlee Lumber Co. v. Bipon Lumber Co., 66 Wis. 481. Again, it has been held that " wages of employees " required to be paid by the receiver of a railroad in the order appoint- ing him, does not include services of counsel employed for special purposes. Louisville, Evansville & St. L. R. V. Wilson, 138 U. S. 501. But see Gurney v. Atlantic & Great Western R., 58 N. Y. 358. And within the term "employee" is not included a person who contracts with a telegraph corporation to do the specified work of putting up certain lines of wire on poles. Vane V. Newcombe, 133 U. S. 330. Bat an attorney, from whom papers, which he has a right to hold against a railroad company for the payment of his fees and for money loaned by him, have been taken under or- ders of the court, is entitled to be paid out of the funds realized from the sale of the road his claim. Mc- Donald, Shea & Co. v. Railroad, 93 Tenn. 381. ^ Pennsylvania & Delaware R. Co. «. XeufEer, 84 Pa. St. 168 ; Erric- son V. Brown, 88 Barb. (N. Y.), 390. 134 POWER OF COURTS OVEK KECEIVERS. [CHAP. T. but the dividing line is between services rendered in the official and executive management and authority over the work of making repairs and running the road, and such laborers and employees as do this work. The employers are excluded, the employees included/ Some courts have gone even beyond the limit of the rules stated above, and required the receiver to pay the claims of operatives and supply men, owing at the time of his appoint- ment, and even to hold the property subject to them ; not as a lien on the property, but in the exercise of the equitable juris- ' Poland V. Lamoille Valley E. Co., 52 Vt. 144. The Court, at p. 181, said: "It is said that the charges for printing tickets, bill-heads, post- ers, time-tables, etc., ought to be treated as materials furnished in running the road. It would be rather diflBcult to classify such sup- plies as materials furnished for keep- ing the road in repair. The word materials has substantially the same meaning when used in connection with the work of repairing, that it does in the work of running the road, and means such supplies as are indispensable in making repairs upon the road or its equipment, and are annexed to the property and be- come part of it, or are consumed by it, in its use, such as iron, ties, lumber, wood, coal, oil, etc. The same word is used in the statute giving a lien upon buildings, steam- boats, mills, factories, machinery, etc., to mechanics and material men. The statute creating mechanics' liens belongs to the same class of legislation as the statute in ques- tion. It has the same general ob- ject, applies to the same class of persons, and works out substantially the same relief. The mechanic has a lien by law, provided he follows it by his attachment of the property. The railroad employee has a lien by law, if he first makes attachment and thereby creates it. In the latter case a lien upon a road-bed and superstructure would be of little value to the creditor, and hence the right to acquire it by attachment is limited to such property as can be made practically available. The ground and reason of giving to a creditor who has furnished materi- als for repairing, erecting or oper- ating a factory, a lien upon it or its machinery, is, that such supplies have been incorporated into the building, and thus not only lost their identity as chattels, but have increased the value of the principal thing to which they are annexed. * * * If a printer who supplied posters and tickets to officials run- ning a steamboat or a theatre, could fasten a mechanics' lien upon the boat or building, upon the theory that he had furnished materials for such structures within the meaning of the statute, he could gain a like priority in this case. Such is not, however, the construction given to this word as used in the statute re- lating to mechanics' liens, and it ought not to be so construed in the statute in question. The word made use of (materials), looked at in con- nection with the general purpose of the statute, clearly refers to supplies of a different nature from printers' bills or printed matter. " SEC. 33.J COURT MAT CREATE LIENS, ETC. 135 diction and discretion of the court, though it did not appear that those facts existed which gave them this peculiar claim to priority.' ' Turner v. J. B. & W. Ey. Co., 8 Bissell (U. S. C. C), 315. In this case the court gave some of the rea- sons which it thought required the adoption of this rule. " To refuse to pay anything whatever for past services or supplies or materials' has never, it is believed, been attempted by any court, or even demanded by any mortgagee. The receiver goes into the possession of the railroad with all its appliances and instru- mentalities, with its men at work on the track or running the trains, with Its coal, oil, tools and other means of operating the road. The mort- gagees have come into court asking it to assume possession of the road to protect their interests. Are the interests of all others, operatives and supply men, who happen to have claims against it at the time, to be absolutely ignored in the case of insolvent companies ? I think not. The appointment of a receiver is, to a great extent, a matter of dis- cretion in the court, and it has been thought that the court might re- quire the receiver to pay certain of these claims, and even to hold the property subject to them; not as a lien on the road, but in the exercise of the equitable discretion of the court in dealing with property which is of a peculiar character, and under circumstances of which the past history of litigation affords no example or precedent. What should be included within the claims to be paid has also been the subject of consideration, and the practice has been to allow all to be paid that could be fairly regarded as a part of the actual operating expenses of the road, whether for labor or supplies, in their various forms. It being conceded that some claims for part services should be paid, the next point to be deter- mined was, what limitation, if any, as to time should be placed up- on such payment ? It was found, in many cases, that those who had control of the railways, in- stead of paying the current oper- ating expenses of the companies, would postpone the payment of the same, sometimes for many months, in favor of the interest due on the mortgages, which they would discharge, in the hope, apparently, that a more favorable time in the business of the roads would enable them to make up the deficiency. It was in view of this and similar considerations growing out of the actual condition of affairs, and of the absolute necessity of fixing some reasonable time within which such claims should be allowed, that the court adopted, as by analogy, the rule of the statute of Illinois, in relation to lien on railroads for work done, and supplies and ma- terials furnished." See also Jes- sup V. Atlantic & Gulf Eailroad Company, 3 Woods (U. S. C. C), 441. In Blair «. St. Louis, H. & K. E. Co., 28 Fed. Eep. 521, it was held that where the annual salary of the attorney of a railroad falls due only a short time before the road is placed in the hands of a receiver, his claim against the company is entitled to priority over that of mortgage bondholders. And see Bayliss v. Lafayette, etc., E. Co., 9 Biss.(U. S. C. C.),90. In Blair i>. St. Louis, H. & K. E. 136 POWER OF COURTS OVER RECEIVERS. [CHAP. V. But these cases which have extended the equitable rule thus far must be held to be overruled by a recent decision of Co., 22 Fed. Eep. 471, the court al- lowed claims for labor and supplies accruing within six months before the receiver's appointment. Brew- er, J. said, in relation to the principle upon which the court have allowed such claims priority : " The master has reported in favor of all claims accruing since the default in payment of the interest on the mort- gage debt, a period of over two years. This seems to proceed upon the assumption that the mortgagees, by failure to take action, have made the mortgagor company their agent to incur debts ; have impliedly con- sented that all such debts should take preference of their secured claims. I do not think that this principle is sound. There is no im- plied agency to that extent, and I do not think that the rulings of the Supreme Court are based upon any such doctrine. The idea which un- derlies them I take to be this : that the management of a large business, like that of a railroad company, can not be conducted on a cash basis. Temporary credit, in the nature of things, is indispensable. Its em- ployees cannot be paid every month. It cannot settle with other roads its traffic balances at the close of every day. Time to adjust and settle these various matters is indispens- able. Because in the nature of things, this is so, such temporary credits must be taken as assented to by the mortgagees, because both the mortgagees and the public are interested in keeping up the road, and having it preserved as a going concern, and whatever is necessary to accomplish this result must be taken as assented to by the mort- gagees. In this view, such tem- porary credits accruing prior to the appointment of the receiver must be recognized by the mortgagees and such claims preferred. Kow, for what cime prior to the appoint- ment of a receiver may these credits be sustained ? There is no arbitrary time prescribed, and it should be only such reasonable time as, in the nature of things and in the ordi- nary course of business, would be sufficient to have such claims set- tled and paid. Six months is the longest time I have noticed as yet given. Ordinarily, I think, that is ample." Claims for equipment and sup- plies furnished on running account and on a continuous contract up to the time of the receiver's appoint- ment, were held entitled to priority. United States Trust Co. •». N. T. West Shore & BufEalo R. Co., 25 Fed. Rep. 797; Blair v. St. Louis, H. & K. R. Co., 23 id. 704; Clark v. Central R. & B. Co., 66 Fed. Eep. 803. So when the company was in difficulty, before the appointment of a receiver, because its employees threatened to strike for the non- payment of wages due for months past, and on appeal by its officers to the petitioners, who were holders of bonds, they advanced the money necessary for the payment of the back wages due, on a distinct under- standing that they should be reim- bursed out of the iirst net earnings of the company, and that the money advanced should be paid to the em- ployees; and afterwards, before their reimbursement, the road went into the custody of the court under the appointment of a receiver, it was lield, that the advances should be SEC. 33.] COUKT MAY CREATE LIENS, ETC. 137 the United States Supreme Court, in a well-considered case, and in which the court observed that one holding a mortgage debt upon a railroad has the same right to demand and expect of the court respect for his vested and contracted priority as the holder of a mortgage on a farm or lot. So, when a court appoints a receiver of railroad property, it has no right to make that receivership conditional on the payment of other than those few unsecured claims, which, by the rulings of the Supreme Court, have been declared to have an equitable priority. No one is bound to sell to a railroad company or to work for it, and whoever has dealings with a company whose property is mortgaged must be assumed to have dealt with it on the faith of its personal responsibility, and not in expecta- ■tion of subsequently displacing the priority of the mortgage liens. It is the exception and not the rule that such priority of liens can be displaced. And the court emphasized the fact of the sacredness of contract liens, for the reason, as it said, that there seems to be a growing idea that the chancellor, in the exercise of his equitabe powers, had unlimited discretion in this matter of the displacement of vested liens.^ paid in preference to the claims of to these bills. They entered their mortgagees out of income accruing appearances, and, neither objecting while the road was in the custody nor consenting, the receiver was of the court. Atkins «. Petersburg appointed. Such receivership was R. Co., 3 Hughes (U. S. C. C), 307. continued four months when bills ' Kneeland v. American Loan and were filed by the trustees for the Trust Co. 136 U. S. 89. The inter- foreclosure of their mortgages and vening claims in this case were for a receiver was appointed there- the rental of rolling stock obtained under. The road was sold, but the by the railroad company from cer- rolling stock was not included in tain manufacturers on contracts of the sale but was returned to the in- purchase. These in form were tervenors upon orders entered prior leases, but, in substance, and so to the decree of sale. The ques- adjudged, were contracts of pur- tion presented was whether rentals chase, reserving title in the vendors for such four months during the until the payment of certain annual first receivership were properly sums, called rents, and with the given priority over the mortgage right to retake possession on de- debts. By virtue of the interven- fault in payment. The first bills or's antecedent contracts of sale, under which the receiver was ap- the court held they acquired no pointed were filed by a judgment right of priority. And on the claim creditor. The trustees in the sev- for such rental, the Court said : •eral mortgages were made parties " But it is urged, and with force, 138 POWEK or COURTS OVER RECEIVERS. [CHAP. V.. But claims for damages for injuries to persons or property^ which accrued during the operation of the road by the com- that the court did not allow con- tract price, but only rental, and the question is asked, may a court, through its receiver, take posses- sion of property and pay no rental for it ? If it may legitimately com- pel the operation of the railroad in the hands of its receiver, in order to discharge the obligations of the company to the public, may it not also, and must it not also burden that receivership, and the property in charge of the receiver, with all the expenses connected with the opera- tion of the road, together with rea- sonable rentals for the property used and necessary for the opera- tion of the road ? As to the gen- eral answer to these inquiries, we have no doubt. A court which ap- points a receiver acquires, by vir- tue of that appointment, certain rights and assumes certain obliga- tions, and the expenses which the court creates in discharge of those obligations are burdens necessarily on the property taken possession of, and this irrespective of the ques- tion who may be the ultimate owner, or who may have the pre- ferred lien, or who may invoke the receivership. So if, at the instance of any party rightfully entitled thereto, a court should appoint a receiver of property, the same be- ing railroad property and therefore under an obligation to the pub- lic of continued operation, it, in the administration of such receiv- ership, might rightfully contract debts necessary for the operation of the road, either for labor, supplies or rentals, and make such expenses a prior lien on the property itself ; and it is in reliance on this general proposition that the interveners in- sist on an affirmance of the decree. But as against this we are con- fronted with these facts : The court never made any order for the rental of this rolling stock, and the situation of all the parties during this four months receivership was this : The railroad company, with its franchises for building and oper- ating a railroad, was in equity, whatever may have been the loca- tion of the legal title, the owner of realty, subject to certain fixed- mortgage indebtedness, and of per- sonality, the rolling stock in ques- tion, subject to certain fixed liens.. The creation, in the first instance, of these liens gave to neither lien- holder, as against the other, prior- ity in payment otherwise than in respect to the property specially charged with those liens. The holder of the lien on the real estate could not insist that both the real estate and the personalty should be subjected to the payment of his debt, before payment to the holder of the lien on the personalty of his claim, out of the proceeds of its sale. Neither, on the other hand, could the holder of the lien on the personalty insist that his lien should be first paid out of any pro- ceeds of the realty. Each was lim- ited to his priority of right on the poperty on which his lieu rested. Under those circumstances, neither the holder of the lien on the real or the personal property moving in the premises, a general creditor of the common debtor invoked for the payment of his debt the interven- tion of a court of equity and the possession of all the property charged with these two liens, and its operation with a view to the col- SEC. 33.] COURT MAY CREATE LIENS, ETC. 139 pany, although such company was then in default for the non- payment of interest upon the mortgage indebtedness, have not yet been held to have an equity which entitles them to priority of payment.' lection of his unsecured claim. The operation of the load during that receivership did not pay the operating expenses. May the holder of a lieu on the real estate insist that the deficiency be charged to the holder of the lien on the per- sonalty, or that the latter shall be- come liable to the former for the rental of its property ? Unques- tionably not. Neither lien-holder asking the aid of the court, no obli- gation was assumed by either in respect to the management of the property as against the other. If the operation of the property seized by the receiver did not result in the payment of the operating expenses, and the common debtor was unable to pay, the burden of the deficiency is as properly cast upon the holder of a lien upon the personalty as upon the holder of a Hen upon the realty ; and when the court, in the administration of the receivership, thereafter returns the personalty to the holder of the liens upon it, such lien-holder must be content to be relieved from any burden for a pro rata share of the deficiency, and has no equity to claim that he shall not be only thus relieved, but that he may also charge upon the realty, to the detriment of the lien- holder thereon, both the entire bur- den of the deficiency and compensa- tion to him for the use of his prop- erty. Hence it follows that neither hy reason of a contract of purchase of the rolling stock, nor by its use for four months at the instance of a general creditor, was any burden cast upon the holder of a lien upon the real estate for the non-payment of such contract price, or the rental value. The court therefore erred in charging rental value of the roll- ing stock during those four mouths as a prior lien upon the realty." Neither have claims for rental of rolling stock used by a railroad com- pany before the receivership, any equitable right of priority in pay- ment. The owners of such rolling stock, it is held, must be regarded as contracting upon the responsi- bility of the railroad company, and not in reliance upon the interposi- tion of a court of equity. Thomas v. Western Car Co., 149 TJ. S. 95, 113, reversing in part s. c. 36 Fed. Rep. 808; Farmers' Loan & Trust Co. V. Chicago & A. R. Co., 43 Fed. Rep. 6 ; Fidelity Ins. T. & S. D. Co. «. Shenandoah Valley R. Co. (Va.), 9 S. B. Rep. 759 ; New York, P. & O. R. V. New York, L. B. & W. R., 58 Fed. Rep. 368. So money loaned to a railroad company has no better equities, even though it was expended by the com- pany in payment of interest on its first mortgage bonds or of operating expenses. Neither are the lenders entitled to preference in payment out of the proceeds of a sale of the property, over the first mortgage bonds by way of subrogation. Mor- gan's Co. o. Texas Central R. Co., 137 U. S. 171 ; Addison i). Lewis, 75 Va. 701. ' Dexterville Manufacturing and Boom Co. Weeks v. Weeks, 106 N. T. 626. The principle was applied in this case where the court made an ex parte order directing the receiver to leasg the property for three years, and after the termination of the litigation the court by an ex parte order modified the first order so as to authorize a leasing of but one year, and declared the lease invalid except for that period. But the court decided that since the lessees acted in good faith in reliance upon the order, they were entitled to indemnity, and the court had power to direct it to be paid out of the fund arising on sale of the prop- erty. » Kerr v. Little, 39 N. J. Eq. 83. The rule is the same in respect to receivers of railroads. Thus, where within the period of one year orders were issued to dealers in railroad supplies by the purchasing agent of the receiver of a railroad, for cross- ties and lumber, to an amount exceeding $585,000; and of the amount so ordered, over $200,000 had been delivered and paid for; and an additional part had been ofEered to a succeeding receiver of the road who refused to receive it; and of the whole quantity ordered, over $800,000 remained to be de- livered; upon the petition of such dealers, the court refused to direct the receiver to accept and pay for the material which had been ofEered and which he had refused to re- ceive, or to accept that which should thereafter be delivered un- der the orders, upon the ground that the orders were improvidently issued. The Vice-Chancellor, in dis- cussing the powers of such receiv- ers, said : " The petitioners, in ac- cepting these orders, acted with their eyes wide open. They knew what they were doing. They were dealing with an ofBcer possessing very limited powers, and who was constantly subject to the orders of the power which created him. They knew that the chancellor, in obedi- ence to the law, had taken posses- sion of this corporation for the pur- pose of giving due protection to its creditors and stockholders, and that he was bound to guard their rights and interests with the most sedulous care, and to prevent any- thing like extravagance and waste. 146 POWER OF COURTS OVER RECEIVERS. [CHAP. V. But persons with whom a contract has been made by a receiver, under sanction of the court, have a right to notice and a hearing, upon a motion to modify the contract and the instructions of the receiver in reference thereto.^ For example, where two railroads are in the hands of receiv- ers appointed by the same court, it has power, on the applica- tion of either receiver, to modify a contract made by the com- panies before their appointment, so as to equitably re-adjust the rates agreed upon by them for terminal facilities, and also for the use of part of one road by the other company.^ The court is not divested of its power and duty of managing the property by reason of a sale which the purchasers delay or neglect for many years to complete.' Sec. 35. Upon the sale of the property. — This subject has, to some extent, been considered in the preceding section. It may here be further observed that the court, in the exercise of its equity jurisdiction and judicial discretion, may order a sale of the property before final judgment. The court takes pos- session of the property to preserve and protect it for all parties interested therein, whether they be mere general creditors or judgment or mortgage creditors. If such property depreciates in value by the accumulation of the receiver's indebtedness, while the litigation between the parties as to their respective interests in it is going on, the continuance of possession by the court would be injurious to the interests of such parties, and They must also be assumed to have than they estimated, or that the known that the receiver could make course of events has been less pro- no contract eflFectual against the pitious for them than they hoped, •trust, which was not first author- their miscalculations or misfortunes ized or subsequently ratified by the are not a grievance, but rather the chancellor. They were at liberty result of their own rashness." Le- to decline to contract until such high Coal and Nav. Co. v. Central authority was obtained, or to re- H. of N. J., 35 N. J. Eq. 426. And quire the receiver to bind himself see Tripp ■». Boardman, 49 la. 410. in his individual capacity. If they ' Mooney v. British Commercial chose to act without adopting such Life Ins. Co., 9 Abb. N. S. (N. T.), precautions as were necessary to 103. insure them against loss, they must * In re Receivers of New Jersey be understood as having deliberately and New York By. Co., 29 N. J. Eq. assumed whatever risk attended 67. their venture, and if it has turned » Vilas «. Paige, 106 N. T. 489. out that the hazards were greater «EC. 35.J UPON THE SALE OF THE PEOPEETY. 147 "the power of the court to make an order directing a sale of the property, clear of all incumbrances, under such circumstances, cannot be questioned.^ 1 Crane v. Ford, Hopk. (N. Y.). 114; Walker & Bradford ■». Morris, 14 Ga. 323 ; Devissee v. Blackstone, 6 Blatchf. (U. S. C. C), 235 ; Suther- land «. Lake Superior Ship Canal, R. & Iron Co., 9 Nat. Bk. Reg. 298 ; Gwynne v. Memphis Appeal Ava- lanche Company, 93 Tennessee, 603. When two suits for the foreclosure of two mortgages of an insolvent railway, which had become prac- tically consolidated, the two sets of trustees acting in harmony and in good faith, and with the approba- tion of the holders of a majority of the bonds issued under each mort- gage (but against the wishes and objections of persons holding a minority of one of the issues as col- lateral, and contesting the priority of lieu as to some of the property and the legality of some of the issues of bonds) applied to the court and obtained a decree which ordered -a speedy sale of all the property covered by either or both mortgages, as being for the best interest of all concerned, but left the conflicting claims as to the priority of lieu and the amount of bonds issued to be settled by subsequent decrees, it was held, that the court had power to make the decree; that it was a proper case to make it, notwith- standing the opposition of the mi- nority bondholders. First National Bank of Cleveland v. Shedd, 121 U. S. 74. Such a decree is a final decree from which an appeal may be taken to the Supreme Court. Id. Creditors are the primary benefici- aries of the estate of an insolvent ■corporation, and no one is more di- rectly interested than they in the method of its disposition, and there- fore they have a right to take an appeal from an order of sale. Hospes «. Northwestern Mfg. & Car Co., 41 Minn. 256. In the case of the foreclosure of a mortgage upon a railroad, even though the mortgage does not authorize a sale upon de- fault in the payment of interest, and the bonds have not yet matured, yet if the corporation is insolvent and the parties in possession of the road will do nothing to discharge the interest, and it appears that if the road is operated at all by the trustee under the mortgage, it must be run at a loss; that the trustee has no funds to repair the road with, and the road, if unused, must and will decay ; a necessity exists for a sale of the road, and the court will order one, notwithstand- ing the objection of the purchaser under a decree of foreclosure and sale of the mortgaged property, by a security subordinate to the trust mortgage. McLaue ■». Placerville & Sacramento Valley R. Co., 66 Cal. 606. But the court ought not, over the objections of a party to the action, direct a sale unless a neces- sity for the sale is shown to exist. The power of the court to order a sale of property in dispute upon the mere fact of possession by it through the receiver, is not sustainable upon reason or authority, and its exercise is likely to produce manifest and irreparable wrong and injustice. Thus, in an action to dissolve a law firm, determine its assets and pro- cure a sale of them and a settle- ment of the partnership affairs, the complaint alleged that certain ab- stracts of title to real estate in New York and New Jersey were part of 148 POWEK OF COURTS OVER EECEIVEES. [CHAP. V. The fact that when the order of sale is made, the party by whom the suit, wherein the receiver is appointed, was brought, has parted with his claims against the corporation and is no longer interested in the suit, is of no consequence, for in a creditor's suit and when a general account is ordered for the benefit of all the creditors, the case ceases to be under the control of the party who instituted it.^ A sale so made in full compliance with the order of the court, is not open to attack by any one who is subsequently summoned into the suit, if there has been no fraud, no sacrifice of the property, or no improvidence committed in the essential details of the proceeding; the proceeds of the sale take the place of the property, and all rights in the latter are trans- ferred to the former.^ Neither can a party to the action the assets ; the answer denying the ownership by the firm of said ab- stracts, and, although no special or immediate necessity for their sale was shown, the court ordering.under objection of defendants, the receiver to expose for sale and sell such abstracts of title, it was held, upon appeal, that the court exceeded its authority and determined a ma- terial issue upon affidavits in an- ticipation of the trial and the de- termination of the issues joined, and that the enforcement of such order would defeat the object of the litigation and place the subject of the action beyond the power of the court ultimately to award it to those showing title thereto. Brush u. Jay, 113 N. T. 482. In an action to foreclose a mort- gage upon a steamship where it appeared, after trial and judgment, but before the entry of the decree, that the ship was deteriorating and that large expense was being in- curred in maintenance and repairs, it was held proper to direct the re- ceiver to sell at public auction. Toby D. Oregon Pac. R. R. Co., 98 Cal. 490. ' Kam & Hickson u. Rorer Iron Co., 86 Va. 754. ^ Mellen c. Moline Iron Works, 131 U. S. 352. The principle stated in the text was applied to this case which was brought to foreclose a trust deed and chattel mortgage upon the property of the Iron Works. It was pleaded in bar of the suit that long prior thereto a creditor of said Iron Works, on be- half of himself and of all other creditors, brought a suit in equity in which a receiver was appointed, who, under the direction of the court and before one of the bene- ficiaries under said deed and mort- gage was brought into the suit, sold the property of the corporation, and in that suit it was adjudged that the trust deed and mortgage were void in so far as it secured a priority of lien to said beneficiary. The latter's assignee, plaintifE in this ease, attacked the sale by the re- ceiver, but the court decided that the sale was not invalid, and whether the conditions of the prop- erty was such as to require, for the protection of the parties, that it be sold, was a matter for the court, in SEC. 35.] UPON THE SALE OF THE PEOPEBTT. 149 impeach the validity of the sale in another court against a person claiming title under the sale.' The title acquired by virtue of such sale, and the receiver's deed is superior to any right thereto that can be acquired by virtue of a sale not authorized by the court under execution issued on a judgment obtained on an unsecured debt pending the receivership.^ its discretion, to determine. And see State ex rel. Paper Co. v. Judge, 45 La. An. 1418. ' Bradley ■». Geo. W. Williams & Co., 3 Hughes (TJ. S. C. C), 36. Where a sale of personal property hy a receiver, under an order of a court has been confirmed, its valid- ity cannot be impeached in an ac- tion of replevin brought in another court by a party to the action in which the property was thus sold, against a person claiming title un- der the sale. When the court con- firmed the receiver's sale, it neces- sarily passed upon its regularity. The order of confirmation is a di- rect adjudication of the regularity of the action of the receiver, and cannot be impeached by a party to the suit in a collateral action, but will be considered conclusive as to the title derived from the sale. Brande v. Bond, 63 Wis. 140. A stockholder of a corporation, after having joined in an application made to the court by the receiver, for au- thority to sell the assets of the cor- poration, cannot attack the validity of the transfer of a mortgage by the receiver to the former president of the corporation, made in part pay- ment of the indebtedness due to him from the company, in an action to foreclose such mortgage. Bat- tershall v. Davis, 31 Barb. (N. Y.), 323. See also New Castle Northern R. R. Co. V. New Castle & Chenango R. Co., 152 Pa. St. 96. ' Russell V. Texas & Pacific R. Co., 68 Tex. 646. This was an action brought by the purchaser upon a receiver's sale of a railroad, to re- move a cloud from its title. It ap- peared that the receiver was acting under orders of the Circuit Court of the United States, and pending the receivership and without authority from that court a creditor of the road began an action against the company in a State Court to recover an unsecured debt. Judgment by default was rendered in that action against the company, on which an execution was issued to the sheriff, and by him certain real property of the company was sold to a pur- chaser. The representative and heirs of the latter claimed title to the land under the sheriff's deed. It was held, that the title of the purchaser under the receiver's deed was paramount. See also Texas Foundry R. Co. «. Lewis, 81 Tex. 1. In an hypothecary action to en- force the payment of liquidated debts, alleged to be secured by a judicial mortgage, it appeared that a railroad corporation mort- gaged its road, completed or not, to secure bonds issued for those objects, and default having been made in the terms of the mortgage, the United States Circuit Court ap- pointed a receiver who took pos- session of the property of the road, and while so in possession the plain- tiff's judgments were registered against the company. The receiver, under the order of the court, subse- quently sold the property of the corporation, including that acquired 150 POWEK OF COURTS OVER RECEIVERS. [CHAP. V. But the rule caveat emptor applies to purchasers at receivers' sales as well as to other judicial sales. The purchaser at such sales knows that nothing can be sold except the interest of the parties to the suit, and it is for him to ascertain, before pur- chasing, what that interest is.^ A sale by a receiver, therefore^ under an order directing a sale by public auction, without any mention of prior liens or incumbrances, wiU transfer the prop- erty to purchasers subject to the lien of whatever incumbrances may be upon it, with the right of the purchaser, nevertheless, to contest the validity of apparent incumbrances, either with respect to their legal existence or the amount due upon them. And if the sale is expressly made subject to aU legal liens and incumbrances thereon, the purchaser is not estopped from contesting them.^ So a party bidding at a foreclosure sale makes himself a party to the proceedings and subject to the jurisdiction of the court for aU orders necessary to compel the perfecting of his purchase ; and with a right to be heard on all questions thereafter arising, affecting his bid, which are not foreclosed by the terms of the decree of sale, or are expressly subsequently to the mortgage. It and refunded by tbe corporation to- was held that the mortgage attached its stockholders. Minn. Tresh. Co. to the property subsequently ac- ■». Langdon, 44 Minn. 37. quired, as effectually as if it had ' Hackensack Water Co. a. DeKay, been described specifically in the 36 N. J. Eq. 548. But see the case mortgage, and such property of Swann ©. Wright's Executor, 110 passed free from all incumbrance TJ. S. 590, in -which it was adjudged apparently resulting from the reg- that where a decree directed that a istry of the judgments, and the sale should be made subject to liens, plaintiff in the hypothecary action established or to be established, on must fail. Bell v. Chicago, St. Louis references previously had or then & New Orleans R. Co., 34 La. An. pending before a, master, a pur 785. chaser at such sale would not be ' Barron ii. Mullin, 21 Minn. 374 ; heard either in the trial or appellate Foster v. Barnes, 81 Pa. St. 377 ; court to dispute the validity of the Manning v. Monaghan, 33 N. Y. 544. liens thus established. The liens Where an order directed the sale of sought to be contested in this case " all assets, property and business " were receiver's certificates, and it of an insolvent corporation it was was alleged were obtained by fraud held that this did not include causes and imposition, and that the holders of action which the receiver might had, by a concealment of the real have maintained in asserting the facts, obtained the reports from the rights of stockholders, as, for exam- master and court establishing their pie, a claim for capital withdrawn validity. SEC. 35.] UPON THE SALE OF THE PROPERTY. 151 reserved to him by such decree. And where not concluded by the terms of the decree, any subsequent rulings which deter- mine in what securities, of diverse value, his bid shall be made good, are matters affecting his interests, and in which he has a right to be heard in the trial court, and by appeal in the appellate court.^ A purchaser from a receiver may oppose the confirmation of the latter's report of sale, but if he does not oppose it, he wiU be deemed to have adopted it, and be bound by the order confirming it, and cannot afterwards object to perform his contract, upon his allegation that the sale to him included property not mentioned in the report.^ An officer selling under judicial process has simply a naked ' Kneeland v. American Loan and Trust Co., 136 U. S. 89. The decree of foreclosure, in this case, con- tained these provisions : " The com- plainants herein and the purchaser or purchasers at the foreclosure sale under this decree, reserve the right to appeal from any orders and final decrees made by the court di- recting and decreeing the payment of claims and debts found and de- termined and adjudged and decreed to be due and payable as court and receiver's indebtedness, and to be prior and superior in equity to the lien of the said first deed of the trust and mortgage herein and hereby foreclosed, if they shall be so advised." " In making payment of any surplus of said purchase money left, after full payment of the court and receiver's indebted- ness, the purchaser or purchasers shall be allowed to pay said surplus in the bonds and coupons to which the same may be applicable, as hereinbefore provided, each such coupon and bond being received by the master for such sum as the holder thereof is entitled to receive under the distribution herein pro- vided, and according to the priori- ties herein adjudged." The master, to whom the matter was referred, reported upon the claims of inter- vening creditors, and the court de- cided that the purchasers, if they felt aggrieved, had a right to appeal from such report. See also Olcott v. Hendrick, 141 Cr. S. 543. ' Barron ». Mullin, 31 Minn. 374. The purchaser, in this case, insisted that in the parcel of land offered for sale and sold by the receiver, and bought by him, there was a piece other than the parcel described, and that such other piece was not in- cluded in the deed tendered by the receiver. The court decided, how- ever, that this might have been a. good defense, as a man is not obliged to receive any other than the precise property which he pur- chased, had it not been for the con- firmation of the report of sale which specified as sold to the purchaser only the parcel included in the deed tendered by the receiver. The pur- chaser might have opposed, and, if he claimed that it was incorrect, he ought to have opposed the con- firmation of the report. As he ac- quiesced in it, he is deemed to have adopted it, and is bound by the or- of the court confirming it. 152 POWER OF COUETS OVER RECEIVERS. [OHAP. V. power to sell according to the mandate of the court. He may- adopt conditions of sale amply sufficient to secure compliance by the purchaser with his bid, but he cannot impose any lia- bility upon the purchaser with respect to the property sold which would not result by law from his purchase. He cannot, by conditions of sale, change the relations of parties interested in the property, or create any other liability on the part of the purchaser than to complete his contract of purchase. If he undertakes to do more, he exceeds his authority and his act is nugatory.^ Sec. 36. Upon the transfer of title. — The property of a corporation placed in the possession of a receiver is regarded as being in custodia legis. When, in a proper case, a sale of such property is decreed by the court to be made, it is not a question whether the receiver has title, but whether the court has power to pass the title of the corporation whose estate is placed in the hands of a receiver. Sales so made, whether before final judgment or decretal orders, or thereafter, are judicial in their natures, and binding on the corporation as fuUy as its own act. The title to the property sold passes, not because the ministerial officer has title, but because the law casts upon him, when acting under its authority, the power to make a sale which will bind the corporation. No ' Haokensack Water Co. «. DeKay, a legal incumbrance. The receiver 36 N. J. Eq. 548. It was contended, testified that his understanding was in this case, that the purchasers that the sale was subject to all legal were estopped from contesting the incumbrances. The receiver, in his validity of the lien of a trust mort- conditions of sale, expressed that the gage, by reason of the manner in property and franchises would be which the receiver's sale was made, sold " subject to all legal liens and It appeared in evidence that the incumbrances thereon," and so re- legal adviser of the receiver, when ported his sale to the court, and by he read the conditions of the sale, the order of confirmation he was was inquired of with respect to directed to make a deed in accord what liens the property would be therewith, which he did reciting subject to, and replied by stating the same language. The court de- that there was a mortgage — stating cided that the inference was not the amount — the legality of which warranted, that the purchasers, in was questioned or in dispute. The fact, agreed at the sale to take the person who made this inquiry, property and subject it to the mort- testified that he understood that the gage, whether it was a legal incnm- purohaser would take the risk of brauce or not. having this mortgage established as SEC. 36.] UPON THE TRANSFER OF TITLE. 153 assignment is therefore necessary to entitle the court appoint- ing a receiver to pass title through a sale made by him under its orders.^ Such a sale through the receiver is absolute, and a creditor of the corporation, who recovers judgment against it after the property is taken in custodia legis by the court through the receivers, has no right to dedeem the same.^ Indeed it has been held that when a receiver transfers to a creditor of the corporation, in payment of a demand which the creditor had against it, negotiable paper against third parties — part of the assets of the corporation — in an action by the creditor upon the paper, in the absence of proof to show the extent of the authority of such receiver under his appointment, the presumption is that the receivtr had fuU power to make the transfer.' ' Russell e. Texas and Pacific Ry. Co., 68 Tex. 646 ; •Watkins «. Min- nesota Threslier Manufg. Co., 41 Minn. 150. ' Watkins «. Minnesota Thresher Manufg. Co., 41 Minn. 150. After the appointment and qualification ■of the receiver, in this case, upon the petition of one holding a major- ity of the stock of the corporation, the court decreed that a sale be made, in one entire mass of all the assets of the corporation, without redemption. The sale was so made by the receiver who made proper conveyances to the purchaser. The plaintifE held, by assignment, a judgment recovered against the corporation after the receiver's ap- pointment but before the sale, and by virtue of which judgment the plaintifE asserted a right of redemp- tion from the receiver's sale of a portion of the real estate so sold. The court, however, declared that " it was inconsistent with the idea of the property being sequestered and held in custodia legis for the accomplishment of these ends that it still be subject to the ordinary jemedies in favor of particular cred- itors, who had acquired no vested interest in the property when the court took it into its custody to be appropriated in this special manner, in accordance with the statute, to the satisfaction of all legal de- mands. The plaintiff's judgment did not charge this real estate with a lien enforcible against the prop- erty, either in the hands of the re- ceiver or of the purchaser at the re- ceiver's sale. That sale was abso- lute and without redemption. The plaintiff, for the satisfaction of his judgment, can look only to the fund derived from the sale, and not to the property sold for the very purpose of creating such a fund." ' Atchison v. Davidson, 2 Pinney (Wis.), 48. This was an action upon a promissory note which came into the possession of the receivers of a bank as part of its assets. The receivers transferred to the plaintiff the note in payment of a demand which the latter had against the bank. The plaintiff brought this action upon the note against the defendants, its makers, who defended upon the ground, 164 POWER OF COURTS OVER RECEIVERS. [CHAP. V. Sec. 37. Over the time for filing claims. — The power of a court to relieve a creditor from default, and permit him to pre- sent his claim to its receiver, and establish it after the time to do so limited by published notice or otherwise has expired, is inherent in the court. The creditor is not entitled to be relieved as a matter of right, but upon sufficient cause shown the court wiU exercise its discretion and grant or refuse the relief.^ To illustrate : If, after the expiration of the time specified in the notice for the presentation of claims to a receiver of an insolvent life insurance company, certain policy holders, whose claims have been presented and allowed, die, the court has power to direct a re-valuation of such policies so that the claim- ants under them can have the enhanced values which they will be able to establish in consequence of the deaths. The exer- cise of this power is entirely within the discretion of the court.^ among others, that the legal title to the note did not pass to the plaintiff. There was no proof to show the extent of the authority of the receivers under their appoint- ment, or to show that the other creditors of the bank had not been paid, or of fraud or unfair dealing in the transaction. It was held, that the presumption was, that the receivers had full power to divide the assets among the creditors of the bank, and that in so transfer- ring the notes they had acted within the scope of their authority, and that the legal title to the note passed to the plaintiS who could recover on it. ■ Attorney-Gen. v. Security Life Ins. and Ann. Co., 79 N. T. 267; Grinnell v. Merchants' Ins. Co., 1 C. B. Green', Ch. (N. J.), 283. In the first case cited, the receiver of an insolvent life insurance company, obtained an order as prescribed by statute (2 N. T., R. S., 467, § 56), for publication of notice to creditSrs, requiring them to exhibit their claims within a time specified. Be- fore the expiration of the time the^ receiver addressed a circular to pol- icy holders, to the effect that poli- cies in force on the books of the company would be allowed without subjecting their holders to further proof ; misled by such circular the holders of such policies did not make proof of their claims. When presented they were objected to by other creditors, and were rejected by the referee to whom it was referred to take proof as to distri- bution of the assets. Whereupon, and before any dividend had been made, the receiver applied for and obtained an order giving two months further time within which such claims could be presented and es- tablished before the referee ; it was held, that the receiver was author- ized in making the application, and that the court had power in its dis- cretion to grant it. 'Attorney-General v. Continental Life Ins. Co., 88 N. T. 77 ; People v. Knickerbocker Life Ins. Co., 34 SEC. 37.] OVER THE TIME FOR FILING CLAIMS. 155 This power of the court is not dependent upon the retention of the cause in which the receiver was appointed or upon the continuation of the receivership. It is inherent in the court and in its discretion it may abrogate the -limit of time allowed within which to present claims. This power was exercised and its exercise sustained in a case wherein a decree of foreclosure and sale of a railroad was entered which provided that the pur- chaser should pay off all claims incurred by the receiver, and that all claims should be barred unless presented within six Hun (N. T.), 476. An order was made, in the latter case, requiring the claimants to present their claims, and within the time pre- scribed for that purpose the policy issued for the benefit of the peti- tioner upon the life of her husband, was filed with the receiver. Pro- ceedings were taken to value such policies as were filed with the re- ceiver, and this was included in them; but before they were com- pleted or the report of the actuary confirmed, the plaintiff's husband died. The decease took place on the second of November, and the proofs thereupon required by the policy were filed with the receiver on the fourteenth day of December following, and afterwards retained by him. The report' of the actuary was confirmed on the 7th of August following, without notice to the petitioner, and as the valuation was made upon the policy as an existing and continuing insurance, and not upon the basis of the decease of the person whose life was insured, the petitioner applied for an order directing a re-valuation to be made. It appeared that this could be done without disturbing or diminishing the dividend already directed to be paid to other policy holders. The court declared that " no embarrass- ment, or confusion,' therefore, could rise from the re-valuation of the policy as a death claim against the receiver. And as the person whose life was insured died while the ac- tuary was proceeding with his valu- ation, and knowledge of the fact was brought to the receiver him- self, it seems to have been no more than was just and equitable that the re- valuation asked for should be directed. By the valuation of the policy, which was made, the peti- tioner and owner became entitled to the payment of so much money only as would enable her to obtain another policy for the same amount upon the life of her husband in a solvent insurance company. And that was very far below the amount she would be entitled to receive upon the policy after the decease of her husband. And this decease fol- lowed so nearly upon the time when the policy was filed with the re- ceiver, as to exonerate her from the charge of laches or unreasonable delay in obtaining another insur- ance upon his life. She had unusu- ally strong claims, under the cir- cumstances, that the policy should have been valued by the actuary as a death claim, inasmuch as all the facts had occurred entitling her to that valuation before he had com- pleted the performance of his ser- vices, or made his report upon the subject committed to his considera- tion." 166 POWER OF COURTS OVER RECEIVERS. [CHAP. V. months after the confirmation of the sale. The deed con- firming the sale contained the same provision. After the six months had expired a petition was filed to recover damages for an injury sustained by a passenger on the road, through the negligence of the employees of the receiver. The purchasers insisted that the claim was barred by the judgment and the decree confirming the sale. They, however, not having ob- jected to the terms of the decree of confirmation, or appealed therefrom, the court decreed that they should pay the claim.' It is always desirable to have as early a distribution of the assets as possible, and no extension of time will be given with- out sufficient reason ; but if the latter is shown, making it just and reasonable that the proof of such claim should be allowed, and the same wiU not delay the distribution of the assets, the court wiU permit it to be made.^ This, however, it should not be forgotten, not being a matter of right, but, resting purely in the discretion of the court, if exercised judiciously the order wiU not be disturbed on appeal.' Sec. 38. To punish receivers for contempt. — The summary power to commit and punish for contempt all persons whose conduct or acts, tend to obstruct or degrade the administration ' Olcott V. Hendrick, 141 U. S. 543. as a deatli claim and order to re- ' Fogg D. Order of the Golden ceiver to pay dividends thereon Lion, 159 Mass. 9, 16; Spooner v. upon the basis of the latter valua- Bay of St. Louis Syndicate, 48 Minn, tion, because it said, " that claims 313. But if the claim does not ap- which have been duly estimated pear to be valid and meritorious, and valued * * * and then placed and the failure to present it in due at such fixed and settled valuation time was not the consequence of upon the dividend list, should not misapprehension or want of notice, be opened by after-occurring events, but the result of carelessness or of If we were to allow such a practice intentional delay, the court will not to prevail it would inevitably lead permit it to be made. Leo. ii. Green, to great confusion, uncertainty 53 N. J. Eq. 1. and embarrassment. Dividends are ^ People ■». Security Life Ins. & largely based upon the amount Ann. Co., 23 Hun (N. Y.), 601. The of liquidated or adjusted claims, policy holder, in this case, died Every application resulting in an after the policy had been valued increase of such claims might re- and placed upon the receiver's divi- quire a minute calculation aa to deud list. Upon the application of how far the dividends declared lis executor the court refused to would be effected by the change." direct that the policy be re-valued SEC. 38.] TO PUNISH KECEIVERS FOB CONTEMPT. 15T of justice is inherent in courts of chancery and other superior courts, as essential to the execution of their power and to the maintenance of their authority. There is no class of cases in which the exercise of this power is more familiar or more necessary than in the case of receivers, who are officers and representatives of the court, and whose custody of the funds committed to their charge is the custody of the court.^ An application for an attachment of a receiver for contempt of court must be made and filed in the original cause. After the attachment has issued, the proceedings are distinct and are criminal in their nature ; but the jurisdiction and power of the court do not depend upon the question whether the offense might or might not be punished by indictment.^ The receiver must have an opportunity to be heard, and there must be an adjudication that he was guilty of the misconduct, before he can be punished.^ The question whether a contempt has or has not been com- mitted, does not depend upon the intention of the receiver, but upon the act he has done.* Thus, if he refuses to obey an order requiring a payment by him out of the funds in his hands as receiver, on the ground that he had been served with garnishee process issued by another court, this is not a suffi- cient excuse for disobeying the order, and the court will pun- ish him as for a contempt.' Or, if he appropriates funds ' in his hands as receiver to his own use, thinking that he had a right to take the money as compensation for his services, and therefore intended to do no wrong, but from poverty was unable to restore it ; his inability to make restitution is not a ■ Cartwright's Case, 114 Mass. 230; this garnishment he had made a People V. Jones, 33 Mich. 803. disclosure of the facts before the ' Cartwright's Case, 114 Mass. 230. justice, before whom no further ' Clark «. Bininger, 75 N. T. 344. action was had, and the receiver ■• Cartwright's Case, 114 Mass. 230. stiU held the money. Upon this ' Tremper «. Brooks, 40 Mich. showing, he was ordered to pay 833. The receiver in this case was over the money to relator or stand ordered to pay over certain moneys committed. Upon appeal by the to relator, but refused to do so on receiver from this order, the court the ground that he had been served held, that the receiver could not be with garnishee process issued by a garnisheed without leave of the justice of the peace. On an order court appointing him, and therefore to show cause why he should not he had no valid excuse for disobey- be attached, he showed that under ing the order to pay. 158 POWEK OF COURTS OVEK EECEIVERS. [CHAP. T. sufficient answer, and the court may punish him by imprison- ment.^ If he willfully refuses to obey an order of the court, it is a contempt of the authority of the court, and punishable by fine or imprisonment at the discretion of the court.^ It has been held, that if a corporation is restrained by in- injunction issued out of a court of competent jurisdiction, before the receiver's appointment, from doing certain acts, the injunction is binding upon a receiver of such corporation sub- sequently appointed, whether his appointment be made by the same court, or another court, or by a Federal Court, and if he disobeys such injunction, he will be punishable for contempt by the court which issued the injunction.^ If an appeal is taken from the order appointing the receiver and a supersedeas allowed, the operation of the order is sus- pended and further action of the receiver is prohibited, and if the latter in disregard of the force and effect of the super- sedeas, after notice thereof, proceeds to discharge the powers 1 Cartwright's Case, 114 Mass. 230. 2 People V. Jones, 33 Mich. 303. The appointment of the receiver in this case was declared void for want of jurisdiction, and the receiver was ordered to turn over and restore to the company all property, money and effects received by him as such receiver. The receiver thereupon made a report of the property re- ceived and still held by him, and of the moneys collected and paid out, and credited himself with about $500 as compensation for his ser- vices. It was insisted by the com- pany that he had no authority to retain compensation for his ser- vices. Upon his showing cause and claiming the right to retain the money as compensation for his ser- vices, the court ordered an attach- ment to issue, and upon his still refusing to comply with the order by paying over the money he was adjudged guilty of contempt and committed until he should comply with such order. Upon appeal it was held, that it was competent for the court to enforce such order by proceeding as for contempt. Where in proceedings upon an order to show cause the receiver is adjudged guilty of the alleged misconduct, the court, on appeal therefrom, cannot ordinarily re- view the order directing the pay- ment ; the court appointing the receiver has power to direct the latter as to the disposition of funds in his hands, and its order to that effect, if not appealed from, must be obeyed whether correct or not; the propriety of the exercise of the power cannot be considered on such an appeal. Thus held in a case where the receiver had funds in his hands sufficient to satisfy a lien thereon and willfully refused on demand to obey an order of the court directing him to pay such lien, and the court directed his im- prisonment until he paid it. Clark v. Bininger, 75 N. T. 844. » Stafford v. People, 85 111. 558. SEC. 39.] OF NATIONAL BANKS. 159 of his receivership, he sets at defiance the authority of the court and may be punished therefor.' Sec. 39. Of national banks, — The receiver of a national bank is the instrument of the Comptroller of the Currency of the United States, and an officer of the United States,^ and a court has no jurisdiction to entertain a suit in equity, brought to interfere with or control the administration of the duties of the Comptroller of the Currency in respect to winding up the affairs of a national bank.' ' State of Florida ■». Johnson, 13 Fla. 33. In this case the appeal was taken and the supersedeas al- lowed after the receiver had taken possession of the railroad over which the order appointing him was made and refused to allow the owners to take possession. The court committed him to jail until he should restore possession of the road to the owners. ^ Kennedy v. Gibson, 8 Wall. (TJ. S.), 498, 505 ; Piatt ■a. Beach, 2 Bene- edict (U. S. D. C), 303. 'Van Antwerp o. Hulburd, 7 Blatchf. (U. S. C. C), 436. This suit was brought to compel the Comp- troller of the Currency and the Treasurer to discover what dispo- sition had been made of the bonds of the United States which a na- tional bank had deposited with the said Treasurer for the purpose of procuring circulating notes, in pur- suance of the Act of Congress, entitled " An act to provide a na- tional currency, secured by a pledge of United States bonds, and to pro- vide for the circulation and re- demption thereof," approved June 3, 1864 (13 U. S. Stat, at Large, 99), and how many of said bonds had been sold and the disposition made of the proceeds, and how many of the circulating notes had been, re- deemed, and how many were still outstanding, and what disposition the defendants intended to make of any surplus bonds or the surplus proceeds thereof, after the redemp- tion of all the circulating notes of the said bank, or adequate provis- ions had been made therefor. The bill also sought an injunction re- straining the defendants from dis- posing of any of said bonds, or the proceeds thereof, remaining after the said circulating notes had been redeemed, or their redemption pro- vided for, in any other manner than to deliver or pay the same to the plaintiff, as his property, by virtue of an assignment to him by the said bank, and restraining the receiver of the bank, also made a party de- fendant, from receiving or in any way interfering with any of said bonds or the proceeds thereof. The assignment referred to was made in this way : The plaintiff loaned to the bank over one-half of the bonds of the United States necessary to enable the bank to receive the said circulating notes; on the 8th day of June, 1867, went into liquida- tion, and on the same day the bank, to secure the return of the bonds to the plaintifE, and to secure the redemption of its circulating notes, assigned to the plaintifE all its right, title and interest in the bonds so de- posited; the plaintifE thereupon as- sumed the obligation to redeem all of said circulating notes, which 160 POWER OF COURTS OVER RECEIVERS. [CHAP. T. A national banking association, however, notwithstanding- the appointment of a receiver by the comptroller, may still be sued in any state, county or municipal court in the county or city where such association is located, having jurisdiction in similar eases.' If the receiver is sued, he cannot remove suck cases against him from State Courts to the Federal Courts.^ By virtue of subdivision four of section 563 of the Revised Statutes of the United States, which gives the United States Courts jurisdiction of all suits at common law brought by the United States or by any officer thereof authorized by law to sue, such courts have jurisdiction of a suit brought by the receiver of a national bank to enforce the liability of a stock- holder of the bank.' The jurisdiction of the State Courts are, however, limited to the banking associations located within their jurisdiction, and over other associations and receivers thereof they have no jurisdiction.* To illustrate: A State Court of New York obligation he had been ready to perform, upon the receipt of said bonds. The court Tidd, that it had no jurisdiction to summon the Treasurer of the United States and the Comptroller of the Currency to an account for their acts in their olficial character in relation thereto, and dismissed the suit. ■ Bank of Bethel v. Pahquioque Bank, 14 Wallace (U. S.), 393. ^ Bird's Executors «. Cockrem, Re- ceiver, 2 Woods (tJ. S. C. C), 32. This suit was against a receiver for not surrendering property alleged to belong to the plaintifEs. Justice Bradley, held, as stated in the text. ^ Stephens v. Bernays, 41 Fed. Kep. 401 ; 44 Fed. Rep. 642; Steph- ens V. Bernays, 119 Mo. 143; Fisher «. Toder, 53 Fed. Rep. 565. ■■IS U. S. Stat, at Large, 116. Judge GRA.T, in Crocker v. Marine Nat. Bank of N. Y., 101 Mass. 340, where two actions were brought, one by citizens of New York and the other by citizens of Massachusetts, against a banking association, es- tablished in the City of New York, upon the question of jurisdiction, said : ' ' Upon full consideration, we are unanimously of opinion that the construction of the act of Con- gress, for which the plaintifEs con- tend, cannot be supported, and that the opposite construction must pre- vail. The whole purpose of the eighth section appears to have been to clothe the association with the attributes of a corporation, includ- ing that of suing and being sued. Unaccompanied by further legisla- tion, that would have left the juris- diction over suits against it to be regulated, according to the subject matter involved or the parties inter- ested, by the existing laws of the United States and the several states respectively. But the fifty-seventh section designates not only the judicial districts of the United States, but the locality of the State Courts, within which suits may be SEC. 39.] OF NATIONAL BANKS. 161 would have no jurisdiction of an action against a national banking association, located in the State of Alabama, to re- cover a debt alleged to be due from the bank ; and if, in such a case, the plaintiff attached certain moneys in New York belonging to the association, the receiver of such association could apply to a Federal Court for an injunction restraining such suit in the State Court and any further proceedings on the attachment, and this, notwithstanding the receiver on his own application had been substituted as defendant in the suit in the State Court and defended it unsuccessfully, having set up the want of jurisdiction of the State Court.^ The Comptroller of the Currency has no authority to settle and compound suits brought by the receiver, without leave of the court in which the suits are pending.^ No court has power to order the receiver to compound debts which are not " bad or doubtful ; " and a composition under such an order, of debts not " bad or doubtful," — as, for example, the debt of a share- holder arising on his subscription to the stock — is ineffectual.^ brought against such, associations ; ' Cadle «. Tracy, 11 Blatchf. (U. and, by thus regulating the whole S. C. C), 101. subject of suits against such cor- ' United States Rev. Stat., § 5234. porations, so far supersedes all In Case «. Small, 4 Woods (U. S. C. other rules, or, to speaii more ac- C ), 78, an action by a receiver to curately, prevents them from ever compel contribution on certain applying to such suits. This section shares of stock of the bank under manifests the intention of Congress the assessment of the Comptroller that each of these associations of the Currency, it was urged, as should be sued, either in the Federal well as pleaded, that a letter from or in the State Courts, only in the the Comptroller of the Currency, judical district in which it is es- stating that a final dividend to the tablished, and in which its officers creditors of the bank had been de- may be summoned and its books clared, and was payable on signing brought into court with the least receipt and returning certificate of interruption and inconvenience of indebtedness, operated in abate- its business; and that the election ment of the suit. But the court of plaintiffs to sue in any court held this position untenable, whatever should be confirmed with- ' Price, Receiver, ®. Tates, 19 Alb in these limits in all cases." Law Journal, 295. 162 POWEKS, EIGHTS, DUTIES OF EECEIVEES. [CHAP. TI. CHAPTER VI. Or THE PowEES, Rights and Duties of Receivers. Sec. 40. Date of tlieir inception, and how defined. 41. The character and extent of their possession of the property of the corporations. 43. In respect to corporate rights generally. 43. When acting for creditors only. 44. To compel restitution of corporate property. , 45. Against delinquent officers and stockholders. 46. To sue in their own names after leave granted. 47. To employ counsel ; and the limitations thereof. 48. To compromise disputed claims. 49. When entitled to receive rents and profits in foreclosure actions. 50. Of insurance companies to enforce payment of deposit notes. 51. Of railroad companies in their management and operation. 52. In a foreign jurisdiction. 53. Of purely statutory receivers in a foreign jurisdiction. Sec. 40. Date of their inception and how defined. — In chancery it is usual for the court to refer to a master to report a proper person to be appointed a receiver of the property of a corporation, and to approve of sureties to be given by such receiver. Under such an order the appointment is complete when it is confirmed by the special order of the court.^ The order amounts to a sequestration by act and operation of law of such property, and when the receiver is subsequently ap- pointed the title to such property vests by relation from the date of the order, and has the same effect as if such receiver was named in, and appointed by, such order.^ Indeed, the general rule is that while the receiver cannot take possession of the property of the corporation, or be deemed vested with the estate before he is appointed, yet when his appointment is completed, the estate vested in him relates back to the time of granting the order, and from that moment no act can be done affecting the property of the corporation, either by the corpo- ' In the Matter of the Eagle Iron Abb. Pr. (N. Y.), 66 ; Van Alystyne Works, 8 Paige (N. T.), 385. v. Cook, 25 N. Y. 489 ; Lottimer «. '' Doming v. N. Y. Marble Co., 12 Lord, 4 E. D. Smith (N. Y.), 183. SEC. 40.] DATE OF INCEPTION AND HOW DEFINED. 163 ration or its creditors.' The order cannot, however, as against third persons, date or relate back beyond the time of granting ' Smith V. New York Consolidated Stage Co., 18 Abb. (N. Y.) 430. To illustrate : Where on a day certain, at 10 o'clock A. M., an order is made that a receiver be appointed to take charge of the property of the com- pany ; and it is referred to a referee to appoint a receiver and take from him the requisite security ; and at 3 o'clock in the afternoon of the same day a party recovers a judgment against the company, under which the sherifE levies on property of the company ; and subsequently the ref- eree appoints a receiver ; such levy made by the sheriff is invalid as against the receiver. In the Matter of John Berry, Receiver, 26 Barb. (jST. Y.), 55. The estate to the property of the •corporation vested in a receiver at- taches from the time of the order of the court appointing him ; it is not deferred until he gives a bond in compliance with the order ; and gar- nishee process to reach property of the corporation, in the hands of third parties, instituted intermedi- ate between his appointment and giving a bond, is void. Maynard a. Bond, 67 Mo. 315. Where a statute is intended to promote and facili- tate a prompt and equitable settle- ment of the affairs of insolvent cor- porations, it is essentially a statute of distribution amongst creditors, with a residuary trust for stock- holders, after all debts are paid; and necessarily prevents and de- feats the right of any individual creditor, to obtain a preference for himself, by attachment on mesne process issued after the filing of a bill under the statute, by making another and difTerent appropriation of the property of the corporation. entirely inconsistent with the right which would be claimed under such attachment. Atlas Bank v. Nahant Bank, 33 Pick. (Mass.), 480. In Farmers' Bank of Delaware «. Beaston, 7 G. & J. (Md.), 431, a doc- trine contrary to that stated in the text is laid down. If a statute provides that " re- ceivers shall be vested with all the estate, real and personal, of such corporation, from the time of their having filed the security required," it has been held, that until the re- ceiver does file the security re- quired, the rights of creditors in pursuing their ordinary legal rem- edies against the corporation are not restricted, and any liens ob- tained by creditors before the filing of the security by the receiver are valid and subsisting. Chamberlain «. Rochester Seamless Paper Vessel Co., 7 Hun (N. Y.), 557. This case is overruled by a recent decision in a case which involved the construc- tion of the same statute. Proceed- ings were taken for the voluntary dissolution of a corporation and a receiver appointed. Intermediate the time of his appointment and the filing of his bond, creditors, by a writ of replevin and a warrant of attachment, procured certain prop- erty of the corporation to be reple- vied and attached in actions against the corporation brought in other courts. The receiver then made a motion in the court, which ap- pointed him, to restrain the prose- cution of such creditors' suits. The court made such a restraining order and it was upheld upon appeal. Matter of Christian Jensen Com- pany, 138 N. Y. 550. This doctrine was again reiterated in Matter of 164 POWERS, BIGHTS, DUTIES OF RECEIVEKS. [CHAP. VI. it ; and it is irregular and improper to insert a clause to that effect in the order.^ Common law receivers, whose powers are not regulated and prescribed by statute, derive their powers from the order of their appointment and are invested with such powers, as in the Schuyler's Steam Tow Boat Co., 136 N. Y. 169, annotated ante, p. — , and affirming 64 Hun, 384. It is difficult to see how this provision of a stat- ute can change the rule stated in the text. Common law receivers do not have title to the property of corporations before their filing bond, yet no creditor can acquire a lien on the property after the order is made for their appointment. The provision of the statute referred to does not profess to pass on the va- lidity of liens which creditors may acquire against the property of the corporation, but is only intended to prescribe the period at which the estate of the corporation shall be vested in the receiver, so that there- after the debtors of the corporation may be bound to settle with him alone. In the Matter of John Berry, Receiver, 26 Barb. (N. T.), 55. If an appeal is taken from the appointment of a receiver and a supersedeas filed, before an affirm- ance of the same and until the recieiver actually takes possession, the custody and control of the prop- erty remains in the officers of the corporation. Cook v. Cole, 55 la, 70. ' Artisans Bank v. Treadwell, 34 Barb. (N. T.), 553. The rights, powers and authorities of the re- ceiver in this case were declared by the order to take effect as from the commencement of the action in which he was appointed. After the commencement of such action, but on the day preceding the day the order appointing the receiver was made, a creditor obtained judg- ment and issued execution to tie sheriff, who made a levy upon prop- erty which subsequently came into the hands of the receiver. The property was subsequently sold under the order of the court with- out prejudice to the rights of the judgment creditor, who then made a motion to have the receiver, out of the proceeds of the sale, pay the judgment or apply the proceeds thereon. The court denied the mo- tion and upon appeal the General Term held that the order appoint- ing the receiver did not override the levy of the sheriff' under the ex- ecution, but left the main question, whether the j udgment creditor was entitled to be paid out of the pro- ceeds of such sale in preference to the general creditors, undecided, and remitted that for determination in an action against the receiver. The sheriff then brought an action, after leave granted, to reach the proceeds of the sale, to satisfy the execution so levied by him, and it was finally adjudged that the levy was entirely regular and valid, and created a perfect lien upon the property levied on in favor of the plaintiff in the execution, and the subsequent appointment of the re- ceiver could not deprive the plaint- iff in the execution of the rights acquired by such levy, and that the plaintiff, in the enforcement of the rights required by such levy, was entitled to recover the amount of the execution in his hands as sher- iff from the proceeds of such sale. Van Alstyne «. Cook, 25 N. T. 489. SEC. 41.J EXTENT OF THEIK POSSESSION. 165 exercise of its equitable jurisdiction the court sees fit to bestow upon them.^ A receiver appointed pendente lite is a common law receiver, and if the court which appointed him orders final judgment in another action wherein it appoints a permanent receiver of the property of the corporation and clothes him with power to col- lect and distribute the same, it becomes the final direction of the court as to the disposition of the property and the per- manent receiver supersedes the temporary one, though the latter be not formally discharged.^ Receivers have the right and, generally, it is their duty, as officers of the court, to apply to the court appointing them for general advice and instructions, and, in particular cases, for specific advice and instructions in regard to the management of the property and interests intrusted to their care.^ Sec. 41. The character and extent of their possession of the property of the corporation. — "Where the exclusive right to manufacture patented articles belongs to a corporation which subsequently passes into the hands of a receiver, such right is one of the assets of the corporation, to which the receiver, upon his appointment, succeeds, and which, with the other assets, is delivered over to him as far as such a subject matter is capa- ble of delivery. He therefore becomes vested with possession and authority to manufacture such articles, and if any party manufactures the same articles, he interferes with the posses- sion of the receiver and is in contempt of the authority of the court and punishable as such.^ Persons having liens upon the property, acquired before the ' Verplanck B. Mercantile Ins. Co., Pacific R. Co., 31 Fed. Eep., 862. 3 Paige (N. Y.), 438 ; Herring «. N. People v. St. NicholaB Bank, 76 Hun Y. L. E. & W. R. R. Co., 105 N. Y. (N. Y.) 522. 340, 372 ; Davis d. Gray, 16 Wallace * Matter of the Woven Tape Skirt {U. S.), 303, 218; Grant v. City of Co., 13 Hun (N. Y.), 111. If a cer- Davenport, 18 la. 181. tain sum is required to be paid for ' Glines ■». Binghamton Trust Co. , each article manufactured and sold 68 Hun (N. Y.), 511. the receiver of a corporation, which ^ Cammack ■». Johnson, 1 Green's has manufactured but not sold ar- Ch. (N. J.), 163; In the Matter of tides thereunder, is bound to pay the Van Allen, Receiver of the Bank of royalties in full upon such articles Albany, 37 Barb. (N. Y.), 325 ; Mis- in his possession. People v. Rem- souri Pacific R. Co., v. Texas & ington, 59 Hun (N. Y.), 282. 166 POWERS, EIGHTS, DUTIES OF EECEIVEES. [CHAP. VI. receiver's appointment, have no right to interfere with its possession by the receiver, and, without any application to or adjudication of the court, sell and dispose of it ; a sale of property so made is illegal and void ; ^ indeed after property ' Wiswall V. Sampson, 14 How. (U. S.), 52; Dugger v. Collins and McEae, 69 Ala. 324.; Noe v. Gibson, 7 Paige (N. Y.), 513; Edwards v. Norton, 55 Texas, 410; Hills ii. Parker, 111 Mass. 510. It makes no difEerence that the receiver ap- pointed declines to act ; the prop- erty is nevertheless in the custody of the court, and cannot be sold without its permission. Skinner v. Maxwell, 68 N. C. 400. To illustrate : When a judg- ment creditor issues execution upon a judgment, and the sheriff levies upon personal property, and there- alter a receiver is appointed who takes possession of the same prop- erty, it is then, in theory of law, in the possession and custody of the court ; and the sheriff has no right to interfere with it by virtue of his lien under the execution in his hands. If he persists and sells the property without leave of the court, it is illegal and void and the pur- chaser takes no title. Walling v. Miller, 108 N. Y. 173. It makes no difference that the lien was acquired upon real property after the ap- pointment of the receiver, the sale is void and no title passes to the purchaser. Russell v. Texas & Pa- cific Ry. Co., 68 Tex. 646. If, how- ever, the property is in the posses- sion of the sheriff under a levy made upon an execution, and not in the possession of the receiver, and is sold by the sheriff without the permission of the court, such sale is not absolutely void, but can at most be held to be irregular. Varnum b. Hart, 119 N. Y. 101. And in another case where the corporation was dissolved in an ac- tion by the people, and a receiver appointed on the same day that a judgment of foreclosure and sale was ordered by the same court in another action previously brought to foreclose a mortgage executed by the corporation upon some of its real estate, and the judgment of dissolution provided that it should not prejudice the legal rights of the plaintiff in the foreclosure action or stay the action, it was held, that a sale of the real estate under the foreclosure action was valid and the purchaser took a good title. Pres- ton D. Loughram, 58 Hun (N. Y.), 210. In Chautauqua County Bank v. Risley, 19 N. Y. 869, a debtor made a fraudulent assignment of his real estate, and afterwards judgments were recovered against him. The creditor having the first judgment, and having his execution returned unsatisfied, filed a bill in equity to set aside the assignment and for satisfaction of his debt. A decree was obtained declaring the assign- ment void as to creditors, and a receiver was appointed, to whom the debtor made a general convey- ance of his property by order of the court. The receiver then sold the real estate, and it was field, that an- other creditor, whose judgment was recovered before the filing of the bill, and who was not a party thereto, might sell the same real estate upon his execution, and that the grantee in the sheriff's deed ac- quired a title superior to that held SEC. 41.] EXTENT OF THEIB POSSESSION. 167 has once passed into the possession of a receiver, no person can acquire any lien upon it by judgment execution, attachment, garnishment, trustee process, or otherwise, without leave of the court appointing the receiver.^ by the purchaser from the receiver. In such cases the purchaser from the receiver acquires a title, not under the judgment which is the foundation of the bill in equity, but under the debtor's own conveyance to the receiver and the sale by the latter. Such a, title is, therefore, subject to all liens existing before the filing of the bill in favor of creditors who do not unite in that proceeding. Upon this decision, and the lan- guage used in the opinion in sup- port of it, the Supreme Court of New York has held, that the rule stated in the text is not applicable to real property, and that a sale of real property in the possession of a re- ceiver, when sold without leave of the court, is not void, but it is sim- ply a question of contempt of court. This ruling, however, was by a divided court. Matter of Loos, 50 Hun (N. Y.), 67. Directly to the contrary is Ellis «. Water Co. 86 Tex. 109. 1 Tremper v. Brooks, 40 Mich. 333; Russell B. Tex. & Pacific R. Co., 68 Tex. 646; Attorney-General ii. Conti- nental Life Ins. Co., 28 Hun (N. Y.), 360; affirmed 93 N. Y. 630; Jackson V. Lahee, 114 111. 387; Watkins v. Minnesota Thresher Manufacturing Co.., 41 Minn. 150 ; Farmers' Bank of Delaware v. Beaston, 7 G. & J. (Md.), 421. The property and effects of the corporation after the appointment of a receiver, are in the custody of the court, and are not subject to at- tachment, although he may not have reduced them to actual possession. Hagedon v. Bank of Wisconsin, 1 Pinney (Wis.), 61 ; Richards v. The People, 81 111. 551. The receiver's possession being the possession of the court from which he derives his appointment , he is not subject to pro- cess of garnishment as to funds in his hands, or subject to his control, and such proceedings will be regarded as a, nullity when directed against him. McGowan v. Myers, 66 la. 99 ; Field V. Jones, 11 Ga. 413; Taylor v. Gillean, 23 Texas, 508. A receiver cannot be charged by trustee pro- cess, because the property which he holds has been intrusted to and de- posited with him, not by the act of the corporation, but by authority of the law, and the law allows no per- son so holding funds to be charged by the trustee process, except ex- ecutors and administrators and as- signees under the insolvent acts. Columbian Book Co. v. DeGolyer, 115 Mass. 67. It is immaterial that the United States Circuit Court has the property in custodia legis, no lien can be obtained upon it after the appointment of a receiver, with- out the consent of that court. Bell «. Chicago, St. Louis & New Orleans R. Co., 34 La. An. 785. The property is not subject to levy under an exe- cution issued upon a judgment re- covered before the receiver's ap- pointment. Robinson ■». Atlantic & Great West. R. Co., 66 Pa. St. 160. But it has been held, that if the only object of a decree appointing receivers and awarding an injunc- tion — so far as disclosed upon its face — was to provide for the safe keeping of the property of a corpo- ration, and to prevent any fraudulent transfer thereof; and where such de- cree did not state that the ulterior 168 POWERS, EIGHTS, DUTIES OF KECEIVEES. [CHAP. VI. And a lease of lands in the hands of a receiver, made to a third party by a party to the pending suit, however valid between the parties, confers no rights upon the lessee.' If property, while in the possession of the receiver, is stolen, the ownership need not be laid in the name of the real owner in an indictment, but it may well be laid in the receiver who has a special property in the same.^ A judgment recovered against the corporation after the appointment of a receiver is not a lien against the real estate of the corporation, even though the receiver intervened in the action.^ His interest in the property is sufficient ' to enable him to prosecute an action, upon leave of the court being granted, to set aside a mortgage executed by the corporation without the requisite assent of the stockholders ; ^ or avoid a chattel mort- gage upon the property of the corporation, on the ground that it was not filed as required by law;* or to determine the validity of bonds secured by a mortgage on the property and to what extent such mortgage is a valid and subsisting lien upon the property ; " and to maintain an action to enjoin the intent of the court was to make an ' Farmera' Loan and Trust Co. v. equitable distribution of the funds, Minneapolis Engine and Machine and contained no directions to the Works, 35 Minn. 543; Rudd«. Rob- receivers to give notice to creditors inson, 54 Hun (N. T.), 339; Graham to file their claims ; that this decree Button Co, ■». Sperlmann, 50 N. J. imposed no restrictions upon cred- Eq, 120. itors in prosecuting their claims ' Hubbell D. Syracuse Iron Works, either at law or in equity, and a 42 Hun (N. T.), 183. The receiver judgment, subsequently recovered in this case was appointed in an by a creditor, is as much a lien on action for the sequestration ol the the real estate of the corporation property of the corporation and as if the appointment of receivers brought this action to determine had never been made. Bllicott v. which of the bonds which had been United States Ins. Co., 7 Gill (Md.), issued by the company were secured 307. And see Richardson «. Hick- by a mortgage issued by it, and man, 33 Ark. 406. which bonds should be excluded ' Thornton v. Washington Sav- from sharing in the proceeds aris- iugs Bank, 76 Va. 432. ing from the foreclosure of the ' State B. Rivers, 60 la. 381. mortgage; what bonds should be ' Richards ■». Osceola Bank, 79 la. adjudged to belong to one Emerson 707; Texas Trunk R. Co. v. Lewis, which were not held by him, and 81 Tex. 10. what, if any, should be adjudged to ■• Vail t). Hamilton, 85 N. Y. 453. be surrendered up by the present SEC. 41.j EXTENT OF THEIR POSSESSION. 169 ■officers of a state, which had declared a large grant of lands to a railroad company forfeited, from granting the lands to other persons.' While the general principle no doubt is that a receiver is not authorized, without the previous direction of the court, to incur any expenses on account of property in his hands beyond what is absolutely essential to its preservation and use, as con- templated by his appointment, yet, whether the receiver ex- ceeds his authority, or rightly applies the funds in his hands, are questions in which no one is concerned, except himself, the court to which he is amenable, and the parties interested in the property in his charge. If a receiver is not, technically, authorized to use the funds in his hands to pay for insurance upon the property in his possession, stiU upon the settlement of his accounts, if he acts in good faith, the court may allow him any sums paid out for that purpose. He holds such rela- tions to, and is under such personal responsibility for, the safety of the property, that he can make a valid contract of insurance, binding upon the insurer, although his use of the funds in his hands for that purpose is subject to the approval of the court.^ The title to property in the hands of a receiver holders, and for such other relief as formerly conferred ; that in some should be incident thereto. Upon of the states they are by statute ■demurrer to the complaint the court charged with the duty of settling held, that the allegation in the com- the affairs of certain corporations plaint warranted some relief in when insolvent, and are author- equity, and in such cases the com- ized expressly to sue in their own plaint must be sustained. names ; and that the court sees no The unsecured creditors are not reason why a court of equity, in necessary or proper parties to such the exercise of its undoubted au- an action ; they have no right to in- thority, may not accomplish all the tervene therein, and any adjudioa- best results intended to be secured tion made against the mortgagor is by such legislation, without its aid. binding upon them. Herring «. N. * Thompson •». Phoenix Ins. Co., T. L. E. & W. R. Co., 105 N. Y. 340, 136 U. S. 287. The receiver in this 370 ; Bronson v. R. R. Company, 2 case, without the previous order of Black. (IT. S.), 524. the court, insured property in his ' Davis V. Gray, 16 Wallace (U. S.), hands. It appeared from the policy 208. In this case the court says in that the company was informed as effect that in the progress and to the capacity in which the receiver growth of equity jurisdiction it has acted, namely : " as receiver for become usual to clothe receivers Holladay ■». Holladay.'' Before the with much larger powers than were receiver's accounts were settled, the 170 POWERS, RIGHTS, DUTIES OF KECEIVEKS. [CHAP. VI. is not in him, but in those for whose benefit he holds it. Nor, in a legal sense, is the property in his possession. It is in the possession of the court, by him as its officer. So that where a policy runs to a receiver in a designated suit, a mere change of receivers does not involve a change in title or possession nor come within the prohibition of a clause in a policy declaring that if any change takes place in title or possession, whether by legal process or judicial decree or voluntary transfer or conveyance, then the policy is void.^ Even though the formal title to real estate remains in an insolvent corporation after the appointment of a receiver, the latter, nevertheless, has the equitable title and possession of the same, and is, therefore, entitled to any surplus arising on a foreclosure sale of such real estate in preference to the lien of a judgment creditor who obtained his judgment after the receiver's appointment.^ And he may maintain an action to recover damages for a trespass, the right of action being based upon the injury to his possession.' The state is simply the property was destroyed by fire, and in an action by bis successor upon tbe policy, it was beld as stated in tbe text. ' Thompson v. Phoenix Ins. Co. , 136 U. S. 287. ' Matter of Attorney -General v. Atlantic Mutual Life Ins. Co., 100 N. Y. 379. The decision in this case was based upon the N. T. Laws of 1869, sec. 7, which authorized the court to appoint " a receiver of all the assets and credits of an insur- ance company, and provided that tbe receiver, upon filing his bond, shall ' take possession of all the as- sets and credits' of the company." The court Jield, that the word assets manifestly meant all the property, real and personal, of any company coming under its provisions, and that the receiver, upon his appoint- ment, became vested with the title to all the property of the company. Including its real estate, and that the receiver's title was, therefore. superior to and older than the lien of a judgment recovered after his appointment. Under tbe rule that after default in the payment of a debt secured by a chattel mortgage, the mortgagor has no interest in the mortgaged property that can be sold on execution against him, it was held, in an action to dissolve an insolvent corporation against which a judgment recovered and a levy made upon mortgaged property un- der an execution issued prior to the receiver's appointment but after de- fault in the payment of the mort- gage, that the mortgagee was first entitled to be paid the amount of the indebtedness secured, and the receiver was entitled to the balance. Leadbetter -o. Leadbetter, 135 N. T. 290. "Grant «. City of Davenport, 18- la. 181. Where receivers are ap- pointed in an action to foreclose a. mortgage upon the property of a telegraph company, and take pos- SEC. *J..J EXTENT OF THEIR POSSESSION. IV 1 custodian of the securities deposited by a life insurance com- pany to secure registered policies, and when converted and sold under the provision of a statute, the receiver is entitled to and becomes the rightful custodian of the proceeds.^ And while, generally speaking, the receiver acts for the cor- poration, if, at the time he is appointed, an injunction is granted and a bond given to secure the payment of such dam- ages as the corporation may sustain in consequence of the injunction, in case it be finally decided that it ought not to have been granted, the fact that the receiver had possession of and managed the property during the continuance of the injunction, will not prevent the corporation from recovering damages in consequence of the injunction, but the net receipts of the receiver will be taken into account and applied in reduc- tion of the damages.^ session of the property mentioned in the mortgage, including certain wires, using the same in carrying on the business of the company under the order of the court until certain persons, acting under the direction of another party, cut the wires, which in this manner were used and employed by the receiver, and sev- ered the working apparatus of the office from the wires, and disabled the receiver, together with the per- sons who are employed by him for that object, to carry on the business of the telegraph company, and the wires severed in this manner re- main detached until the property was sold by judgment of foreclosure in the action, irrespective of the question of title, unless it is out of the telegraph company and not en- cumbered by the mortgage, and is vested in the wrong-doer or in the party under which it claimed to cut the wires, the wrong-doer is liable to respond to the receiver for the damages sustained by him by rea- son of this invasion of his rights and trespass upon his possession ; for, as against a wrong-doer whose act is not authorized, or connected with an outstanding title, possession of the property itself by the receiver is sufficient to entitle him to main- tain an action for the recovery of the damages sustained by him by reason of the trespass, and it is no defense that the purchaser under the foreclosure sale might maintain an action to recover damages for the same trespass. Farnsworth v. Western Union Tel. Co., 6 N. Y. Supplement, 735; Kehr «. Hall, 117 Ind. 405. ■ Matter of Attorney-General i}. North American Life Ins. Co., 80 N. Y. 152. But see Cook v. Warner, 56 Conn. 334, in which it was held that the receiver does not become entitled to the proceeds of the securities de- rived from a sale of them, but is entitled to the income and dividends from the securities before their sale. ^Sturgis V. Knapp, 33 Vt. 486. The bill, in this case, was brought by certain bondholders for the pur- pose of setting aside a certain lease of the Western Vermont R. Co., made to the Troy & Boston R. Co.,. 172 POWERS, EIGHTS, DUTIES OP EECEIVERS. [CHAP. VI. Sec. 42. In respect to corporate rights generally. — A re- ceiver vested with power to sue, in his own name or otherwise, and recover all the estate, debts and things in action belonging by the defendants, Knapp and Briggs, wto were then in possession of the former road as trustees of the first mortgage bondholders, under a decree of foreclosure. Upon a dis- missal of the bill the court referred it to a master to ascertain the dam- ages caused by the injunction and decreed their payment by the party seeking the injunction. The right of the defendants, Knapp and Briggs, as trustees, to the rent re- served in the lease to the Troy and Boston Company during the period that the possession of the Western Vermont Railroad was withheld from said company under the in- junction was not questioned. But it was claimed that they had no right to claim it in this proceeding as damages resulting from the in- junction, for the reason that their claim upon the Troy and Boston Company for such rent and the lia- bility of the Troy and Boston Co. to pay the same to them were in no manner prejudiced or affected by such proceeding. The Court, in answer to this claim, said : " If the proceeding had been instituted, the in j unction obtained, and the posses- sion of the road taken from the company by a third party, strictly speaking, a party who had no con- nection with the said trustees as such, and no interest in the lease or the rents reserved therein, it might then be said that such an interfer- ence would not affect the right of the said trustees to demand and col- lect the rent or the liability of the company to pay it, but that the company must pay the stipulated rent according to the terms of the lease, and look to the party who had thus encroached upon their rights for their remedy. But we think the orators in this bill stand in no such relation to the defend- ants. The trustees held the road for the sole benefit of the bondhold- ers. The equitable interest of the Western Vermont Railroad Com- pany under the mortgage had been foreclosed, and the entire equitable interest in the road had become ve-sted in the bondholders, and the entire legal estate was vested in Knapp and Briggs, who held it solely as trustees and for the benefit of such stockholders. When Knapp and Briggs executed the lease of the road it was done in behalf of the bondholders, the rent reserved was to their use, and when paid, was their property, for which the trustees were to account to them. When these same bondholders, or a large part of them, in behalf of themselves and as many others as should choose to join with them, bring their bill, claiming that the trustees had no authority to execute such lease, and that the Troy and Boston Railroad Company acquired no right to the possession of the road under it, and obtained thereon an injunction divesting said com- pany of the possession, can it be said these were the acts of strang- ers, and that the liability of the company to pay rent for the prop- erty so taken from them, for the benefit of the same bondholders, is not afEected thereby? We think not most clearly. The effect of such proceedings upon the liability of the Troy and Boston Company, so far as this question is concerned, must be the same as though they SEC. 42.] IN RESPECT TO CORPORATE RIGHTS. 173 to or due to a corporation, in the same manner and with the like effect as such corporation might or could have done, for had been dispossessed by the direct act of procurement oi Knapp and Briggs themselyes. Such being tbe case, the company were released from all obligations to pay the rent, and Enapp and Briggs, as trustees, have sustained damage to the amount thereof by reason of the injunction, and that amount, as found by the masters, with the seven per cent, interest thereon, must be allowed to them." The masters also allowed dam- ages to the Troy and Boston R. Co., and this, it was claimed, was erro- neous, for the reasons that no dam- ages could be occasioned by the in- junction after the appointment of a receiver ; that when the chancellor appointed a receiver and put the road into his possession, such pos- session is, as a matter of law, the possession of the party that in the course of the proceeding shall finally be adjudged entitled to it, and as the Troy and Boston Rail- road Company were adjudged en- titled to the possession of the road, the possession of the receiver was to be regarded as their possession, and they are, in law, to be treated as in the possession of the road from the beginning, and operating the road for their own benefit. The Court said that " if this objection be well taken, it goes to the foundation of the whole claim for damages on the part of all the defendants. The granting of the injunction and the appointment of the receiver were so nearly at the same time as to be practically simultaneous, no appre- ciable injury could have Intervened, and if the Troy and Boston Rail- road Company have not been dis- possessed, their liability to pay the rent has not been afiected, or the right of the trustees to demand and collect it impaired, consequently there can be no claim for damages on the part of either. As a general principle it is undoubtedly true that when a receiver is appointed, he is appointed for the benefit of all par- ties interested, and his possession will be treated as the possession of the party entitled to the possession ; bat we do not understand this rule to be absolute and without qualifi- cation, but one that is founded upon a fiction, and is resorted to and en- forced when it is necessary to secure the ends of justice by pro- moting and protecting the interests of all parties. If any benefit is to ensue to the party in the right from the mere act of possession, he will be regarded as in possession; no rights will be lost to the owner from the possession of a receiver; whatever goes into the hands of the receiver is there for the benefit of the owner subject to the order of the chancellor. But we apprehend that this rule has never been car- ried to the extent of holding that a court of chancery will, by a resort to a fiction, treat a party as in the actual possession of that which, by their own injunction, they have taken from him and placed in the possession of another ; and that, too, for the sole purpose of compelling him to submit to a great and mani- fest injustice, especially in a case like the present, where the injunc- tion issued under an order that the orators should pay the damages re- sulting from it, and execute a bond with sureties in the sum of thirty thousand dollars to secure its per- formance, and when the injunction 174 POWERS, EIGHTS, DUTIKS OF EECEIVEKS. [CHAP. TI. all the purposes of inquiry into his title, represents the corpo- ration. He is by law vested with the estate of the corporate hody, and takes his title under and through it. So far as stockholders are concerned, he can litigate respect- ing the corporate estate upon precisely the grounds which would be available to the corporation if it were stiU in exist- ence, solvent, and no receivership had been constituted. He takes the rights of the corporation, such as could be asserted in its own name, and on that basis alone can he litigate for the benefit of either stockholders or creditors, except when acts have been done in fraud of the rights of the latter, but valid as to the corporation itself.^ He may deny the validity of acts of the corporation, notwithstanding the acts were done pur- suant to a resolution of the board of directors, and with all the ceremony and formality of an act intended to be valid and binding, where such acts are forbidden and unauthorized in law ; ^ as, for example, where circulating notes which were itself rendered the appointment of a receiver indispensable to avoid ruin to the interests of all parties. The appointment was immediately made, and if the doctrine contended for is correct, the chancellor there- by, almost in the same breath that the orders were made, entirely de- feated and destroyed the effect and beneficial purposes contemplated to result from them. The authorities cited by the counsel for the orators do not carry the doctrine to the ex- tent here claimed, and nothing but an array of authority that is irresis- tible, would induce us to adopt a principle that we regard as so utterly at variance with the princi- ples of equity and justice." ' Curtis v. Leavitt, 15 N. Y. 9, 44, 45. « Hoyt u Thompson, 5 N. T. 330. No power is conferred upon the president and cashier of a corpora- tion to mortgage, assign, or dispose of the property of the corporation. This is a part of the management of the concerns of the company which is confided expressly to the direc. tors or trustees, but not to the president and cashier. If the lat- ter, without the knowledge, assent or approbation of a majority of the directors or trustees, assign prop- erty of the corporation, and even though the assignment recites that it was made by direction of the di- rectors or trustees, it is not merely voidable, but absolutely void; and without reference to the insol- vency of the corporation its valid- ity may be impeached by the cor- poration itself; or in connection with such insolvency, by its credi- tors, directly or collaterally, and with the same effect as if it had been a forgery; and whether the holder was a bona fide purchaser of the property or not, makes no difEer- ence. The assignment not being the act of the corporation, the pur- chaser acquires no title. Id., pp. 334, 335. Banking associations possess au- SEC. 42.] IN RESPECT TO COEPOEATE EIGHTS. 175 void were issued by a banking corporation and a deed of trust executed transferring securities for the payment of such, void notes, it was held that such trust deed, made for their security and payment, had no legal effect and was void, and that the receiver had the right to recover the securities so transferred.' In an action where restitution of money is directed to be made to a corporation of which a receiver is subsequently appointed, the receiver has the right to make the motion to compel restitution on behalf of himself and the corporation.^ Under the National Bankrupt Act it was held that a receiver had a standing in court to make a motion to set aside an adjudication of bankruptcy against the corporation after his appointment.^ He is the " legal representative " within the meaning of the United States Revised Statutes, providing for the recovery " by the person by whom it has been paid, or his legal representatives," in twice the amount, of iUegal interest paid a National Bank.^ He has the right to set up as a defense against a suit for injuries sustained from negligence in running trains upon the railroad operated by him, a statute that requires suits for such negligence to be brought against railroads within two years.' thority to carry on the business of ' Leavitt, Receiver, d. Tates, 4 banking only in the manner and Edwards Ch. (N. Y.), 134. with the powers specified by stat- ' Market National Bank of N. T. nte, and have no power, unless spe- v. Pacific National Bank, 102 N. T. cified, to purchase state stocks to 464. sell at a profit, or as a means of ' In re Atlantic Mutual Life In- raising money except when received surance Co., 16 Albany Law Jour- as security for a loan or taken in nal (U. S. C. C), 453. payment of » loan or debt. If a * Barbour ■». National Exchange banking association purchases state Bank, 45 Ohio St. 133 ; National stocks with the knowledge of the Bank v. Trimble, 40 Ohio St. 629. vendor that they were to sell again. See also Palen v. Johnson, 46 Barb, giving therefor its certificates of de- (N. Y.), 31. posit payable at a future day, and ' Bartlett v. Keim, 50 N. J. Law, assigns mortgages held by it as a 260. The statute under consldera- collateral security, the transaction tion, in this case, provided, " that is illegal and the assignment of the all actions hereafter accruing for mortgages void, and a receiver of injuries to persons caused by the the association may repudiate the wrongful act, neglect or default of illegal transfer and claim the mort- any railroad corporation, owning or .gages as part of the fund of the cor- operating any railroad within this poration. Talmagev.PelI,7N.Y.328. state, shall be commenced and sued 176 POWERS, EIGHTS, DUTIES OF KECEIVERS. [CHAP. VI. The receiver can do anything that the company might have done to make the most out of its assets and, therefore, may bid ofE property held as security for a debt due the corpora- tion, in order to prevent its sacrifice.^ ■within two years next after the cause of Buch actions shall have accrued, and not after." The plain- tiff's action was brought to recover damages for personal injuries sus- tained as a passenger of the defend- ant while the latter had the control and operation of a railroad. Chief Justice Beaslby, writing the opin- ion, said : " The counsel of the plaintiff, in vindication of the issue thus raised, contended that the statute above recited has no appli- cation to a suit brought against a receiver, the argument being that the provision by its terms has rele- vancy only to wrongful acts done by railroad companies, and that in this case the tort complained of was the tort of the receiver and not that of the corporation. But unless we are to mistake the shadow for the thing itself, this position is not ten- able. This suit, in effect, is an effort to charge a suable wrong upon this railroad company. A judgment in this action would con- stitute an equitable claim upon the property of the corporation, and would not subject the receiver to any personal responsibility. It is the person whose property will be applied to the payment of the judg- ment who is the real defendant. These suits against receivers are anomalous in their nature. They are, in fact, the creatures of a court of equity, and are not to be assimi- lated, in all respects, to any of the ordinary procedures known to the courts of common law. In this case if a judgment should be ob- tained it would not constitute a lien on the property of either the nom- inal or real defendant. It could not be enforced by execution. In short, the action is simply the means adopted by the Court of Chancery to ascertain whether the plaintiff has a cause of action, and, if so, the amount of damages which have accrued. The receiver, within the sphere of his functions, represents the company; by virtue of such a relationship he exercises all its necessary franchises, and, in my opinion, he is its agent, appointed, not by the corporate body itself, but by the law for certain ends of its own, * « * Looking at the subject in the light of public policy, there seems to be no propriety in giving a longer life to a right of action arising during a receivership than is given to one arising while the road is in the hands of the direc- tors, for if the investigation in the latter case should not be unreason- ably delayed, neither should there be such procrastination in the for- mer." And see Memphis & C. E. Co. 13. Hoeohner, 67 Fed. Rep. 456. ' Jacobs V. Turpin, 83 111. 434. The trustee, in this case, under a deed of trust to secure the payment of a sum due an insurance company of which a receiver had been ap- pointed, was directed to sell the premises described in the trust deed in accordance with its terms. At the sale Jacobs bid the sum of $2,938, and the receiver, in his o&- oial capacity, bid $10,070. The trustee struck off the land to the receiver as the highest and best bidder. Upon the appeal of Jacobs, it was held, that the sale was valid. SEC. 43.] WHEN ACTING FOB CREDIT0K8 ONLY. 111 Sec. 43. When acting for creditors only. — The receiver of an insolvent corporation, while, as a general rule, he is to be regarded as the representative of the corporation, asserting its rights, taking its title, and subject to its liabilities, in one respect occupies a broader position, and represents not only the corporation but also the creditors, and when in any pro- ceeding he occupies exclusively the latter status, he may do, and, under some circumstances, must do, many things which, if his acts were strictly limited to those of a representative of a corporation, he could not do. To illustrate : The receiver of a bank, with the usual power to collect the assets of the bank, is not a trustee for the bank alone, he represents also the creditors of the bank, and in an action by him to recover the amount of a note falling due after his appointment, a defendant cannot set off against the note bank notes of the same bank of which the defendant became the holder, previous to his note falling due.^ A receiver of an insolvent corporation, suing for the benefit of its creditors, on a cause of action on which the corporation itself could not have sued, i. e., to set aside a transfer, or to recover back payments made by the corporation in fraud of creditors, represents rather the creditors than the corporation ; and the defendants cannot interpose as a set-off a claim against the corporation.^ He may file exceptions to the report of a referee appointed to take proof of claims, and for that purpose repre- sents not only the corporation, but he stands as a trustee of its funds for all its creditors, and may intervene to see that no injustice is done to any one.' It is upon this same principle that an action may properly ' Haxtun & Brown ■». Bishop, 3 is only to be maintained in the Wend. (N. T.) 13; The Eastern right of the creditors, and in that Bank v. Capron, 22 Conn. 639. specific action the receiver repre- ^ Osgood ■». Ogden, 3 Abbott's N. sents the creditors only and is not Y. Court of Appeals Decisions, 425. the representative of the corpora- Inasmuch as the acts for which the tion, and, therefore, a claim against recovery is sought were frauds upon the corporation cannot be offset to the creditors of the insolvent cor- a claim due to the representative of poration, and the separation sought the creditors. Id. See also Tucker- is the restoration of these improp- man v. Brown, 33 N. Y. 297. erly abstracted funds for their 'Attorney-General v. North Am. benefit, the action is brought and Life Ins. Co., 82 N. T. 172. 178 POWEES, EIGHTS, DUTIES OF EECEIVEKS. [CHAP. TI. be brought in the name of and by a receiver of the corpora- tion, to set aside and vacate a judgment against the corpora- tion, on the ground that it was obtained without consideration, by collusion with the officers of the corporation, and in fraud of creditors.' The receiver of a trust combination may, in the interests of creditors, assert a claim which he might be unable to do, as a representative solely of the combination.^ ' Whittlesey v. Delaney, 73 N. Y. 571. Defendant sold to a corpora- tion, of wWoh. the receiver in this case was the representative, a patent right for the sum of $25,000; $10,000 was paid down, and 500 shares of stock of the corporation transferred. The corporation gave back a power of attorney, authorizing defendant to sell rights and machinery, and it was agreed that it should receive all the net proceeds of sales made by the defendant until it was reim- bursed from such sales and the sales of the stock, the money paid down, and that thereafter defend- ant should be entitled to one-half the proceeds of sales coming to his hands until the residue of the $25,- 000 was paid, and all the balance should be paid to the corporation. It was held, that while the contract was in form a sale for $25,000, the payment of all, save the sum paid down, was dependent upon its being realized from sales in the manner specified; that no absolute obligation on the part of the corpora- tion to pay the balance was intended or incurred; and that no promise to pay the balance upon request could be implied. In this action, brought by a receiver of the cor- poration to set aside a judgment obtained by defendant for the bal- ance of the purchase price, it ap- peared that the summons and com- plaint in defendant's action were served upon an officer of the cor- poration, who brought it to the notice of the board of trustees, and with the assent of the board they were delivered to the attorney, who brought the action, to protect the interests of the corporation, no an- swer was interposed and the judg- ment was by default. It was held, that the evidence justified a finding that the judgment was without con- sideration, and was suffered to be entered by fraud and collusion be- tween defendant and the officers and trustees of the corporation. The corporation having become insolvent, its receiver, as the repre- sentative of creditors, has the ca- pacity to take the objection that a judgment against the corporation by confession was not obtained in such a manner as to be binding upon the corporation. Thus held, in a case where the president, acting as the general agent of the corporation, directing and controlling its busi- ness, with power to borrow money and contract debts, was held not to possess the power to encumber the company's property by a mort- gage or a judgment confessed as a security for its repayment. Stokes 4). New Jersey Pottery Co., 46 N. J. Law, 237. 'Pittsburg Carbon Co. «. Mc- Millin, 119 N. T. 46. In this case the controversy was over a fund arising through an unlawful com- bination over which the receiver was appointed. The Court said ; SEC. 43.] WHEN ACTING FOR CREDITOKS ONLY. 179 And it has been held, that an officer in a corporation, who is a leader in its management, who is active in securing the passage of a resolution authorizing an issue of preferred stock, who subscribes for such stock and pays his subscription and takes his certificate and votes upon it at stockholders' meetings for over two years, and induces others to take such stock, can- not, as against the receiver, when the company becomes insol- vent, recover back the money paid by him on his subscription, on the ground that the statutes of the state authorized an issue of general shares only.' Neithep can a stockholder avail himself — in defense to an action by a receiver upon the former's subscription to the capital stock — of the fraudulent character of the corporation, or of the misrepresentations under which he had been induced to subscribe for the stock, when he with his associates constituted the corporation, and when therefore he shared with them in the fraud on the public.^ "It is claimed tliat no action could have been maintained by the trustee, representing the trust com- bination, against the Brush Electric Light Company, to recover the pur- chase price of the carbons, for the reason that the illegality of the combination would have constituted a good defense. Assuming this predicate, it is asserted that the re- ceiver stands in the same position, and that his title is subject to the same infirmity as that of the combi- nation which he represents. With- out considering the assumption upon which his proposition is based, it is a sufficient answer to the prop- osition asserted, ' that the receiver unites in himself the right of the trust combination, and also the right of creditors, and that he may assert a claim as the representative of creditors, which he might be unable to assert as a representative of the combination merely.' The general rule is well established that a re- •ceiver takes the title of the corpora- tion or 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 in- solvent individual or corporation, in the interest of creditors, to dis- affim dealings of the debtor in fraud of their rights. Assuming that the trustee could not have re- covered of the Brush Electric Light Company for the reasons suggested, it would be a very strange applica- tion of the doctrine that no right of action can spring from an illegal transaction, which should deny to innocent creditors of the combina- tion, or to the receiver who repre- sents them, the right to have the debt collected and applied in satis- faction of their claim." But see Gray v. Oxnard Bros. Co., 59 Hun (N. T.), 387. » Banigan «. Bard, 134 U. S. 391. 'Litchfield Bank v. Church, 29 Conn. 187. 180 POWEKS, RIGHTS, DUTIES OF EECEIVEKS. [CHAP. VI. It is also in this capacity of representative of the creditors that if a statute invests a receiver with a discretionary power to compound and settle, he will, in the exercise of such power, keep primarily and constantly in view the interests of those for whom he acts, and therefore may, on the ground of expe- diency, ratify a sale made by the company after insolvency, or a suspension of its business for want of funds, though such sale is declared by the statute to be null and void as against creditors.^ And when, in the opinion of the receiver, there can be no demand against him to affect assets in his hands, the court wiU not direct him to compromise the claim where the court itself is of the opinion that the contract underlying it is void and cannot be enforced.^ Neither wiU the court advise acceptance of an offer of compromise made by some of the debtors, when the receiver submits the question to the court without recommendation, and a large portion of the creditors are opposed to its acceptance.* The receiver, moreover, should not advocate the cause of one claimant against another; between them he is indifferent, owing a like duty to all, and for that reason should, as far as possible, see to it that each has an equal opportunity to enforce his claim. He stands in this respect also as the representative of all creditors, and is bound to give them reasonable but equal aid. He must act in good faith and adopt aU proper and prudent measures to put the claim of each creditor in the way of liquidation before the period of distribution.* He is not justified in interposing any unconscientious obstacles to the liquidation of any demand, or with unreasonable haste pressing the collection of a claim due the corporation, with a view of excluding an offset by a creditor.^ But when a statute confers upon a creditor the right to intervene and defend in lieu of the defendant in an attach- ' Suydam i). Receivers of the Life Ins. and Annuity Co., 79 N. Y. Bank of New Brunswick, 3 Green's 267 ; First National Bank v. E. T. Ch. (N. J.), 114. Barnum Wire and Iron Works, 58 ^ Suydam v. Receivers of the Mich. 315. Bank of New Brunswick, 3 Green's ' Holbrook v. Receivers of Amer- Ch. (N. J.), 376. ican Fire Ins. Co., 6 Wend. (N. Y.), ' Williams ■». Halliard, 14 At. Rep. 230 ; In the Matter of Van Allen, 37 (N. J.), 880. . Barb. (N. T.), 330. * Attorney - General i). Security SEC. 44.J RESTITUTION OF CORPORATE PROPERTY. 181 ment suit by another creditor against their common debtor, a receiver of a corporation, by virtue of his appointment, being the representative of its creditors, may exercise the right to intervene and defend an attachment suit against the corpora- tion which seeks to subject funds, collected by him and in his hands, to the attachment.^ Other instances in which the receiver acts distinctively as the representative of creditors are given in the following section. Sec. 44. To compel restitution of corporate property. — A receiver appointed by a court of equity has power to compel the restoration of all property unlawfully abstracted from the corporation previous to his appointment, and in some states it is held that, even though the title to the property of the cor- poration is not vested in the receiver, he may sue in his own name to recover the possession, and if possession cannot be restored, for the value of the property.^ Assets of an incorporated company are regarded in equity as held in trust for the payment of the debts of the corpora- tion, and courts of equity will enforce the execution of such trusts in favor of creditors, even when the matter in contro- versy may not be cognizable in a court of law. Such assets are usually controlled and managed by directors or trustees, but courts of equity will not permit such managers, in dealing with the trust estate, in the exercise of the powers of their trust, to obtain any undue advantage for themselves, to the injury or prejudice of those for whom they are acting in a fiduciary relation.^ Therefore when a corporation is insolvent, 1 Paine v. HoUiday, 68 Miss. 298. (U. S. D. C), 334; Gillett v. Falr- In New York, creditors of a corpo- child, 4 Denio (N. Y.), 80. lation proceeded against by the ' European & N. A. R. E. Co. ■». Attorney-General in behalf of the Poor, 59 Me. 277 ; Hayes v. Kenyon, State, have not the right to inter- 7 R. I. 142; Richards v. New Hamp- vene in the action, but the court shire Ins. Co.. 43 N. H. 263 ; Paine has power to allow a creditor to ■». Lake Erie R. Co., 31 Ind. 853; intervene if a clear and sufficient Hoyle ®. Plattsburg, etc., E. Co., 54 reason appears therefor. People i). N. Y. 814; Butts v. Wood, 33 Barb. Empire Order of Mut. Aid, 70 Hun, (N. Y.), 188; Verplanck v. Mercan- 439;People4). Cataract Bk, 5 Misc. 14. tile Insurance Co., 1 Edwards Ch. ' Terry «. Bamberger, 14 Blatchf. (N. Y.), 84; Drury v. Cross, 7 Wal- 182 POWERS, EIGHTS, DUTIES OF KECEIVEKS. [CHAP. VI. unable to pay its commercial and business paper, and largely- indebted to one of its directors, and measures are devised by the board of directors or trustees to pay or secure that claim by a transfer of assets and property of the corporation, with- out making any corresponding provision for the other credi- tors, a receiver of the corporation subsequently appointed has a right to attack the action of the board as in fraud of the rights of creditors, and is entitled to recover the property so transferred, by a suit in equity brought for that purpose.' Or when the directors of an insolvent corporation mortgage the corporate property to themselves, in order to secure the payment of their debts, the receiver can attack the mortgage as invalid.^ In all such cases, the receiver or assignee, by whatever name he may be called, may take advantage of any fraud in derogar tion of the rights of creditors, or any transaction prohibited by law, to which the corporation was a party.' lace (U. S.), 299; Wardell «. Railroad Company, 103 U. S. 651 ; Cumber- land Coal, etc., Co. v. Parish, 43 Md. 598; Stewart v. Lehigh Valley R. Co., 38 N. J. Law, 505 ; Gardner v. Butler, 30 N. J. Eq. 703; Kitchen B. St. Louis, etc., Ry. Co., 69 Mo. 324 ; Chouteau v. Allen, 70 Mo. 390 ; Flint & Pere Marq. Ry. Co. v. Dewey, 14 Mich. 477; Marshall v. Farmers & Mech. Savings Bank, 85 Va. 676; Great Luxemburg Railway Co. v. Magnay, 35 Beav. (Bng.), 586. ' Bradley v. Converse, 4 Clifford (U. S. C. C), 875; Bradley i>. Far- well, 1 Holmes (U. S. C. C), 433 Rudd «. Robinson, 54 Hun (N. Y.), 839. ^ Haywood v. Lincoln Lumber Co., 64 Wis. 639. ' Nathan e. Whitlock, 9 Paige Oh. (N. T.), 153; Robinson «. Bank of Attica, 31 N. Y. 406; Atkinson v. Rochester Printing Co., 114 N. Y. 168. Under a statute prohibiting pay- ments and transfers of property by a corporation in contemplation of insolvency, with intent to give n. preference to creditors, it has been held, that knowledge of the pecu- niary condition of the corporation need not be brought home to the party receiving the transfers and payments in order to make them void. Brouwer ®. Harbeck, 9 N. Y. 589. A transfer made, however, by » corporation in the ordinary and usual course of its business, unin- fiuenoed by the state of its affairs, cannot be said to have been done in contemplation of insolvency. Butcher ii. Importers and Traders National Bank, 59 N. Y. 5. Where an insolvent corporation, under a resolution of its board of directors, gave its note in payment for shares of its own stock and in fraud of its creditors, and secured its payment by the transfer of all its book accounts, it was held that the assignment of the book accounts could not be enforced by the holder SEC. 44.J RESTITUTION OE COEPOEATB PKOPERTY. 183 As the representative of the creditors of a corporation he may challenge all its acts and transactions which are inhibited and declared void in law, whether they be authorized or not by its board of directors or officers. And he may prosecute and maintain, under the direction of the court, such actions and proceedings as may be essential and necessary to restore the property and rights of the corporation, lost by reason of such prohibited acts and transactions, and subject them to the claims of creditors of the corporation. "When so acting in his character as the representative of its creditors the receiver's position is one of antagonism to the corporation.^ of such notes as against a receiver of the corporation subsequently ap- pointed, to the injury of its credit- ors, even though such holder was an innocent purchaser, without no- tice of any equities against the same. Commercial Nat. Bank v. Burch, 141 111. 519. The Life Association of America purchased of the St. Louis Life Ins. Co. all its stock notes, together with the mortgages and collaterals given as security for the same, paying for them hy its own draft. This draft was afterward subdivided into three others, aggregating in amount the same as the first; one being for $900,- 000, and the other two for smaller amounts. These two latter were subsequently paid. With the stock notes and securities so obtained and a little cash, the Life Association, by the active assistance of the offi- cers and directors of the St. Louis Life Insurance Company, purchased 9,763 of the 10,000 shares constitut- ing the capital stock of that cor- poration, and had the same trans- ferred to itself. By this transfer the offices of the directors of the St. Louis Life Insurance Company became vacant, and the Life As- sociation caused its own directors to be elected in their places. Us- ing the power thus acquired, the Life Association then procured an amendment to be made to the charter of the St. Louis Life In- surance Company, by which the re- tirement of a portion of the capital stock of the latter was authorized. The Life Association then pre- sented to the St. Louis Life Insur- ance Company 9,000 of its 9,763 shares for redemption, and by order of the new board of directors the treasurer of the St. Louis Life In- surance Company redeemed the same by returning to the Life Asso- ciation the above-mentioned draft for $900,000. It was held that this transaction, if not actually fraudu- lent, was at least fraudulent in law, and that a subsequently appointed receiver of the St. Louis Life Insur- ance Company, acting in the inter- est of policy holders and creditors, could impeach it. Alexander v. Eelfe, 74 Mo. 495. ' Leavitt D. De Launay, 4 Sandf. Ch. (N. Y.), 281 ; Kingsley v. First Nat. Bank of Bath, 31 Hun (N. T.), 339 ; Stouebridge ». Perkins, 141 N. Y. 1 ; State of Nebraska i). State Bank of Wahoo, 40 Neb. 192. In Wisconsin it has been asserted that the receiver must be regarded as representing the rights of the cor- poration solely, unless it affirma- tively appears that the corporation 184 POWERS, EIGHTS, DUTIES OF RECEIVERS. [CHAP. VI. He may recover the assets and property, or the value of the same, from any officer of the corporation who, fraudulently and without authority or value given, appropriates them to his own use.^ He may disaffirm and maintain an action as receiver to set aside illegal or fraudulent transfers of the property of the cor- poration, made by its agents or officers, or to recover its funds or securities invested or misapplied ; ^ and if the suit of a credi- tor, brought to recover assets to which the receiver is entitled, is pending, he has a right to apply to the court in the proceed- is indebted to creditors, and for the benefit of whom the receiver was appointed. McLaren v. First Nat. Bank of Milwaukee, 76 Wis. 359. 'Hayes v. Kenyon, 7 R. I. 136; Gillet V. Moody, 3 N. Y. 479 ; Brandt V. Allen, 76 Iowa, 50. ' United States v. Late Corpora- tion of Church of Jesus Christ of Latter Day Saints, 18 Pac. Rep. (Utah), 35 ; Gillet v. Phillips, 18 N. T. 114. In Holden «. Upton, 134 Mass. 177, the receivers of a savings bank filed a bill in equity, to re- strain the defendant from prosecu- ting actions at law upon, and to compel the delivery to the plaintifE of, certain promissory notes in the defendant's possession. It appeared that the notes in question were re- ceived by the bank for money bor- rowed of the bank, and remained in the bank as part of its assets for several years, and they were then transferred to the defendant by the treasurer of the bank, at its bank- ing house ; that the defendant paid the money therefor to Pratt, who indorsed his own name on the back of the notes ; that similar notes in amount and appearance were sub- stituted by some person, among the notes and other securities of the bank, simulated so as to deceive the trustees of the bank; that neither the trustees nor the committee of investment of the trustees had any knowledge of the sale of the notes. It was held, that the treasurer had no implied power to transfer to a pur- chaser the notes of the institution, and that the receivers were entitled to the decree asked for. It was con- tended, on the part of the defendant, that the notes in question bore the name of but one promisor, and that they were not such notes as a sav- ings bank may lawfully take; and it was urged that therefore no rem- edy existed against the defendant, even if the act of the treasurer was unauthorized or fraudulent. But, the court said, "this argument overlooks the true nature of the question. We are not to consider whether the trustees, under such circumstances, might be held amen- able to any legal consequences. But the deposits are trust funds, held for the benefit of the deposi- tors. If, by intentional evasion of the statutory requirements, or by looseness of practice or inadver- tance, improper investments of these or any other trust funds are made, the trust nevertheless at- taches to the investments ; and the remedy, either of the trustees or of the cestui que trust, in availing themselves of the security so im- properly taken, is not impaired by the breach of trust." SEC. 44.] RESTITUTION OF CORPORATE PROPERTY. 185 ings in which he was appointed, for an order staying such suit, in whatever court it may be pending, and it is not necessary for him to bring an action for that purpose.' The receiver, being an officer of the court, is bound to obey its instructions, and if the court erroneously instructs him to pay a certain claim in full, and in obedience thereto he pays it, .and the court thereafter corrects its own error, the money so paid by the receiver is not lost to the trust estate ; payment having been made by mistake, it can be recovered again by the receiver from the party receiving it.^ If an insolvent corporation distributes its capital among its stockholders, thus placing the fund beyond the reach of its creditors, it acts in fraud of its creditors, and the fund may, by the receiver who represents the creditors, be recovered back from those who receive it.' ' Attorney-General v. Guardian Mutual Life Insurance Company, 77 N. T. 272. ' People ». E. Remington & Sons, 60 Hun (N. Y.), 42. In this case the receivers of a corporation were, by an order of the court, instructed to pay and did pay a creditor a certain claim as a preferred one. Upon fur- ther application by the same and other creditors similarly situated, the claims of such parties were de- clared not to be entitled to a prefer- ence, and subsequently the first or- der, under which the claim was paid, was vacated. Upon the pay- ment to the same creditor of a fur- ther claim, made by him as a gen- eral creditor, the receivers deducted therefrom the excess theretofore paid to him upon the claim paid as preferred, and this was held proper. ^Osgood ■». Laytin, Z Abbott's N. y. Court of Appeals Decisions, 418. In this case it was also held, that it is proper for the receiver to join as defendants any creditors who have instituted such suits, and those who threaten to do so, for the purpose of protecting the stock- holders from a multiplicity of actions. And see Hamilton v. Chou- teau, 3 McCrary (U. S. C. C), 509. The board of directors of an in- surance company, knowing that their company had just been re- ported by an official examiner to the Superintendent of the Insur- ance Department as being in an un- sound condition, and that that offi- cer would probably institute legal proceedings to have the company wound up, passed a resolution to the effect that all stockholders who would pay five per cent, on their stock (on which ninety per cent, was unpaid), and would surrender their stock certificates to the com- pany, should have the privilege of retiring from the company, and withdrawing their stock notes. If all the stockholders had acted on this resolution, the company would have had the means of paying about one-half its ascertained liabilities, and no more, with no provision for its outstanding policies. It was held, that the resolution was a fraud in law, if not in fact, upon the creditors of the company, and 186 POWERS, EIGHTS, DUTIES OF EECEIVEES. [CHAP. YI. Sec. 45. Against delinquent officers and stockholders When a receiver is appointed of an insolvent corporation, in an action brought in behalf of all its creditors, the right of action against its stockholders, for the amount of their unpaid subscriptions to its capital stock, vests in such receiver.^ This was no protection as against them, in an action by the receiver upon the unpaid subscriptions to those stockholders who had availed them- selves of its provisions. Gill v. Balis. 72 Mo. 434. In Georgia " all conveyances, as- signments, transfers of stock, effects or other contracts, made by any bank in contemplation of insol- vency, or after insolvency, except for the benefit of all the creditors and stockholders of said bank, shall, unless made to an innocent pur- chaser for a valuable consideration, and without knowledge or notice of the condition of said bank, be fraud- ulent and void." Code, § 4439. Un- der this provision it has been held that the effects so fraudulently transferred became a trust fund in the hands of the transferees, which may be recovered by the re- ceiver of the bank upon proper action brought under the direction of a court of equity. Hill v. West- ern & Atlantic R. Co., 86 Ga. 384; Porter v. Sabin, 149 U. S. 473. ' Whittlesey i). Prantz, 74 N. Y. 456 ; Stark v. Burke, 5 La. An. 740 ; New Orleans Gas Light Co. v. Ben- nett, 6 La. An. 456; Clarke v. Thomas, 84 Ohio St. 46. If power is conferred upon the receiver to sue for, collect, receive and take into possession all the goods, rights and credits of the corporation, and it is shown that the stockholder is a debtor to the corporation to the amount of his subscription to its capital stock, such debt is a credit of the corporation, and therefore the receiver has full power and author- ity, not only to receive and collect it, but also to sue for it in his own name. Dayton i). Borst, 31 N. Y. 435 ; Frank v. Morrison, 68 Md. 423. A stockholder having become liable by his subscription to pay up his shares in full, as called for by the directors, may, in equity, be com- pelled to pay the same by the re- ceiver who represents the creditors of the company, although there was no resolution of the directors requir- ing such payment. Sagory «. Du- bois, 3 Sandf. Ch. (N. Y.), 466. A provision in the subscription and the stock certificate that the balance was to be paid on the call of the directors when ordered by a vote of a majority of the stockholders themselves, does not prevent this power being effectually exercised by the court. Upton v. Hansborough, 3 Biss. (U. S. C. C), 417. But a call or assessment, or some equivalent action, is essential to the liability of a stockholder on such a contract of subscription. Chandler v. Siddle, 3 Dillon (U. S. C. C), 477. In Mary- land it is provided by statute that if the corporation shall be dissolved before its capital stock shall have been paid in, the liability of its stockholders shall continue to the receiver, who, it has been held, may maintain an action in his own name to recover the unpaid subscriptions. Stillman «. Dougherty, 58 Md. 423. In Illinois the principle stated in the text is changed by statute, and in order to establish the liability of a. stockholder the receiver must show SEC. 45.J DELINQUENT OFFICERS AND STOCKHOLDERS. 187 rule prevails not only in respect to receivers of insolvent cor- porations, but also when the receiver represents all the members of a partnership or corporation, or all the parties to a subscrip- tion for a common purpose, and in such case the receiver may maintain an action against one of the persons so represented, for a sum due from that person to the whole body represented.^ The amount due upon unpaid subscriptions to the capital stock of a corporation is a part of its property and constitutes a trust fund for the payment of its creditors. The fact that a creditor of the corporation has a receiver appointed because of its insolvency and upon the allegation that its assets consist only of real estate and a street railway and franchise, does not give him, the creditor, the right to recover the balance due and unpaid upon subscriptions of stockholders. The right of ac- tion upon such subscriptions vests in the receiver and he alone can recover the balance due and unpaid upon the same.^ It is the duty of the receiver to caU upon the stockholders to pay the balances due upon the shares of stock held by them respectively, where he has reason to believe that the whole amount due from those who are solvent will be required for that the stockholder sued was made chase price was paid to the receiver. a party to the proceeding in which The plaintifE, claiming to be the the receiver was appointed. Chand- transferee of the purchaser upon ler V. Brown, 77 111. 333. In Dean the foreclosure sale, began this «. Biggs, 35 Hun (N. Y.), 132, a rail- action to recover the same subscrip- road was sold upon foreclosure of a tion from defendant. It was 7ield, mortgage purporting to cover the that the defendant's subscription railroad constructed and to be con- was not covered by the mortgage, structed, and all rights of way, and the title to it did not pass under machinery, implements and other the foreclosure sale, but passed to property, chattels and things per- the defendant under the receiver's taining to the railroad, and all its sale, and that the plaintifE could not chartered rights, privileges and recover. franchises, and also all the estate, ' Lathrop v. Knapp, 37 Wis. 314 ; right, title, interest, property and Lathrop v. Knapp, 37 Wis. 307. possession, claims and demands ^ Showalter «. Laredo Improve- whatsopver, of the said railroad, ment Co., 83 Tex. 163. In this case. Subsequently in a judgment credit- after the appointment of a le- or's action a receiver was appointed ceiver, the creditor applied for an who sold the unpaid subscriptions order of the court, under article 595 to the capital stock of the company, of the Revised Statutes of Texas, and the defendant's subscription was for execution against certain stock- purchased by himself, and the pur- holders, who owned unpaid stock 188 POWEES, EIGHTS, DUTIES OF KECEIVBES. [CHAP. VI. the payment of the creditors of the corporation, and the expenses of executing the trust/ If some of the stockholders have paid for their stock, and others have secured the amount of their stock by stock notes, those who have paid for their stock have a right to insist that the receiver collect the stock notes, or so much thereof as is necessary to equalize the losses among all the stockholders ratably.^ And the court appoint- ing him has power to direct him to collect only such part of the unpaid subscription as constitutes the debtor's fair propor- tion of the sum necessary to discharge the debts and adjust such rights as are properly to be determined in the suit in which the receiver was appointed.' The court will do what the corporation had a right to do in order to create an obligation upon the stockholder to pay an assessment upon call of the company. And if, for any reason, the corporation has not made the call, a court of equity may itself make the call and direct its receiver to collect the assess- ments under it. But, under such circumstances, before there is any obligation upon the stockholder to pay without an assessment and call by the corporation, there must be an order of the court.* The order of the court becomes the foundation of the receiver's right of action, and the statute of limitations in favor of the stockholders begins to run from that time.' Its validity does not depend upon the stockholders, in their individual capacities, being parties to the action in which the order is made. Stockholders are a part of the corporation and represented by it.* All that each individual stockholder in the corporation. The relief 3 Bissell (U. S. C. C), 417 ; Chandler sought waa resisted by the receiver v. Siddle, 3 Dillon (U. S. C. C), 477 and the stockholders and was re- Vanderwerken ii. Glenn, 85 Va. 9 fused by the court. Glenn ■». Williams, 60 Md. 93 ' Pentz 152. Glenn «. Semple, 80 Ala. 159; Glenn 2 Clarke v. Thomas, 34 Ohio St. v. Williams, 60 Md. 93 ; Lewis v. 46 ; Dayton «. Borst, 31 N. Y. 435. Glenn, 84 Va. 947 ; Armstrong D. ^ Scoville v. Thayer, 105 U. S. 143; Danahy, 75 Hun (N. T.), 405 ; Glenn Robinson v. Bank of Darien, 18 Ga. ■». Priest, 48 Fed. Rep. 19; 51 id. 400. 65; Sagory v. Dubois, 3 Sandf. Ch. « Sanger ■». Upton, 91 U. S. 58; . Receivers of the Bank of Circleville, 19 Ohio, 463. Where, to the public, a company had all the external indioia of being a corporation and legally entitled to exercise the rights and franchises it assumed, a person voluntarily taking stock in such company is not in a position, when sued for the balance due for such stock for the benefit of creditors of the company, to deny the authority of the com- pany to issue such stock, or his lia- bility thereunder. Upton v. Hans- borough, 3 Biss. (U. S. C. C), 417. If a party makes an actual purchase of shares from a company or an in- dividual holder, and voluntarily allows himself in this manner to be represented to the world as a stock- holder, he must take the responsi- bilities of that situation ; the per- son who has caused or allowed his title to be registered on the books, cannot deny the truth of that repre- sentation and disavow the owner- ship when it ceases to be a benefit and becomes a burden. Matter of the Reciprocity Bank, 33 N. Y. 9. A stockholder who retains his stock, and continues to participate in the profits of the corporation without denial of his membership, cannot successfully repudiate his contract, holding that he is not obliged to pay an assessment upon the ground of certain irregulari- ties in the increase of the capital stock of the corporation. Payson. 194 POWERS, RIGHTS, DUTIES OP RECEIVERS. [CHAP. VI. The receiver is not estopped, in an action against a former treasurer of the corporation, to recover what is in fact due from him to the corporation, because the directors accepted the report of an auditing committee on the treasurer's account.^ The right of action vests in the receiver of an insolvent cor- poration against its directors who willfully abuse their trust, or misapply the funds of the corporation, by which a loss is sustained ; or suffer the corporate funds to be lost or wasted by gross negligence and inattention to the duties of their 11. Withers, 5 Bias. (U. S. C. C), 269 ; Payson o. Stoever, 3 Dillon (U. S. C. C), 437. Irregularities in the proceedings to increase the Btock, or unauthorized provisions as to such stock, e. g., that no notice of the meeting of stockholders was given, that a part of the stock was declined by the stockholders with- out actual apportionment of it, or that the agreement contained a stip- ulation that the original stockhold- ers should have part of the shares without paying for the same in money, will not defeat an action by a receiver to recover on a subscrip- tion for such increased stock for the purpose of paying debts, where such subscriber, having knowledge of the facts, acquiesced until the company became insolvent. Clarke 1). Thomas, 34 Ohio St. 46. It is not a Ba£Scient defense to show ignorance on the part of the stock- holder as to the condition and cir- cumstances of the company when his subscription was taken; and representations by the agent of a corporation as to the nou-assessa- bility of its stock, beyond a certain percentage of its value, constitute no defense to an action against the holder of the stock to enforce pay- ment of the entire amount sub- scribed, where he has failed to use due diligence to ascertain the truth or falsity of such represen- tations. Upton ®. Tribilcock, 91 U. S. 45. The original holder of stock in a corporation is liable for unpaid installments of stock, without an express promise to pay them; and a contract between a corporation or its agents and him, limiting his lia- bility therefor, is void as to the creditors of the company. Id. Where a statute provides that the holder of stock, when a debt is contracted, may exonerate himself from responsibility therefor, if, be- fore default in the payment of such debt, he makes a 'bona fide transfer of his stock on the books to any resident of the state of full age ; and further declaring that every assignee of stock so trans- ferred before default shall be liable in the same manner as if he had been the owner at the time the debt was contracted, the transfer or surrender to the corporation itself which issued the stock does not exonerate the person making the transfer. The purchaser from him. must be one who succeeds to a per- sonal liability distinct from and in addition to the liability of the cor- poration, which cannot be such a purchaser. In the Matter of the Reciprocity Bank, 33 N. Y. 9. ' Parker «. Nickerson, 137 Mass. 487. SEC. 45.] DELINQUENT OFFICERS AND STOCKHOLDERS. 195 trust.' To such an action the stockholders have no legal right to be made parties, since a complete determination thereof can be had without them.^ The power of a court of equity to direct its receiver to bring such an action is inherent and within the court's general equitable jurisdiction.^ If the receiver sells certain specified claims against a former trustee of the corporation, the purchaser acquires no right of action against such trustee to require him to account in an action in equity for any assets of such corporation remaining in his hands, for this is one of the trust powers of the receiver appertaining strictly to his status as such, and not capable of transfer.* ' BrinckerhofE v. Bostwick, 88 N. Y. 62; Trustees of Mutual Building Fund, etc., Bank b. Bossieux, 4 Hughes (U. S. C. C), 387. In Min- nesota it is provided that " if any corporation, organized and estab- lished under the authority of this act (Manufacturing Act), shall vio- late any of its provisions, and shall thereby become insolvent, the di- rectors ordering or assenting to such violation shall be jointly and severally liable in an action founded on this statute for all debts contracted after such violation as aforesaid." The fact, it has been held, that the affairs of the corpor- ation have been placed in the hands of a receiver, neither takes away nor suspends this right of action. Patterson v. Stewart, 41 Minn. 84. « Kimball v. Ives, 30 Hun (N. Y.), 568. ^ Thompson ■». Greeley, 107 Mo. 577. It was held in this case that the directors of a savings bank who have loaned to one person a sum greater than one-fourth of the bank's capital stock, contrary to the provisions of a statute, are liable for any loss that may accrue from such loan, although the statute itself does not provide any penalty for its vio- lation, and that this liability may be enforced by the receiver under the direction of the court. * Mann ■». Fairchild, 3 Keyes (N. Y.), 106. In this case the receiver of a bank sold at public sale to the plaintiff certain demands against defendant's testator for property be- longing to the bank, for a balance supposed to be due from the testa- tor on the books of the bank, and all the rest and residue of the prop- erty and effects of the bank. This was an action in equity to compel the defendant's testator, who was the cashier of the bank, to account to the plaintiff for any assets of the' bank remaining in his hands, by virtue of certain assignments of property made to him by the board of directors previous to the re- ceiver's appointment. It was held, that by this purchase the plaintiff obtained all the title to these claims that was in the receiver, which was all the title the bank owned before the receiver was appointed. And the Court said: "The receiver could not divest himself of this trust power to another; it was a trust only reposed personally in him, in confidence, by the court; he could not assign or convey a trust; it did not pass with the conveyance of each claim ; it was not a thing to 196 POWERS, EIGHTS, DUTIES OF EECEIVEKS. [CHAP. VI. Sec. 46. To sue in their own names after leave granted. — The old rule of equity, which required a receiver, when bring- ing an action, to join with him the corporation of which he was appointed receiver, was based upon the theory that a court of equity had no power to authorize its receiver to maintain an action at law, when the latter had not the legal title to the thing in controversy. But it would seem that the reason of the rule no longer exists in those states where the distinction between law and equity has been abolished.^ Indeed, the rule itself rested upon so narrow a principle that courts very gener- ally criticised and finally refused to follow it. There would now seem to be no valid reasons why courts of equity cannot — provided they do not step beyond the bounds of their jurisdiction — empower receivers to institute such suits in their own names as may be beneficial to the interests of the trusts committed to their care — a power which in many states, has been conferred upon them by statute. Even in Indiana and Missouri, where the old rule obtains, it has been held that a statute, authorizing the court to make all orders and decrees needful for winding up the affairs of an insolvent corporation, is sufficient authority — if it appears to the court that a necessity exists for the collection of debts due the corporation — to direct a receiver, its own officer, to institute suits in his own name for that purpose.^ While the line between the inherent powers of a court of equity and the authority thus conferred by statute cannot be clearly traced in those decisions, the doctrine that the old rule should be adhered to leads to this grave question : be scattered and divided to several the receiver had the power to sell vendees, who purchased demands at to others equitable claims, as he had this public sale, in due proportions, legal ones, and the purchaser of an so as to enable each to act as trustee' equitable claim takes with the claim for the enforcement of his pur- the right to sue it in equity, but as chased claim. The receiver did not the argument that the claim in profess to sell it, accompanied with question is of an equitable charao- a trust, and had there been a liabil- ter, seems to depend upon its being ity on the part of Fairchild to a trust, we have proceeded to show account to the receiver for the ben- that it has no trust features con- efit of creditors, it did not pass to nected with it." the plaintifE by this sale. True, ' Gray v. Lewis, 94 N, C. 392. all equitable claims of the bank, ^ Gill ■». Balis, 73 Mo. 424; Man- against individuals, passed to the love d. Burger, 38 Ind. 211 ; Garver receiver, and it is equally true that i>. Kent, 74 id. 428. SEC. 46.] TO SUE IN THEIR OWN NAMES. 197 If a corporation, after its dissolution, cannot maintain an ac- tion in its own name to recover its assets, in whose name can an action be brought to recover those assets for the benefit of creditors, if the receiver cannot maintain one in his own? The receiver cannot sue in the name of the dissolved corpora- tion, and if authority has been conferred upon him by statute to do so, he must set forth sufficient facts to show the character in which he appears, because if this were not required, suit might be prosecuted in the name of a dissolved corporation by unauthorized persons.' The better doctrine, deducible both from reasoning and authority, certainly is that a court of equity has the power to direct its receiver to bring all actions which may be neces- sary in his own name as receive?^ instead of suing in the name of the corporation or joining it with him.^ And conversely, ' Miami Exporting Co. v. Gano, 13 Ohio, 269 ; Ashville Division No. 15 11. Astor, 93 N. Y. 578. ' Davis i>. Gray, 16 Wallace (U. S.), 203. The order of the court in this case required the receiver to secure and protect " the assets, fran- chises and rights," and "the land grant and reservation of said com- pany." To perform that duty he brought this action in his own name to enjoin the officers of the state, which had declared a large grant of lands made by the state to the com- pany forfeited, from granting them to other persons. The possession of the receiver was not invaded, in fact he did not have possession and was not seeking possession. The court held, that it was competent for him to perform this function in the mode he had adopted, since the decree in the case, wherein he was appointed expressly authorized him to sue for that purpose in his own name. The receiver has authority to file a hill in his own name for the fore- closure of a mortgage given to the corporation, but in such a case the mortgagee, in whom the legal title is vested, is a necessary party to .the bill. Comer «. Bray, 83 Ala. 217. He may maintain suits in his own name to obtain possession of the real estate of the corporation ; a suit in the name of the latter would not accomplish the purpose of obtaining possession for the receiver, for the execution, or writ of possession, if one was obtained, would require the officer executing it to put the cor- poration, and not the receiver, into possession. Baker v. Cooper, 57 Me. 888. If the receiver is author- ized by the court to prosecute suits at law and in equity, it is sufficient authority for him to sue in his own name to recover a subscription to the capital stock of the corporation. Frank v. Morrison. 58 Md. 423. He may also maintain an action to re- cover upon a note given to the cor- poration before his appointment. Hayes «. Brotzman, 46 Md. 519. And so upon a bond, secured by a mort- gage. Wilkinson ■». Rutherford, 49 N. J. Law, 241. The following cases aLso sustain the rule stated in the text. Fraenkle v. Jackson, 30 Fed. Rep. 398 ; Iglehart v. Bierce, 36 198 POWEKS, EIGHTS, DUTIES OP EECEIVEKS. [CHAP. VI. unless the receiver is authorized by statute or by an order of. the court appointing him, he cannot, with one exception, which will be noted hereafter, maintain an action in his representa^ tive capacity as receiver.' If a receiver has authority, under a statute, to sue in his own name, there is, of course, no neces- sity for special authority from the court appointing him to bring the suit.^ But he must allege his authority in his corn- Ill. 136; Hardwick v. Hook, 8 Qa. 354; Henning ■». Raymond, 35 Minn. 303; Tillingliast v. Champlain, 4 R. I. 173; Lathrop v. Knapp, 37 Wis. 315; Haxtun & Brace v. Bishop, 3 Wend. (N. Y.), 13; Helme o. Little- john, 13 La. An. 398; Wray and Pierce ■». Jamison, 10 Humph. (Tenn.), 186; Boyle «. Townes, 9 Leigh (Va.), 158. In Pennsylvania, Indiana, Mis- souri and North Carolina, the new rule seems not yet to have been adopted. STeager ■». Wallace, 44 Pa. St. 394; Dick ». Struthers, 35 Fed. Eep. 103 ; Garver v. Kent, 70 Ind. 438; Moriarity v. Kent, 71 Ind. 601 ; Battles V. Davis, 66 N. C. 353; Farm- ers and Merchants Ins. Co. . Silven, 140 N. Y. 414. ' Rockwell 1). Merwin, 45 N. Y. 166. The rule stated of course applies only in cases where no de- murrer is interposed to the com- plaint, and an answer is served. Griesel •». Schmal, 55 Ind. 475. » Rockwells. Merwin,45N.Y. 166. ■ SEC. 47.] TO EMPLOY COUNSEL. 201 There is one exception to the general rule which compels a receiver, by suitable averments in his bill or complaint, to show his authority to bring suit. This exception is confined to those cases in which he seeks to redress himself for injury to the trust property while in his possession, as for a trespass, or to enforce a contract made with him directly, or an obliga- tion due to him as such receiver. In such cases, while it is deemed more expedient and safe for a receiver to obtain an order of the court directing him to bring suit, yet his failure so to do is no defense at law or in equity.' Sec. 47. To employ counsel, and limitations thereof. — "When a receiver is directed by the court appointing him to employ counsel to assist him in the discharge of his duties, it is the receiver's duty to select an independent counsel rather than one who is acting for either party in the action.^ This rule is intended to protect the rights of those parties ; if, there- fore, they make no objection, the receiver may employ the sohcitor of either to aid him in the discharge of his trust. A mere stranger to that suit has no right to object that the re- ceiver has employed the solicitor of one of the parties, in the original suit, to institute a new suit against such stranger.' And the employment of counsel who has been identified with the legal business of either of the parties to the action, if made in good faith with the assent of the parties, wiU escape the censure of the court.* But courts are not inclined to favor this practice, unless the employment is made in strictly good faith ' Ponder d. Cattersen, 127 Ind. tated ; Farnswortli i). Western Union 434. In this case a tenant holding Tel. Co., 6 N. T. Supplement, 735, under a receiver as lessee refused to annotated ; Wilson v. Welch, 157 surrender, and the receiver brought Mass. 77. action in his own name to recover ' Byckman «. Parkins, 5 Paige (N. possession without an order of the T.), 543 ; Ray o. Macomb, 2 Edwards court. It was held that he could do Ch. (N. Y.), 164 ; Emmons •». Davis so. In another case, a receiver by & Dowd Pottery Co., 16 At. Rep. leave of the court sold goods, and to (N. J.), 157 ; Blair «. St. Louis, H. & recover the purchase price of which, K. R. Co., 20 Fed. Rep. 348. the receiver brought suit against ^ Warren v. Sprague, 11 Paige (N. the purchaser in his own name with- Y.), 200 ; Cumming v. Egerton, 9 ■out an order of the court, and was Bos worth (N. Y.), 684. allowed to recover. Singerly v. Fox, ^ Smith «. New York Consolidated 75 Pa. St. 113. And see Grant «. Stage Co., 18 Abb. (N. Y.), 420; •City of Davenport, 18 la. 181, anno- Shainwald v. Lewis, 8 Fed. Rep. 878. 202 POWERS, RIGHTS, DUTIES OF RECEIVERS. [CHAP. VI. and with the assent of the parties, for the manifest reason that counsel's duty to his client, as one of the parties to the cause, may conflict with his performing impartially his duties as coun- sel to the receiver, who is bound to see that all creditors and par- ties interested are treated alike during the time of the receiver- ship, and in this respect should be seconded in his efforts by his counsel.' Sec. 48. To compromise disputed claims. — Keceivers are generally allowed to compromise disputed and doubtful claims against the corporation by the allowance of so much of such claims as they may deem just and equitable; and the court win also give them general power, in any case where they may deem it expedient and for the interest of creditors and stock- holders of the company to compromise with debtors of the cor- poration who are unable to pay in full.^ Receivers with power to sue for and collect such debts as are or may become due, have authority to receive money payable under a contract, before it becomes due ; ' and receivers authorized to execute formal satisfaction and discharge of mortgages upon payment, ' Heffron e. Flower, 35 111. App. tion to another. If tlie dilemma Eep. 200. The Court in this case said: " The counsel of the receiver in such a, case should be as far as possible removed from the tempta- tion to partiality. He should be free from that personal bias which might, at a critical passage, Induce him to give advice prejudicial to one of the litigants, when another course could have been adopted consistent with the interests of both. The duty of complainant's counsel is to guard his interests at all times, and against all persons, by all hon- orable means. Faithfulness in their engagement to him cannot be, if they are allowed to ■ represent the receiver, and his duty required action that complainant disapproved. In that event which client would appellees serve? It may be said that when such a dilemma is pre- sented, they could choose one, and discharge themselves from obliga- was clearly seen, no doubt they would so act ; but selfish interest is liable to conceal such diflBculty, or to present it as a temporary matter, or as a thing of slight importance, and so the law saves the painful neces- sity of decision by forbidding the double employment." * In the Matter of the Croton In- surance Company, 3 Barb. Ch. (N. Y.), 642. ^Olcott ■». Heermans, 3 Hun (N. Y.), 431. In this case one Fellows entered into a contract in writing with one Taylorson, to sell and con- vey to him certain land on the pay- ment of a certain amount, which Taylorson covenanted to pay. Sub- sequently Fellows conveyed to de- fendant his real and personal estate, including the above-mentioned land^ in trust for specified purposes. Fel- lows subsequently commenced an action to have said trust set aside. SEC. 49.] WHEN ENTITLED TO RECEIVE BENTS, ETC. 20S have authority to receive payment of the amount secured by and to satisfy a mortgage, although the same be not due at the time.^ Sec. 49. When entitled to reeeive rents and profits in fore- closure actions — In a proper case upon foreclosure of a mort- gage, the mortgagee may have a receiver of the rents and profits appointed, who wiU then be entitled to collect and apply them in reduction of the mortgage debt ; and in such a case the receiver may be authorized to collect such rents as have theretofore accrued, but have not yet come to the hand* and the property restoied to him, and a receiver was duly appointed in Buch action of all property con- veyed to the trustee, and he was authorized, by the order appointing him, to sue for and collect such debts as were or might become due, and to pay over to Fellows such sums of money as should come to his hands as such receiver. There- after and on a day certain there was due on the contract first mentioned a certain sum but not then payable. Taylorson however paid to the re- ceiver the said sum, which included an amount not then payable, and the receiver indorsed the same upon the contract in full payment and satisfaction thereof. The sum so paid was paid to Fellows, who re- ceived the same in satisfaction of said debt. The receiver was subse- quently discharged and the com- plaint in the action was finally dismissed. Taylorson assigned his interest in the first mentioned con- tract to the plaintiff who commenced this action to compel defendant to execute and deliver to plaintiff a deed in conformity to said contract. It was insisted by the defendant that by the order appointing the re- ceiver, he could only receive the moneys payable on the debts due to Fellows, and by him conveyed to the defendant as trustee, as the same became due, and he could not receive money not actually due, and if he did, the debtor paid it in his own wrong, and the trustee was entitled to enforce its payment to himself after the receiver was discharged. But the court held that the payment to the receiver was a valid payment, that the contract was satisfied, and the plaintiff entitled to a deed. ' Heermans i). Clarkson, 64 N. Y. 171. This action was brought to set aside a discharge of a bond and mortgage to foreclose said mortgage executed by the defendant to Fel- lows. By a supplemental order in the action referred to in the case annotated above, the receiver was authorized " to execute and acknowl- edge for record formal satisfaction and discharge of all real estate mortgages which came to him as such receiver, upon payment to and collection by him thereof, or of debts, the payment of which they are given to secure." While this order was in force the amount un- paid on the mortgage in suit was paid, including a portion which was not then due. The receiver exe- cuted and delivered a discharge of said mortgage. It was held that the receiver was authorized by such order to discharge the mortgage, and the plaintiff could not maintain this action. 204 POWEES, EIGHTS, DUTIES OF EECEIVEES. [CHAP. VI. of the owner of the equity of redemption.^ It is not, however, within the power of the court to order rents already collected and in possession of the owner to be paid over and applied upon the mortgage debt.^ The lien of the mortgage thereon dates only from the appointment of the receiver, and the re- ceiver's right to coUeet rents extends only to such as are unpaid at the time of his appointment.' At the time of filing his com- plaint for foreclosure, in a proper case, the mortgagee may ob- tain an order restraining the owner from the further collection of rents and profits, and in such case, upon the appointment of a receiver, he may be authorized to collect such as then remain unpaid.* If the owner of the equity of redemption obtains from the tenants their notes for the rent in advance of the lat- ter becoming due, the receiver has an equitable lien thereon, and may by action compel the delivery of such an amount of the notes as may be due at the time, and in the event of non- delivery the receiver is entitled to a personal judgment against the owner of the equity of redemption for the amount.' Or if notes are delivered with collateral security for the accrued rent at the time of the receiver's appointment — not in satisfaction of the rent, but merely as security therefor — the rent is not merged in the note or security, and therefore the receiver is entitled to the unpaid rent and the securities appurtenant to it in preference to the owner of the equity of redemption.^ The validity of the order appointing the receiver, merely on the ground that it was erroneous, cannot be questioned in such an action, since that question was adjudicated in the action wherein the order was made.^ Sec. 60. Of insurance companies, to enforce payment of deposit notes. — The appointment of an individual as receiver of > WyckofEi), Scofield, 98 N. T.475 ; if tlie injunction is vacated before Ames V. Trustees of the Birkenhead the appointment of a receiver, the Docks, 20 Beav. (Eng.), 332. owner may continue collecting the ^Howell V. Ripley, 10 Paige (N. rents until the receiver is appointed. Y.), 43 ; Rider v. Bagley, 84 N. Y. ' Goodhue v. Daniels, 54 la. 19. 461. But see Henshaw, Ward & Co. « Lofaky v. Maujer, 3 Sandf. Ch. •». Wells, 9 Humph. (Tenn.), 568. (N. Y.), 69. 3 Rider «. Bagley, 84 N. Y. 461 ; ' Goodhue v. Daniels, 54 la. 19 ; Seckler i). Delfs, 25 Kansas, 159, 165. Ames v. Trustees of the Birkenhead * WyckofiF v. Scofield, 98 N. Y. Docks, 36 Beav. (Eng.), 332. 475. In this case it was held, that SEC. 60.J OF INSURANCE COMPANIES. 205 a mutual insurance company, confers upon him the same power that the directors possessed to make assessments upon pre- mium notes, and to determine the time of payment, and author- izes him to give notices thereof in the same manner. But the appointment itself does not determine either the amount of the indebtedness of a member, or the time of payment.' Nor is the liability of the members upon their deposit notes increased by the fact that the company has become insolvent, and its efEects are transferred to a receiver.^ If the company, before his appointment, could not enforce the payment of an assessment, the receiver cannot.^ ' Williams v. Babcook, 35 Barb. (N. Y.), 109; Thomas «. Whallon, 31 Barb. (N. T.), 173; Manlove v. Burger, 38 Ind. 211. ' Sbaughnessy v. Rensselaer Ins. Co., 31 Barb. (N. T.), 605. 8 Sands v. Hill, 55 N. Y. 18. In this case, after the filing of a pe- tition by a mutual insurance com- pany, but before publication of notice of the appointment of a receiver, the maker of a premium note paid an assessment thereon and surrendered his policy under an agreement with an authorized agent of the company that such payment and surrender should be in full of said note which was agreed to be surrendered ; it was held that the note was extinguished and the re- ceiver could not maintain an action thereon. By agreement between the com- pany, acting through its board of directors, or an agent duly author- ized by them, and the inanred, a contract of insurance may to S@- scinded by the surrender of the policy before the expiration of the time for which it was issued and the release of the insured from further obligation on his premium note, and this will constitute a good defense to an action by a receiver upon such note. Bolaud v. Whit- man, 33 Ind. 64. If, at the time of the making of the contract of in- surance, the agent, by authority of the directors, represents that the company is entirely solvent and able to pay all losses and is then worth a certain considerable amount, and the insured relies on such represen- tations, and is induced thereby to enter into said contract and execute the premium note, and said repre- sentations are false, these facts wiU. constitute a good defense to a suit on said premium note by the re- ceiver. Id. Indeed, the corporation is bound to anticipate that such inquiries will be made, and to know that the agent, whether general or spe- cial, binds the principal by his an- swers and representations in reply thereto. Devendorf ■». Beardsley, 33 Barb. (N. Y.), 661. Where an insurance company re- ceived an application from the de- fendant, io\ iaCTWftUice, and his prosnisaiajy axsta fiw till® premium, payable in snch portions, and at such times, as the directors should require, and issued a policy on the same day, which was a month and a half before the company was au- thorized to commence business and issue policies under their charter, it was held that the policy thus ■206 POWERS, EIGHTS, DUTIES OF RECEIVERS. [CHAP. VI. We do not see the justice of holding, as was done in a recent case,^ that equity will sustain a contract and enforce the pay- ment of an assessment upon it, as against members who are in effect innocent third parties, where such contract was obtained by the fraudulent representations of the officers of the company. The contract of a member of a mutual insurance company is in all material aspects primarily the same as a subscription to take stock in a stock corporation, in which case it is generally conceded that a subscription obtained by the fraudu- lent representations of the officers of the corporation is not binding upon the subscriber, unless he has expressly or im- pliedly recognized its validity.^ The rule is well settled that the statute of limitations does not begin to run on a deposit note given by a member of a mutual insurance company, whereby he agrees to pay a sum certain or any part thereof, when required, and which, by its terms, is part of the funds of the company, until an assessment issued was issued without any au- thority to uphold it, and was conse- quently void, and the receiver could not maintain an action upon the note. Williams v. Babcock, 25 Barb. . Gray, 12 N. Y. 477. In this case assessments upon some of the deposit notes held by the com- pany, including those given by the respondents, were made by the di- rectors before the company failed. The respondents and some of the others paid those assessments ; but a part of the persons assessed failed to pay, and the company was un- able to collect of them. The losses which these assessments were de- signed to pay consequently re- mained in part unpaid. When the receiver came to make assessments upon the same notes he included, as a part of the amount to be raised by the new assessments, the unpaid balance of the former assessments, which ought to have been paid by the delinquent members. It was held, that the receiver's assessment was valid, and the respondents were liable to pay the same upon their premium notes. If a statute provides that a re- ceiver shall make such further as- sessments in addition to those made by the company " as may be neces- sary for the payment of the debts of the corporation," the receiver may make such an assessment — making due allowance for uncollectible claims — as will pay the debts. Tobey «. Eussell, 9 R. I. 58. "Davis ■». Parcher, etc., Co., 82 Wis.'488. ' Shaughnessy v. Rensselaer Ins. Co., 31 Barb. (N. Y.), 605. SEC. 60.] OF INSURANCE COMPANIES. 213 an insurance company is transacted upon the stock plan, and a portion upon the mutual system, and the premiums received from persons obtaining insurance upon the former plan, by paying the whole premium in cash, have been expended in the payment of losses and expenses, and thus relieving former members from assessment upon their notes, and leaving others to be assessed for the payment of subsequent losses, there is no remedy for any injustice which may result from this mode of transacting the business of the company ; although the effect is to cast the greater burden upon those whose notes happen to be in force at the time the insolvency of the company occurs.^ So the makers of premium notes are liable to assessment and to pay losses happening to members who insure and pay the premium in cash in advance.^ If the company is authorized to borrow money, and has never assessed a loss sustained, but has paid it out of money borrowed by it, an assessment made by the receiver is valid, if made upon parties whose policies were in force at the time of said loss, for the amount paid on account of said loss.^ ' Shaughnessy •». Bensselaer Ins. Co., 21 Barb. (N. T.), 605. 2 Jackson «. Boberts. 31 N. Y. 304; White «. Havens, 30 How. Pr. (N. Y.), 177. In the latter case the ■charter authorized " any persons ap- plying for insurance, so electing, to pay a cash premium in addition to a premium note, or a definite sum in money, to be fixed by said corpora- tion, in full for said insurance, and in lieu of a premium note." It ap- peared on the trial that the company had also issued cash policies on cash premiums, without any notes ; that about one-half of all the losses, for which the defendant's note was as- sessed, happened on risks taken for ■cash premiums. Of that, it was held, the defendant could not com- plain, because the Court said: " The cash policy-holders were members of the corporation as much as were the holders of policies based on a premium note. They were contrib- utors to a common fund, as the capital of the company, to meet losses that might occur. They paid their premiums in cash, instead of notes or promise to pay. The pre- miums were to be first applied to the payment of liabilities, and no part of them could ever be with- drawn, though they should not have been all expended. In this case over $40,000 of cash premiums was expended for paying liabilities, thus relieving the premium note of the defendant and others. If the com- pany had been reasonably prosper- ous, the cash premiums would nearly or quite have paid its losses ; calling for no assessment on the premium note-holders of policies." And see Clark c. Manufacturers Mut. Fire Ins. Co., 130 Ind. 337. 8 McDonald v. Ross-Lewin, 29 Hun (N. Y.), 87. Where a charter provides that " in case any member shall sustain loss or damage over 214 POWERS, EIGHTS, DUTIES OE EECEIVEES. [CHAP. VI. If, by the terms of the policy, it becomes void on the sale and conveyance of the property by the assured, the latter is not liable to be assessed on his premium note for losses occur- ring after such sale and conveyance.^ But where the money raised by previous assessments was not apportioned pro rata by the company, but some losses were paid in full, some in part, and some not at all, the receiver may assess the members of the company at the time when each loss occurred respec- tively, for the proportion of money which had been diverted from its proper object and paid upon said loss for their ben- efit ; and members assessable for losses to which money raised on account of other losses has been applied, may be assessed for its re-imbursement.^ Sec. 51. Of railroad companies in their management and operation. — It is now a weU-settled principle that all outlays made by the receiver in good faith, in the ordinary course, with a view to advance and promote the business of a railroad, and to render it profitable and successful, are fairly within the line and above the then existing funds of said corporation, the directors may assess such further sum or sums upon the policies of the mem- bers, in proportion to the premium paid at the time of insuring, as may he necessary to pay such damage or loss " ; hy paying such damage or loss out of borrowed money, the company would not lose the power of assessment which the provision confers ; for the need of an assess- ment for such sum or sums " as may be necessary to pay such damage or loss" would not cease in conse- quence of a change of the persons to be paid out of the proceeds of the assessment. Tobey ». Kussell, 9 R. I. 58. ' Boland «. Whitman, 33 Ind. 64. « Tobey v. Russell, 9 R. I. 58. It was contended in this case that in so far as the losses had been paid the persons originally assessable for them were discharged from further liability. The Court said : " It is undoubtedly true, that the losses having once been paid will not have to be paid again, and that therefore the persons originally assessable to pay them will not have to be as- sessed to pay them again. But may they not be assessed to reimburse the money out of which such losses have been paid in full or in part? We think they may. The directors who diverted the funds may thus have made themselves personally liable to the claimants injured thereby for the amounts so diverted; but we do not see why the members assessable for the losses, to which the money has been applied, may not be assessed for its reimburse- ment, the same as if the money had been hired or borrowed for the pay- ment of the losses, if the receiver thinks proper to treat the matter in that way." SEC. 51.j OF KAILKOAD COMPANIES. 215 of discretion which is necessarily allowed to a receiver intrusted with the management and operation of a railroad. Such outlays, in ordinary course, may properly be held to include not only the keeping of the road, buildings and rolling stock in repair, but also the providing of such additional ac- commodations, stock and instrumentalities as the necessities of the business may require. In extraordinary cases, involving a large outlay of money, the receiver should always apply to the court in advance, and obtain its authority for the purchase or improvement proposed.' AH just indebtedness contracted by the receiver in the exe- cution of his trust and in the operation of the road, including claims for labor and supplies, liabilities incurred in sustaining necessary business relations with other railroad companies, lia- bilities as a common carrier, obligations to shippers properly incurred in due course of business, and other expenditures and obligations coming within the same principle, are within the line of the receiver's discretion.^ Indeed, the exigencies of the business may require the receiver to borrow money for these purposes in order to properly and successfully manage the road, and if the money so borrowed is applied for such purposes, even though without the previous sanction of the court, the latter will feel in duty bound to see that such money is repaid. Any other rule, it is apparent, as applied to receivers of rail- roads, would result in injustice, since the benefit derived from the money so borrowed and applied, would go primarily to the creditors and stockholders whose interests alone, in this partic- ular, would be at stake.' Moreover, it has been said that it is obvious that an insol- vent railroad cannot be continued in operation by a receiver ' McLane v. Placerville & Sacra- and lie may pay interest for money mento Valley E. Co., 66 Cal. 606, borrowed of a bank in order to 633, 634. Purcbasing a truck wagon carry on the operations of the road, and a pair of horses and harness for Cowdrey v. Railroad Company, 1 the delivery of freight, and the ex- Woods (U. S. C. C), 331. penses of taking care of and keep- ^ Union Trust Co. i). Illinois Mid- ing the same, is proper, as is also land Co. , 117 U. S., 436, 479 ; Phin:zy drayage and wharfage upon freight v. Augusta & K. R. Co., 63 Fed. Rep. and for a pair of scales purchased. 771. So renting an office necessary for ^gj parte Carolina National Bank, the receiver's purpose is proper ; 18 S. C. 289. 216 POWERS, EIGHTS, DUTIES OE EECEIYEES. [CHAP. VI. unless authority exists somewhere to make contracts which shall bind the trust, and which shall continue in force after the person who made them has ceased, by death or otherwise, to have the power or ability to perform them. According to both reason and analogy the proper repository of this author- ity is in the receiver. The law never imposes a duty without giving the person charged with its performance sufficient power to do his duty, and therefore the rule must be that the receiver of an insolvent railroad corporation has authority, as an attribute necessarily incident to the duties imposed upon him, to make all such contracts for labor and supplies, as are reasonably necessary to enable him to perform the duties of his appointment, and that his contracts for such purposes bind the trust.^ He is warranted in continuing a pooling contract in ' Lehigh Coal & Navigation Com- pany «. Central Railroad Company, 41 N. J. Eq. 167. This case arose out of the same transactions as the case reported In 35 N. J. Eq. 426, annotated, and was brought to obtain damages sustained by the petitioners, by reason of the receiv- er's refusal to receive material and supplies ander contracts claimed to have been made by them. The Court, however, decided that no contract was made obligatory upon the receiver to receive the material and supplies ; and In discussing the powers of receivers in this respect to bind the trust, it said: "But It is said that these contracts bound the trust ; in other words, that having been made by an officer of the court, who was charged with the duty of managing and operating a railroad of which the court, in the discharge of its duty, had taken possession, and being such, as such officer had authority to make, and as the proper discharge of his duty required him to make, the contracts became, in equity, the moment they were made, the obligations of the trust, which the administrator of the trust, whether the original appointee or a successor, was bound to perform, and which, if he did not perform, would render the trust liable for any damages resulting from their non-performance. This view, it will be observed, rests on this very important consideration of fact that the making of these con- tracts were steps which the first re- ceiver was necessarily required to take in the proper discharge of his duty, being just as indispensable to the faithful discharge of his duty as the employment of competent subordinates to manage and run the trains. And from this it is argued that the contracts, being such as the receiver was necessarily required to make in the proper performance of his duty, they must, in order to pre- vent injustice and wrong, be re- garded as the obligations of the trust, the trust property being the principal in the transaction and the receiver its mere agent, so that who- ever undertakes the care and man- agement of the trust property, be- comes subject to the duty of per- forming the contracts as a part of the duties which he assumed in accept- SEC. 51.J OF EAILKOAD COMPANIES. 217 force when it is for the benefit of the road ; ^ but if it is done for the purpose of making discriminating rates for or against ing the office of receiver. Although this doctrine is entirely novel, and perhaps without an analogy in the ■vfhole field of jurisprudence, still I am not prepared to say that it should not be adopted in a proper case and under circumstances where its adoption would further justice, and give a remedy for a wrong which otherwise would be remedi- less. Legal rules and remedies must be made to conform to the ex- igencies of the times. They xnust be made to adopt themselves to new business methods and altered cir- cumstances as they arise. The in- solvency of a railroad corporation presents an anomalous state of af- fairs. There is no difficulty in ■dealing, according to established methods, with other insolvent cor- porations, such as manufacturing, banking and insurance companies. When such a corporation becomes insolvent, the court may at once stop its operations by injunction, take possession of its assets, con- vert them into money and make distribution. In the great majority of cases, it is not necessary to the protection of the interests of cred- itors or others that the business of such corporations should be con- tinued after the fact of insolvency is established; on the contrary, ex- perience has demonstrated, that, as a general rule, the sooner a conver- sion of the assets can be effected and distribution made, the better for all concerned. But an insolvent railroad cannot be dealt with in this manner, without destroying both public rights and private interests. The principal object the State has in view in the creation of such a corporation is to provide a highway, which the public shall have a right to use at all times, under such reg- ulations as the legislature may see fit to prescribe. As soon as the road is completed and put in operation, the public acquires a right to its use, which continues in full force until the sovereign authority re- linquishes it, and this right is neither lost nor impaired by the in- solvency of the corporation opera- ting the road. The legislature has declared that railroads operated by insolvent corporations shall, not- withstanding their insolvency, be operated for the use of the public. Rev. 196, § 106. The public right is clear, and must be upheld. It is equally clear, at this day, that the best means by which the most valu- able part of the property of a rail- road corporation can be preserved and saved from ruinous deteriora- tion is by continuing the road in full operation." In Langdon v Vermont & Canada E. Co., 54 Vt. 593, the receiver was directed to operate the road, and, without authority from the court, the receiver, during a period of more than four years, paid large traffic balances accruing during that period to other roads, borrowed money, and, in short, appropriated- the earnings to the payment of the debts, rents and running expenses of the road. The Court declared "that a wider discretion must be allowed them, because at every moment, in the administration of > Central Trust Co. of N. T. D.. Ohio Central R. Co., 33 Am. & Eng. R. •Cases (U. S. C. C), 666. 218 POWERS, EIGHTS, DUTIES OF RECEIVEES. [CHAP. VI. any other road the receiver will be directed to withdraw there- from/ An arrangement, however, made for the transportation of the freight and passengers of another railroad company over the line of the receiver's road, without a provision making the arrangement obligatory on either party for any stated period of time, does not require the receiver to give previous notice to the other company that he will terminate such arrangement, before doing so. Such an arrangement can be terminated at the win of either party, since the railroad company is not under any obligation to ship freight or passengers over the receiver's line, and the receiver cannot, therefore, be required to continue the arrangement on his part longer than he deems advisable.^ In the operation of a railroad the court must necessarily commit to the hands of its receiver discretionary powers con- cerning all administrative details relating thereto, and will not interfere with his administration unless it is shown that he has abused such discretion. Within those powers are included the employment of labor, be it skilled or not ; the amount of wages to be paid; the purchasing of supplies and material ordinarily used in the operation of the road ; and such other duties as may daily devolve upon the manager of a railroad operated as a going concern.' Contracts made by a railroad company with employees before the appointment of a receiver have no greater or superior equities than other simple contracts made by the company. They are not binding upon the receiver such a trust, there is a demand for 33 Fed. Rep. 757, the court consid- the exercise of judgment, in occur- ered the complaints of railroad em- ring incidents of vital interest to ployees, and discussed the duties of the property and to the public, that receiver and employees, in regard cannot be postponed or evaded," to the management of the road, and held, that the debts legitimately ' Missouri Pacific R. Co. ®. Texas incurred by the receiver, which cSi Pacific Railroad Company, 28 Am. should remain after applying all & Eng. R. Cases (U. S. C. C), 1. equitable off-sets, constituted a lien ^ Investment Co. of Philadelphia and that the court would make it a v. Ohio & N. & W. R. Co., 41 Fed. charge, in the nature of an equitable Rep. 378. mortgage upon the whole property ^ Continental Trust Co. «. Toledo, of the road. And see Woodruff o. etc.,R. Co., 59 Fed. Rep. 514; aarke Erie Rail-way Co., 93 N. T„ at page v. Central R. & Banking Co., 66 Fed. 633. Rep. 16; Piatt v. Philadelphia & R. In Frank ®. Denver & R. Q. R. Co., R. Co., 65 Fed. Rep. 660. SEC. 51.J OF EAILROAD COMPANIES. 219 in the sense that he must literally perform their every condi- tion, and especially where they require the determination of arhitrators first before an employee can be discharged.^ Em- ployees, who feel themselves aggrieved, may, by petition to the court, present their grievances against the receiver and obtain redress in that manner. Questions involving the amount of wages to be paid or the hours of labor required have fre- quently been submitted to the court for determination, and in arriving at an adjustment of the differences the court is gov- erned to some extent by the practice in force before the receivership as well as by the scale of wages paid by other railroads and the hours of labor required by them.^ One of the first duties of a court which is operating a railroad is to operate it safely and efficiently. This requires the employ- ment of skilled labor, and capable men to whose charge the lives of passengers and the protection of freight are intrusted. The court will not suffer these men to be discharged or their wages reduced for trivial reasons. The safe and efiicient man- agement of the road must necessitate either one or the other before it be done.^ The rule of the common law is not that common carriers shall transport for all parties at the same rate of compensa- tion, otherwise many of their contracts would be illegal and void, but that they shall transport at reasonable rates to all. A difference in charge does not per se invalidate the contract as inequitable and against public policy; but to have this effect, there must be an element of unreasonableness in the charge itself, as applied to the services rendered, between the parties to the contract and without reference to the charges against others. Receivers operating a railroad are within the application of this rule, and when they make contracts with shippers to the effect that an allowance or certain per cent, in ' In re Seattle, L. S. & B. E. Co. 61 803-818 ; Thomas v. Cincmnati, etc., Fed. Rep. 541. R. Co., 63 Fed. Rep. 17, 669 ; Ames ' Frank v. Railway Co., 33 Fed. Rep. v. Union Pacific R. Co., 63 Fed. Rep. 757 ; Waterhouse ■». Comer, 55 Fed. 7 ; Bootii v. Brown, 63 Fed. Rep. 794. Rep. 149 ; Continental Trust Co. v. ' Ames v. Union Pacific R. Co. 63 Toledo, etc., R. Co., 59 Fed. Rep. Fed. Rep. 7; United States Trust 514 ; Farmers' Loan and Trust Co. ■». Co. v. Omaha & St. L. R. Co. 58 Fed. Northern Pacific R. Co. 60 Fed. Rep. Rep. 737. 220 POWERS, EIGHTS, DUTIES OF RECEIVERS. [CHAP. VI. proportion to the amount of freight shipped, should be re- turned to the latter by the receiver at a specified time, it is too vague to say, in general terms, that such contracts are inequitable and against public policy, and, therefore, not en- forceable. To be void on such grounds, they must run counter to some known principle of equity or contravene some well- established doctrine of public policy forbidding it. Such con- tracts are not obnoxious to any of these objections.' It may be necessary for receivers, in some cases, in order to secure business on the railroad, to make such contracts, as where a competing line has adopted them ; and whatever objections to these rebatements might be made by other shippers who did not obtain like favorable terms, it certainly does not lie in the mouths of stockholders or creditors, who reap positive benefits from the contracts, to complain of them.^ If the appointment of the receiver is obtained for the bene- fit of different mortgage bondholders, the appointment is made to protect the rights of all, and in point of priority those hav- ing the first claims are entitled to payment out of moneys in the hands of the receiver before the holders of junior claims ; and, therefore, the receiver wiU not be directed to pay out of the earnings of the road, interest to a junior mortgagee against the consent of prior mortgagees, even though the junior mort- gage provides that the principal becomes due and payable if the interest is not paid ; since there is no rule of law or equity which allows the funds of an insolvent corporation to be diverted from a proper application of them, because it may be ' Ex parte Benson & Co., 18 S. C. period, the sum of one dollar per 38. In this case the superintendent bale so shipped. The proposition of the road, during its operation by was accepted by the shippers, and a the receiver, proposed to certain contract made accordingly, the ship- shippers, that if they would ship all pers performing their part of it. cotton purchased during a certain Upon the application of the ship- period over the road, the cotton pers to be paid such rebate, it was would be transported at the regu- held, that the claim was valid and lar rates, the freight to be paid at should be paid out of the receiver's the regular rates by the consignees, fund in priority to mortgage bond- with the understanding, however, holders. that the shippers should have re- = Cowdry v. Railroad Co., 1 Woods funded to them, at the end of the (U. S. C. C), at page 335. SEC. 51.j OF RAILROAD COMPANIES. 221 deemed expedient for ulterior purposes to make such a use of them.' One of the main purposes in the appointment of a receiver is that the income of the railroad, so far as not used in the preservation of the property and the conduct of the business, may be applied to the payment of its mortgage creditors. If surplus earnings come into the hands of the receiver, they will be distributed to the creditors of the railroad company in the order of their priorities. The surplus earnings of a railroad in the hands of a receiver, are not the property of the railroad company, and are not included in a general description of its property, so as to entitle a purchaser upon a sale of the road to the same. But there is no consideration which justifies the position that a purchaser of the road, upon a sale of all its property and franchises, does not acquire title to the rolling stock bought by the receiver. It is as much part of the prop- erty as the iron rails put on the track by him. It enhances the value of the property which brings a larger sum at the sale, by reason of the fact that the rolling stock has been placed upon it. The mortgagees, consequently, receive the benefit of this property in the increased price which the road brings at the sale. They cannot keep the price of the prop- erty and claim the property too.^ ' Brown «. New York & Erie R. by the receiver with the income and Co., 32 How. Pr. (N. T.), 451. profits of the road, and by him ^ Strang v. Montgomery & Euf aula placed upon and used in carrying R. Co., 3 Woods (U. S. C. C), 613. on the business of the road, did not The sale of the road by the receiver pass by the sale to the purchaser, in this case Included all the rail- and the purchaser should, therefore, road, franchises, rights, privileges be required to deliver back such and immunities of the company, cars and rolling stock, so that it and all its property, including road- might be sold for the benefit of bed, right of way, depots, workshops, creditors of the road. The pur- tools and implements, warehouses chaser, however, claimed that not and real estate of every description, only did the cars and rolling stock together with all the appurtenances pass to him by the sale, but also the thereunto belonging, its rolling money in the hands of the receiver stock, locomotives, cars, and all at the date of the sale, which should other property, real, personal and be turned over to him. It was held, mixed, of any kind or description. that the purchaser was not entitled It was claimed by the first mort- to the money in the hands of the re- gage bondholders that the cars' ceiver, but that the cars and rolling and other rolling stock, purchased stock passed to him upon the sale. 222 POWERS, EIGHTS, DUTIES OE EECEIVERS. [CHAP. VI. Sec. 52. In a foreign jurisdiction. — In a previous chapter there was considered the status of a receiver, appointed by a court of equity, outside of the territorial jurisdiction of the court appointing him, and the rule was stated to be that as a legal right he had therein no distinct legal status whatever, but that the position and rights which he possessed within the jurisdiction of the court appointing him would, upon principles of comity, often be recognized beyond such jurisdiction. In all cases where the receiver's authority had not been thus rec- ognized, there was — it was observed — a struggle for the prop- erty of the corporation between the receivers of a foreign court and resident creditors or others who had acquired liens by attachments or other proceedings, in the jurisdiction where the property was situated. Under such circumstances it is man- ifest that different considerations should have force from those that are to control when the litigation does not involve the rights of creditors in opposition to the claims of the receiver. That the officer of a foreign court should not be permitted, as against the claims of resident creditors, to remove from the state, wherein the latter reside, the assets of the corporation, is a proposition that appears to be asserted by all the decisions ; but that, similarly, he should not be permitted to remove such assets when the creditors are not so interested, is quite a differ- ent affair, and it may, perhaps, be safely said that this latter doctrine has no direct authority in its favor. This question In regard to the latter question, of tlie property, is not income. The Judge Woods said : " If the receiver income and profits is the surplus has the right to do these things, to after all expenses and repairs and use the earnings in repairs and re- necessary replacements have been placements of the road and its equip- made. The mortgagees are entitled ment, how can it be said that the to that surplus, and nothing more, mortgagees are entitled to the gross These bondholders might as well income ? Can they demand that no claim that a bridge rebuilt by the money shall be expended in repairs ? receiver did not pass by the sale, as If they cannot, it is because they are to claim that engines and cars put not entitled to such part of the in- upon the road, and necessary to come as is necessary to keep the keep up its equipment and do its property in repair. They are en- business, did not pass. Money so titled to the net income. That por- expended is no more income and tion of the receipts which is ex- profit than money paid to engineers pended in carrying on the business and brakemen for their services." of the road, and in the preservation SEC. 52.] IN A FOKEIGN JURISDICTION. 223 has nothing to do with that other inquiry that is frequently discussed in the books, whether a receiver at common law is in point of fact clothed with the power to sue in a foreign juris- diction. The present question relates to a case in which the officer is authorized, so far as such power can be given by the tribunal appointing him, to gather in the assets, both at home and abroad. Conceding that the officer is vested with this fullness of authority, it would appear to be in harmony with those legal principles by which the intercourse of foreign states is regulated that every government, when its tribunals are appealed to, shall render every assistance in its power in fur- therance of the execution of such authority, except in those cases where, by so doing, its own policy would be displaced, or the rights of its own citizens invaded or impaired. After completely protecting its own citizens and enforcing its own laws, the dictates of International Comity would seem to require that the officer of the foreign tribunal should be acknowledged and aided. The appointment of a receiver, with full powers to collect the property of a corporation, wherever the same may be found, should be deemed to operate as an assignment of such property to be enforced everywhere, sub- ject to the exception just stated.^ ' Hurd V. City of Elizabeth, 41 N. and equities of the creditors of an J. Law, 1; Bagby v. Atlantic, etc., insolvent corporation, and will be E. Co., 86 Pa. St. 291; Chandler -b. allowed to attack a mortgage given Siddle, 3 Dillon (U. S. C. C), 477; by the corporation, if he can show Sercomb ». Catlin, 128 111. 556; that it was executed in fraud of the Metzner v. Bauer, 98 Ind. 435. rights of creditors, notwithstanding A foreign receiver of an insolvent the fact that the mortgage is valid insurance company may sue and against the corporation. Thus held sustain an action in a foreign state in a case which was brought to f ore- to recover assessments on premium close a mortgage upon the property notes, no creditor having intervened of a corporation of which a receiver to prevent the prosecution of the had subsequently been appointed in suit. Lycoming Fire Insurance Co. New York, and who was admitted 1). Wright, 55 Vt. 526. as a party defendant in the fore- He may prove a debt in a foreign closure action and allowed to state against a bankrupt corporation answer, setting up the fraudulent under the National Bankrupt Act. character of the mortgage, of which Ex parte Norwood, 3 Bissell (U. S. the mortgagee was also n, corpora- C. C), 604. tion of New York. It appeared that He will be recognized in a foreign the president and one director of tribunal, as invested with the rights the corporation held a controlling 224 POWERS, EIGHTS, DUTIES OF RECEIVERS. [CHAP. VI. The rule in New Jersey is that when a receiver of a foreign corporation, complainant, has been appointed in the state of its creation, after the beginning of the suit, he may be substi- tuted as complainant on such terms as may be imposed by the court, for the protection of creditors of such corporation who are citizens of New Jersey, and for securing obedience on the part of the receiver to the orders of the New Jersey court in respect to the money which may be collected by him in the suit.-^ Where a receiver of the effects of an insolvent corporation of one state has been appointed under the laws of such state, with power to take possession of all the effects of such cor- poration, " and to sell, convey, or assign its real and personal estate," such receiver has the power to seU and assign a debt due to the corporation, from a citizen of a foreign state, and such sale and assignment gives to the purchaser the equitable right of action as against the debtor, in the courts of such foreign state.^ When a receiver obtains a judgment against a interest in its stock, and a resolu- tion was adopted directing a con- veyance to be made of tlie mortgaged premises to one Tenney, and about tbe same time the stockholders exe- cuted a paper to the complainant, assenting to the conveyance to be made to Tenney, acknowledging the receipt of the full consideration to be paid by Tenney, and releasing the complainants from all obliga- tions to see to the payment securing an application of the purchase money. The mortgaged premises were conveyed to Tenney, who im- mediately thereafter executed the mortgage in suit to complainant, and two days afterwards conveyed the premises to the corporation sub- ject to the mortgage which was intended as collateral security for the payment of the price of certain railroad bonds sold, but not de- livered, to the oflacers of the rail- road, of which the officers of the corporation were a part. It was held, that the mortgage was without force or validity as against the receiver. National Trust Co. ». Miller, 33 N. J. Eq. 155. But in Farmers & Merchants' Ins. Co. 1). Needles, 53 Mo. 17, being an action to recover upon a note given to the corporation, the petition al- leged that the receiver was ap- pointed by a court in Illinois, and gave bond, and as such receiver he was in possession of the property and effects of the corporation. It was held, that since it did not ap- pear, by any averment in the peti- tion, that the note had ever been assigned or transferred by the cor- poration, the latter only could main- tain an action thereon. ' National Trust Co. «. Murphy, 30 N. J. Eq. 408. 2 Hoyt V. Thompson, 5 N. Y. 330. It was also held in this case that an assignment by such receiver is properly executed by him in his own name, without the use of the SEC. 52.] IN A FOREIGN JURISDICTION. 225 debtor of the corporation in the courts of the state appointing him, he may maintain an action upon such judgment against the debtor, not as receiver, but as a judgment creditor, in a foreign state, as a matter of right wh^h does not rest upon comity.^ And if a corporation is directed to and does execute an assignment of all its real and personal property to the receiver, and such assignment is in due form and in full com- pliance with the laws of a foreign state where any of such property may be, the receiver takes the legal title to such property and may sue to recover the possession thereof in such foreign state against any person who claims a lien upon such name of tie corporation, or the cor- poiate seal; and that such a, sale is in the nature of a judicial sale, and is not open to objection on the ground of champerty or mainte- nance. EuGGLBS, C. J., says : " But it is insisted that the assignment by the receivers in New Jersey, admit- ting it to be valid in that state, has no extra territorial force, and does not operate in this state. Whether it would be valid as against credi- tors of the corporation, proceeding by attachment against it in the State of New York, or as against previous purchasers of the company, are questions which do not arise on the record in this case. There is no conflict, between the plaintiff's title on the one side and attaching cred- itors or purchasers on the other. * * * The order appointing a re- ceiver of the property of an insol- vent corporation is accompanied by an injunction restraining the direc- tors of the company from collecting its debts or paying over the avails ; and this injunction is general, without reference to the state or country where the debtors may reside. * * * The corporation ia no less the creature of the statute of New Jersey, than is the transfer by the receivers to the plaintiff. But it is well settled that a foreign corporation may sue in the courts of this state ; and equally well settled that such suit is allowed only by the comity existing between one state or country, and another. But what kind of comity can that be called, which allows a foreign cor- poration to sue here, in violation of the law of the state in which it was created ? A corporation not allowed to sue in its own state, certainly cannot be allowed by the friendly courtesy of another to bring its action there. The comity which allows a foreign corporation to sue in ordinary cases, would forbid it in a case like the present. * * * It is a conceded principle, that the laws of a state have no force, propria mgore, beyond its territorial limits. But the laws of one state are fre- quently permitted by the courtesy of another to operate in the latter for the promotion of justice, where neither that state nor its citizens will sufEer from the application of the foreign law. This courtesy or comity is established not only from motives of respect for the laws and institutions of foreign countries, but from considerations of mutual utility and advantage." ■Wilkinson «. Culver, 35 Fed. Eep. 639; S. C. 33 Blatchf. 416. 226 POWERS, EIGHTS, DUTIES OF EECEIVEES. [CHAP. VI. property of the corporation, arising subsequent to the assign- ment.^ > Graydon v. Church, 7 Mich. 36. And, says the Court, in this case, "should we even reject entirely all that appears on the face of the assignment, touching the proceed- ings in the New York court, and the appointment of a receiver, still the assignment is sufSciently full and complete to transfer the prop- erty in the mortgage to the com- plainant ; and such must be its effect, unless it can he held void for the single reason that, from the recitals and other parts of the in- strument, it appears to have been made for the purpose of carrying into effect an order of the Court of Chancery of New York appointing a receiver of the property and effects of the assignor. If it is to be treated as void for this reason, it must be on the ground that it was procured by wrongful duress or coercion, exercised by the court over the assignor. Whatever other ground may be suggested will be found, upon analysis, to result in this. Now, I am not prepared to go this length ; and it is to be hoped the time may never come, when the courts of one of the states of the Union shall so far forget the Comity due to a sister state, as to treat the acts of parties, done under the orders of its courts, as void on any such ground; especially when the order is made to operate upon a citi- zen or resident of the state, and clearly within the jurisdiction of the court making the order. If the act be such as in equity and good conscience the party ought to have performed, certainly no wrong has been done ; if it were not, it is but fair to presume that the court would not have ordered it. The courts of a sister state, in a cause and between parties within their jurisdiction, are entitled to so much respect, at least, that we should not, without proof, presume them guilty of wrong and oppression. It is true the courts of our state have no power to make their judgments and decrees operate directly upon prop- erty in another; but the primary operation of chancery jurisdiction- is in personam; it acts upon the conscience of the party, and, by its coercive power over the person of a defendant, will, in many cases, compel him to perform such acts, and to execute such instruments, as may be necessary to do justice to the opposite party ; and this though such acts and instruments are to operate upon property beyond the jurisdiction of the court. In fact, it is mainly when the property is beyond the jurisdiction that an or- der for a conveyance by a defendant becomes really necessary, as the court may, by the direct effect of the decree, or by its process, trans- fer property within its jurisdiction, And if the acts and conveyances performed or executed by the party, under the order or decree of the court, were not to operate, ex pro- pria vigore, to the same extent as if done without the coercive action of the court, such acts and convey- ances would be but an idle cere- mony." In Welles ■». J. B. Pace Tobacco Company, 2 N. Y. Supplement, 292, the plaintiff, as receiver, brought suit against the defendants to have transferred to him, as receiver, cer- tain shares of the capital stock of the defendant corporation. He was appointed receiver pendente lite by SEC. 52.J IN A FOREIGN JURISDICTION. 227 When property has once vested in the receiver under the law of the state where the property is situated, it is immaterial whether it is done under the local law of the state or under the common law. The law of another state will not divest the receiver of his right to the property, should he take it into such state in the performance of his duty. The courts of such state wiU inquire only whether, as between himself and their own citizens, he had such right to the property when it came into the state, and when the fact that he had such right is ascertained they will not regard it as important by what mode _ the right was acquired. And whether the title to the property in such case passes to the receiver, or remains technically with the corporation, is a matter of no importance. So long as the property is taken from the corporation, and placed in the hands of the receiver, with full power, under the direction of the court, to settle the estate of the corporation, it cannot be taken from the receiver by a creditor of the corporation, but will be treated in another state precisely as it would have been by the courts of the state where the receiver was appointed, if the controversy had arisen there.^ a court of California, and claimed ' Crapo ■». Kelly, 16 Wallace (U. the stock by virtue of the indorse- S.), 610. In Pond ■». Cook, 45 Conn, ment of the stock certificates, made 126, a receiver of an insolvent man- in California, to him, as receiver, ufacturing corporation appointed by under the order of the California a court in New Jersey, where it was court, and under a power of attor- located, took possession of its as- ney executed by one of the Call- sets, and for the purpose of com- fornia members of the copartner- pleting a, bridge which it had con- ship over which he was appointed, traoted to build in Connecticut, pur- lu the name of that firm, appointing chased a quantity of iron with the him attoroey in fact to transfer the funds of the estate, and sent it to stock on the company's books. The Connecticut where it was attached receiver's right was challenged by as the property of the corporation, two creditors of the copartnership and to release the iron from the at- which owned the stock, who pro- tachment, the receipt in suit was cured attachments upon the stock given by the receiver and another, after the assignment. It was held, defendants in this case, to the that after the assignment the co- plaintiff as the ofBlcer making the partnership had no interest in the attachment. In an action of as- stock which could be attached, and sumpsit on the receipt, it was held therefore the attachments did not that the iron was not liable to at- afEect the plaintifE's title to the tachment, and therefore the plaint- stock, and he was entitled to the iff could not recover. In another relief sought. case the same receiver, in building a 228 POWERS, EIGHTS, DUTIES OF KECEIVEKS. [CHAP. VI. If a receiver brings an action upon promissory notes, wMch were part of the assets and came to his hands as such receiver, which notes were made by a resident of a foreign state, but payable in the state where the receivership was created, it is no defense to the action that after the receivership the debt due upon the notes was attached in such foreign state by a creditor against the corporation, since such attachment does not affect the receiver's right to recover.^ bridge, purchased tlie material and paid for the work with the funds of the corporation which he held as receiver. After the bridge was com- pleted, a Connecticut creditor of the corporation factorized one of the towns, for whom the bridge was built, as the debtor of the cor- poration for a balance due for the construction of the bridge. The town was found indebted, and paid over the money to the officers on demand made upon the execution. The receiver, who was not a party to the suit, but had notice of it served upon him, gave no notice to the town not to pay, and if such notice had been given it would not have paid. The receiver brought this suit against the town to recover the balance due in the contract, which had thus been taken by the factorizing creditor of the corpor- ation, and it was held that the town was not discharged by the payment of the money as garnishee to the factorizing creditor, since the cor- poration, which was the defendant in the factorizing suit and as whose debtor the town was factorized, was not the party to whom the money was due, and the receiver was not estopped from claiming the money from the town by reason of his neg- lect to notify the town not to pay over the money to the factorizing creditor. Cooke b. Town of Orange, 48 Conn. 401. ' Osgood v. Maguire, 61 N. T. 524. Commissioner Eael said in this case "After the receivers were appointed in this state, and thus became vested with all the property of the corpo- ration, a creditor thereof sued the corporation in the State of Massa- chusetts, and attached the debt due upon the note in suit, which attach- ment proceedings are still pending. The defendant claims that such pro- ceedings are a bar to the action. This claim is not well founded. The Columbian Insurance Company was a domestic corporation, and had in its possession the notes sued on. These notes were payable in this state, and passed into the hands of the receivers; they were property, the situs of which was in this state. By the law of this state this prop- erty was put into the hands of the receivers for the benefit of all the stockholders and creditors of the company. The appointment of the receivers worked an involuntary transfer of the property to them, and there was an attempt to procure an involuntary transfer in Massa- chusetts for the benefit of a creditor there. Under such circumstances the first transfer must prevail ; and there is no rule of comity or of law by which we are required to give efEect to the legal proceedings in Massachusetts. The subsequent at- tachment of the debt in this state could not have interfered with the rights of the receivers ; and it would be carrying the rule o£ comity to an SEC. 52.] IN A FOREIGN JURISDICTION. 229 It will be readily seen that this principle does not conflict with the principle that a foreign receiver will not be permitted, as against the claims of creditors resident in another state, to remove from such state the assets of the corporation. The receiver, by taking possession of the property within the juris- diction of the court that appointed him, becomes vested with a special property therein, and he is entitled, by action, to pro- tect this special property, while it continues, in like manner as if he was the absolute owner. The validity of his title wiU be recognized everywhere, and he cannot be deprived of its possession, though he take it, in the performance of his duty, into a foreign jurisdiction.^ absurd length for our courts to give foreign creditors a better posi- sition in this respect than they do domestic creditors. It is well set- tled that transfers of property in inmtum, by operation of law, wUl generally have efEect only in the state where the law ' which works the transfer ' has force. But such transfers have, generally, no force upon property outside of the state where they are made; and such property will be administered for the benefit of creditors, and others interested by the courts of the state where it is found. (Embree ■». Hanna, 5 J. E. 101 ; Holmes i). Rem- sen, 20 id. 339; Willets «. Waite, 35 N. T. 577; Kelley . Rich, 53 Me. 115; Hook D. Bosworth, 64 Fed. Rep. 443. 2 Smith V. McCullough, 104 U. S. 35. After a decree of foreclosure was made in this case the receiver filed his petition, as such receiver, to certain county bonds issued by a county in payment of its subscrip- tion in aid of the construction of a branch line of the road over which the receivership extended. By the terms of the contract between the county and the railroad company, the latter was entitled to receive those bonds when the branch road was completed and paid for by the company. The receiver was given express authority to borrow a cer- tain sum upon his certificates of in- debtedness to complete that branch of the road, which was done. The mortgage foreclosed described the premises and property conveyed as " all the present and the future to be acquired property of, or in any manner pertaining to, the Linneus 282 LIMITATIONS UPON THE POWEES, ETC. [CHAP. VIII. The receiver has no power which has not been conferred upon him by the order of his appointment, and therefore cannot accept new privileges and franchises for the corporation which he represents, without express authority so to do from the court appointing him.^ Sec. 62. To sell and dispose of property in their possession. — The trust funds in the hands of a receiver are in custodia legis. It is improper for a receiver to pay over money to any one, without the order of the court. No one but the court has a right to decide to whom money received by him belongs, or is payable. No discretion is allowed the receiver as to any application or disposition of it, but he holds it subject to the order of the court, and to be paid to whom the court shaU adjudge it.^ Even if money in his hands be paid to him under a mistake, the court of which he is an officer can alone order it to be refunded.^ Where no directions are given by the court it is the receiver's duty simply to keep and protect the trust fund and hold it ready for distribution. If parties interested desire it to be invested, they may apply to the court for such an order, and, although they may neglect to apply, a loan by the receiver, even temporarily, is a breach of trust.^ As the mere instrument of the court he will not be permitted, after receiving funds under its order, to set up claims to them whoUy foreign to the object of his appointment. If this were allowed the position of receiver would be perverted into that of speculator in funds, constructively at least in court, and their destiny would become as uncertain after they were received by Brancli of the Burlington & Soutli- proposed to grant to the receiver of western Railway Company, and all an elevated railroad the right to the right, title, interest and equity erect and operate an elevated rall- of redemption therein, whether of road through certain streets of the said company or the stockholders in city. Abutting property owners ap- said branch or leased premises, that plied for an injunction restraining is to say (describing in detail the such grant upon various grounds, property). It was held that the and, in the course of its opinion,, mortgage did not include the bonds the court held as stated in the text, and therefore the receiver was not ° DuflFy v. Casey, 7 Bobt. (N. T.)„ entitled to them or their proceeds. 79 ; Herrick ■». Miller, 123 Ind. 345. 1 Negus V. City of Brooklyn, 10 « Getty v. Campbell, 2 Robt. (N.. Abb. N. C. (N. Y.), 180 ; s. c. 62 Y.), 664. How. Pr. 291. In this case the Com- * Attorney-General v. North Amer- mon Council of the City of Brooklyn ican Life Ins. Co., 89 N. Y. 95. SEC. 62.] TO SELL AND DISPOSE OF PROPERTY. 283 the court as before. The court will not thus permit itself to be made a quasi suitor.' If authority is given to the receiver to sell, at public or private sale, property in his possession subject to the order of the court, no transfer of the property can properly be made by the receiver until his report of sale is made to the court and an order of confirmation granted. Any transfer by the receiver, before such confirmation, is unauthorized, and any payment to the receiver by the purchaser before an order confirming the sale would be at the risk of the purchaser.^ But a transfer or ' Johnson D. Gunter, 6 Bush (Ky.), 534. The receiver in this case col- lected a certain amount of money upon a bond which was afterwards quashed and the receiver was or- dered to return the money ; and having failed to do so, a rule was awarded against him to show cause why he should not be attached for failing to pay the money. In re- sponse to this rule he stated that as to a certain sum he was willing to pay, and tendered it in court ; but that he claimed against the party to whom he Was to refund an amount equal to the residue of demand allowed him as commissioner for making out reports and other ser- vices, and alleged that such party was insolvent. It was held that the receiver could not offset his own claims against the party to whom the money was directed to be paid, but must make payment in full as directed. When a receiver, appointed to receive the rents and profits of mortgaged premises pending the sale and during the year for redemption, acquires title to the mortgaged premises, his act in so doing confers on him no right to the rents and profits which he was appointed to receive, and he cannot question the correctness of an order of the court directing him to pay over such rents and profits to the mortgagee, plain- tiff in the suit. Herrick v. Miller, 123 Ind. 304. ' Simmons v. Wood, 45 How. Pr. 362. Upon an ex parte order granted by a judge out of court, the receiver in this case sold certain grants and other property at private sale, the purchaser paying the purchase price. The order provided that the sale should be "subject to the orders of this court." Subsequently one of the parties to the action moved to vacate the order, and the court held that the sale was unjustifiable and declared it void. In Virginia the purchaser is bound to take notice of all the decrees and other material proceedings, under authority of which the property is sold, and if the receiver at a judicial sale has not given the required bond, and fails to account for the purchase money, though he afterwards give the bond, the purchaser may be compelled to pay the money a sec- ond time. Woods v. Ellis, 85 Va. 471. In New York, it has been held, that an ancillary receiver of a for- eign corporation originally ap- pointed by the Court of Chancery of New ■ Jersey, cannot recover from a bidder the difference between his bid and the price finally obtained, when the sale was made under the 284 LIMITATIONS UPON THE POWERS, ETC. [CHAP. VIII. conveyance of property by a receiver before confirmation by the court, is not on that account void ; it is only voidable. If confirmation is denied, the transfer or conveyance resting upon the sale wiU be inoperative. If, however, the confirmation is made, aU objection to the time at which the transfer or con- veyance is made is removed.' The sale divests the receiver of ownership and possession, and thereafter he cannot recover upon choses in action sold to a hona fide purchaser.^ But his power to compel a purchaser to comply with the terms of the sale is unquestioned.' The rule which forbids a trustee to purchase on his own account the trust property applies equally to receivers who hold fiduciary relations to the parties and the property in liti- gation. It is hardly possible to state the rule of equity too broadly or too strongly. It will not permit a trustee to sub- ject himself to the temptation which arises out of the conflict between the interest of a purchaser and the duty of a trustee. The rule is entirely independent of the question whether in point of fact any fraud has intervened. It is to avoid the necessity of any such inquiry that the rule takes so general a order of the Court of Chancery, him under the sale and reconveyed which directed the receiver to exact it to the receiver. The latter then ten per cent, cash, and then report applied to the court on an ex parte the sale which was not to be binding application and obtained an order until confirmed ; and the receiver reciting the invalidity of the sale made no application to confirm the and canceling the same. Upon a sale, but put the property up for bill filed to foreclose the mortgage sale again. Leslie v. Gtoodhue, 69 given by the purchaser, it was held Hun (N, T.), 71. But see Hanke d. that the sale by the receiver was Blattner, 84 111. App. 394. valid and the deed passed a good ' Koontz v. Northern Bank, 16 title to the purchaser whose mort- Wallace (U. S.), 196. The receiver gage executed subsequently was of a bank in this case was directed and remained valid and subsisting to sell certain of its real estate, and against the property after a recon- thereafter sold the same, and before veyance of the same by the pur- confirmation by the court executed chaser notwithstanding the order and delivered a deed of the same to canceling the former sale, and the the purchaser. The sale was sub- complainant was entitled to a decree sequently confirmed by the court, of foreclosure, and the purchaser executed a mort- ^ Phelps v. Masterton, Smith & gage to a third party upon the real Sinclair Stone Dressing Co., 3 Eobt. estate so conveyed, and thereafter (N. T.), 517. agreed with a, subsequent receiver * Hanke v. Blattner, 34 111. App. to cancel the conveyance made . to Rep. 39f. SEC. 62.] TO SELL AND DISPOSE OF PKOPERTY. 285 form and declares that a purchase by a trustee when made shall inure to the benefit of the parties' interested, is voidable at their election, and when such election is promptly made, the sale will be set aside.^ Not even in the capacity of agent for another will a receiver be permitted to purchase property at his own sale.^ This rule also forbids a receiver from taking security upon the property intrusted to his care as decidedly as it does the purchase thereof by him; his interest and duty would conflict as much in the one case as in the other; he holds the property, not for himself, but for those who may establish a title to it, and if he were allowed to acquire a claim upon it in his own favor, it would be very liable to occasion a conflict of interest between himself and the parties for whom it is held.^ ' Jewett D. Miller, 10 N. T. 402. The receiver ol a tank in this case held a mortgage as part of the trust estate and became the purchaser of the mortgaged premises under the foreclosure of a prior mortgage for his own account and benefit, but afterwards advertised the junior mortgage for sale as » part of the assets of the bank, and upon the sale informed the purchaser of all the facts. The purchaser brought this action against the receiver for an accounting and to redeem the property from the sale under which the receiver purchased. It was held that such purchaser could not avail . himself of the equitable estoppel) which, as against a person who had actually been misled, would have prevented the receiver from setting up that he held the title under the foreclosure of the elder mortgage otherwise than as security for the advances made by him to obtain it, and therefore this action could not be maintained. In Titherington's Admr. v. Hodge, 81 Ky. 286, a receiver purchased a claim against the trust estate in his hands for a comparatively small sum, at a sale made by the adminis- trator of the claimant. Subsequently the whole claim was allowed as a preferred one against the trust estate and this action was brought against the receiver after the ad- ministrator had elected to avoid the contract of sale, and, it seems, to re- cover the amount of the whole claim against the estate. It was held that he was entitled to recover. 2 Carr v. Houser, 46 Ga. 477. The receiver in this case bid the property off at his own sale as the agent of his brother, and not for himself; objection was made to the same by one of the parties to the action, and it was held that the sale was void- able at the election of any party having a beneficial interest in the property, and should have been set aside. ' Thompson «. Holladay, 15 Oregon 34. This suit was to foreclose a chattel mortgage on certain shares of stock, executed to the plaintiff, while receiver, and while he, as such, held the stock for money ad- vanced to the defendant Holladay, one of the parties pending the liti- gation. It was admitted that the 286 LIMITATIONS UPON THE POWERS, ETC. [CHAP. VIII. Sec. 63. To contract debts and create liens. — The jurisdic- tion of the court to appoint receivers has for its primary object the care and custody of the property which is the subject of the receivership, pending the determination of the questions involved in the litigation ; and to enable the court, by placing the property under the control of its officers, to preserve it to answer the final decree which may be made in the action. But the receiver cannot, of his own motion, contract debts charge- able upon the fund or property. The court must authorize expenditures on account of the property before they can be charged thereon ; and while it may, and does in its discretion, allow expenses incurred by a receiver, strictly for preservation, to be charged upon the property, although incurred without the prior sanction of the court, it is, nevertheless, the order of the court, and not the act of the receiver, which creates the charge and upon which its validity depends.^ money was advanced, and that Hol- laday owed the same. In this action against the latter and subsequent receiver of the trust estate, it was held that the taking of the mort- gage by the receiver was in contra- vention of public policy and void, but he was entitled to a decree for the amount advanced and interest. 1 Vilas 1). Page, 106 N. Y., 439, 451 ; Raht v Attrill, Id. 423, 434 ; Rogers D. Wendell, 54 Hun (N. Y.), 540, 546. In WyckofE v. Scofield, 103 N. Y., 630, a receiver was appointed in a mortgage foreclosure action of cer- tain premises in New York City, and in consequence of an excavation made upon the adjoining premises, a wall standing upon the premises over which the receivership ex- tended was made unsafe. The in- spector of buildings gave notice to the owner and the receiver to make the same secure, and, they failing to do so, Maddock, the owner of the adjoining premises, under the au- thority of the inspector, furnished the materials and did the work, and then applied to the court for an order directing the receiver to pay from the rents and profits $395 ex- pended for that purpose. A statute then in force (Laws 1882, chap. 410, sec. 473), provided that whenever there shall be an excavation upon any lot of land in the city of New York, and a party or other wall on adjoining land, standing upon or near the boundary line, if the per- son whose duty it shall be to pre- serve and protect said walls from injury shall neglect or fail so to do, after notice from the fire depart- ment, the department may take such steps as in its judgment may be necessary to make the same secure, "at the expense of the person or persons owning said wall or build- ing of which it may be a part, and any person or persons doing the said work or any part thereof, under and by direction of said department, may bring and maintain an action against the owner or owners, or any one of them, of the said wall or building of which it may be a part, foi any work d(^e or materials furnished in and about the said premises, in the SEC. 64.J IN THE MANAGEMENT OF EAILEOADS. 287 The receiver, as an officer of the court, must act according to the latter's orders, and cannot himself determine the expedi- ency of incurring any expenses on account of property in his hands, beyond what is absolutely essential to its preservation and use, as contemplated by his appointment. He has not the power, as incident to his general authority as receiver, to create liens on the property, or bind the trust estate by his contracts. The court alone has that power, and may clothe the receiver with authority to make aU contracts necessary to the proper protection and use of the trust estate, but until it does clothe him with such power, any contracts made by him are not bind- ing upon the estate or funds in his hands, and it is entirely within the discretion of the court whether it will ratify or disaffirm them.^ Sec. 64. In the general management and operation of rail- roads. — A receiver of an insolvent railroad is as much bound to protect the public interests therein as he is to protect and enforce the rights of the corporation and of its mortgage bond- holders. He stands as the representative of the railroad, and while exercising, under the order of the court, the franchises of the corporation, he is as much bound by its obligations to the public as the corporation was. After the receiver has per- formed all obligations due to the public, and to every member same maimer as if he had been em- Charleston R. Co., 17 S. C. 217 ; ployed to do the said work by the Attorney-General v. Vigor, 11 Vesey owner or owners of the said prem- (Eng.), 563. ises." It was held that the court In statutory proceedings to secure which appointed the receiver having liens on the property of « mining exercised its discretion and denied company, a receiver was appointed the application, its determination pendente lite. After a, sale of the was not appealable to the Court of property, under decree of the court. Appeals ; and that such statute did and pajrment out of the proceeds of not cast the duty upon the receiver all claims of the receiver to the to secure the wall. date of sale, and at a subsequent ■ Cowdrey v. Galveston H. & H. term of the court, on his submitting R. Co., 93 U. S. 353; Vilas «. Page, a further account for money ex- 106 N. Y. 439, 450 ; Ryan v. Rand, pended after the sale, a decree was 30 Abbott's N. C. (N. T.), 313 ; entered in favor of the receiver for Denuiston «. Chicago, Alton & St. such further sum, and it was de- Louis R. Co., 4 Bissell (U. S. C. C), clared to be a first lien as of a date 414 ; State of Tennessee v. Edge- prior to the date of the sale. This, field & Kentucky R. Co., 6 Lea upon appeal taken by the company, (Tenn.), 353; Hand v. Savannah & was held unwarranted, not only be- 288 LIMITATIONS UPON THE POWERS, ETC. [CHAP. VIII. of it, that is to say, after carrying passengers and freight offered, for a reasonable compensation not exceeding the maxi- mum authorized by law, he may make for the litigants as much money as the road, thus managed, is capable of earning. But all attempts to accumulate money for the benefit of the corporation or its creditors, by unjust discrimination in the charges imposed upon rival shippers over his road, are in viola- tion of sound public policy and forbidden by law.^ He must receive and transport cars and freight, and furnish accommo- dations to connecting lines of railroad, to the same extent and in the same manner as the proper officers of other railroad companies.^ The payment of debts of the corporation, contracted by it previous to the receiver's appointment, would be inconsistent as well with the nature and purposes of the office of the receiver, as with the terms of his appointment. He has no right to appropriate the property and assets of the corporation for that purpose, nor the earnings of the road while operated by him.' It is no part of a receiver's duty to interfere with the con- struction of a parallel line of railway, or to attempt to defeat any contemplated aid for such an enterprise. The proposed line might be of great importance to the public, though it might diminish the future earnings of the company whose road is in his charge. At any rate, as an officer of the court, the receiver cannot be allowed to determine the question of its importance, either to the public or the company, nor, acting cause the court had no jurisdiction, shippers 35 cents per barrel, and to after distributing the fund, to make pay 25 cents per barrel of the sum such a decree, but also because the collected from rival shippers to the receiver's duties ended on the date Standard Oil Company. It was held of the sale. Bassick Mining Co. «. that this was n gross and wanton Schoolfield, 15 Col. 376. discrimination on the part of the ' Hardy ®. Cleveland & M. E. Co., receiver, and any amount which 31 Fed. Rep. 689. In this case the was unlawfully exacted by the re- Standard Oil Company, having ceiver from such shippers should threatened to store its oil until it be repaid them, could lay a line of pipes to Marietta. ^ Biers v. Wabash, St. Louis & unless the receiver of the road Pacific E. Co., 35 Am. & E. B. Cases should give it a special oil rate, the (U. S. C. C), 646. receiver agreed to carry its oil at » Ellis «. Boston, Hartford & Erie 10 cents per barrel, to charge rival K. Co., 107 Mass. 1. SEC. 64.J IN THE MANAGEMENT OF RAILROADS. 289 upon such determination, to appropriate funds in his custody to aid or defeat such a measure.^ If he is given express authority to borrow money, upon receiver's certificates of indebtedness, to be expended under the direction of the court, in building, completing and equip- ping an unfinished portion of the road in his charge, and receives no authority to contract for municipal aid in the con- struction by him, his action, if he contracts for the latter, is unauthorized, and he cannot take anything by it.^ He has no implied powers other than those derived from the order of the court, and when he is expressly authorized to issue certificates for money borrowed, or material furnished, for labor performed, or on account of contracts made by him for or on account of the construction of the road or any part of it, he cannot issue certificates except for money borrowed, material furnished, or labor performed. When material is furnished or labor per- formed, he is authorized to issue the certificates in payment therefor, and not until then ; and he cannot issue certificates for material not furnished, or labor not performed.^ While the receiver of a railroad must act very largely through servants and agents in the ordinary business of the road, and there is no doubt of the power of the receiver to appoint these agents, yet if his appointments are made in the exercise of a reasonable judgment and discretion he wiU not be liable personally for their negligence or misfeasance. But his authority to raise money upon certificates rests upon a dif- ferent basis. His general authority as receiver gives him no power to issue certificates. That can only be done under the power conferred by a special order of the court. When such power is conferred, the negotiation and sale of the certificates are the important features of the transaction, and this is a trust personal to the receiver which he cannot delegate to another.^ The receiver has not the power, without an order of the court, to grant the privilege to another railroad to cross the ' Cowdry «. Galveston, Houston & " Bank of Montreal v. C. C. W. R. Henderson R. Co., 93 U. S. 352. Co., 48 la. 518. » Smith v. MoCuUough, 104 IJ. S. * Union Trust Co. v. Chicago & 25. Lake Huron R. Co., 7 Fed. Rep. 513. 290 LIMITATIONS UPON THE POWERS, ETC. [CHAP. Till. railway of the company he represents ;' or to grant an annual pass for life over the road which would bind his successors.^ Under his general authority to operate the road and receive the rents, issues and profits of the road no implied power is given him to lease it.' A receiver who has authority to make all contracts that may he necessary in carrying on the business of a railroad, subject, however, to the supervision of the court, is not thereby clothed with authority to enter into a contract of lease, which requires the expenditure annually of a large sum and for a time extend- ing beyond the receivership. Parties so contracting with a receiver, contract at their peril, and take the risk of the final ' Hewlett 1). New Tork, West Shore & BuSalo R. Co., 14 Abb. N. C. (N. T.) 338, affirmed 28 Hun, 55. ^ Martin v. New Tork, Susque- hanna & Western R. Co., 36 N. J. Eq. 109. ' McMinnville & Manchester R. Co. ■». Huggius & Price, 3 Baxt. (Tenn.), 177. In this case under the internal improvement laws of the State of Tennessee, the state had issued its coupon bonds to the M. & M. R. Co., and the company having made default in the payment of in- terest and sinking fund, the road was placed in the hands of a receiver appointed by the Governor. Hug- gins & Price answered and insisted upon their right to the possession of the road, by virtue of a lease made to them by the receiver with the consent of the Governor. It seems that subsequently the legislature of the state passed an act giving the possession of the road again to the company. It was held that such lease by the receiver was unauthor- ized, and Huggins & Price were not entitled to the possession of the road. Subsequently, the company having continued in default another bill was filed against it, to have the state's interest in the road ascer- tained and declared and to sell that interest, or, with the consent of the company, to foreclose the state's statutory lien by a sale of the road. Huggius & Price answered, claiming possession of the road under such lease, and also that while they re- mained in possession of the road they paid rent to the state, and that the state, by receiving such rent, ratified and confirmed the contract of lease ; and if not entitled to pos- session they had a right to compen- sation for the improvements put up- on the road by them. It was held that the contract of lease was null and void, and conferred on the les- sees no rights whatever; that no department of the government, ex- cept the legislature, could ratify the lease and no act of that body was shown which could be claimed amounted to a ratification; and that Huggins & Price were bound to know the receiver's want of author- ity to make the lease in question, and took it at their peril and could not recover the value of the im- provements put upon the road by them. State of Tennessee v. Mc- Minnville & Manchester R. Com- pany, 6 Lea (Tenn.), 369. SEC. 64.] IN THE MANAGEMENT OF RAILROADS. • 291 action of the court in ratifying or disapproving the contract. The principle underlying this rule is that it is the order of the court alone which can bind the trust property, and while the court does confer authority upon its receiver, and contracts made by the latter within the pale of such authority are con- clusive upon the court, yet contracts made without such author- ity are not binding upon the trust property unless approved by the court.^ In a case where the court appointed the president and direc- tors of a railroad company, receivers to continue in the posses- sion and management of the road and to conduct and carry on the business of the company under the order of and subject to the court, fifty-four of its first mortgage bonds outstanding had theretofore fallen due, and were, after such order, pur- chased with the funds of the company under the direction of the president, and thereafter re-issued, as collateral security for loans made to operate the road or sold for the same purpose, and were purchased by the company just as other securities were purchased, and entered upon the books of the company as investments, and reported in the officers' reports as outstand- ing. Junior lien-holders objected to giving these bonds prior- ity of payment. The court declared that while large discretion was allowed the receivers in the financial manipulation of the assets of the road so that they might call in or put out the secu- rities of the company as, in their judgment, would best enable them to secure the property to the stockholders and pay off its creditors ; yet if, in doing this, they took up bonds one month and re-issued them the next to save interest and enable them ' Chicago Deposit Vault Co. ■». Mc- then took possession of the rooms Nulta, 153 U. S. 554. The receiver and continued to occupy them and in this case of the Wabash Railroad paid the rental until they were no entered into a contract for the lease longer required by him, when he of certain rooms in » building in gave notice to the lessor that he Chicago for his use as receiver in would not need the rooms and would the transaction of the business of surrender them. The lessor inter- the railroad. The term was for a vened in the action and asked that period of four years and four the receiver be restrained from sur- months, at a yearly rental of $10,- rendering the rooms, and that the 500. The receiver took possession trust property, or the proceeds of of and continued to occupy the its sale, be required to pay the stip- rooma until his resignation. His ulated rental. The claim of the successor in the ofiBoe of receiver lessor was rejected. 292 LIMITATIONS UPON THE POWERS, ETC. [CHAP. VIII. to meet the current expenses on the most economical scale, they could not thereby destroy the lien of the bonds taken up which made a secure investment when originally issued, and which was supposed to retain its effect as they passed from hand to hand in the financial world. To assume otherwise would not only create distrust, but destroy the credit of the road ; for it could not be supposed that capitalists would lend money on collaterals, the validity of which involved constant legal inves- tigation. The court is as anxious to preserve the liens and securities of the bondholders and other creditors as it is to pre- serve the property of the company which protected them, and the receivers, acting as the hand of the court to carry out this purpose, will not be permitted to destroy liens and make new debts on the faith of those very liens which they knew they had extinguished. And therefore it was held that such bonds, after their re-issue, go into the hands of honafide holders with all the protection given them in their original and first issue secured by the first mortgage.' The settled rule which, in the absence of authority to do so from the court, denies power to the receiver to make contracts binding upon the corpus of the trust estate, applies equally well to receivers of railroads. If they are simply directed by the court to operate and manage the road, they undoubtedly may contract necessary expenditures for that purpose to the extent of the income derived from the operation of the road ; but it is their duty to keep their current expenditures within the current income, and if they cannot do so they should re- port to the court and ask leave to contract debts on the faith of the projjerty, thus giving the parties in interest an oppor- tunity to be heard upon the question whether a receivership should be continued which is not clearing expenses.^ ' In re Fifty-four First Mortgage railroads witliin the last few years, Bonds, 15 S. C. 304. and even now are only in tlie process ' Hand v. Savannah & Charleston of development. Some principles, R. Co., 17 S. C. 317. In this case, however, may be regarded as settled, McQowAN, J., said: "The doc- but there are others still in contro- trines relative to the rights and du- versy. It may be regarded settled ties of railroad receivers and debts that the receiver is merely the ex- contracted by them are compara- ecutive officer of the court, that his tively new. They have grown up custody is the custody of the court, with the growing importance of and that he has no inherent power SBC. 64.] IN THE MANAGEMENT OE RAILROADS. 293 In the absence, therefore, of authority from the court so to do, a party who contracts' with the receivers is chargeable with independently of tlie court expressly authorizing acts, or approving them when done. We believe it to be also settled that the court, having taken possession of a railroad, has certain duties to perform, and, among others, will see to the liqui- dation of all proper debts contracted by its express order or authority; but we are not aware that it has been precisely settled as to what debts contracted by a receiver out- side of his express authority the court will undertake to provide for, and more especially in a case where there is no income, and the prop- erty out of which they are to be paid is already under mortgage. In this case it is admitted that there is no income, and it is proposed that certain debts contracted by the re- ceiver shall be first paid, not out of any receiver's funds from profits, but out of the proceeds of sale, thus giving them an equity over the mortgage bondholders. The order appointing Mitchell receiver did not give him the right to contract debts and charge them upon the corpus. It contemplated income, and pro- vided that the 'net proceeds, after paying all necessary expenses, in- cluding such accounts, if any, that may be due the employees and offi- cers, should be applied quarterly to the payment of certain mortgage debts. We agree with the referee ' that it would require a very liberal construction of this order to inter- pret it as intending that the neces- sary expenses, including the ac- counts due the employees and officers for services, should be paid out of anyother fund than the profitsof the road. If the amounts now due by the receiver are at all chargeable upon the fund arising from the sale of the road now in the hands of the court, such chargeability must arise from some other authority than that contained in the order appointing a receiver.' This would seem to dis- pose of the whole matter ; but it is strongly urged upon us that these are meritorious claims, and have a special equity on account of their character ; that the order appointing a receiver gave him authority ' to hold, work and manage the road with the greatest possible skill and economy,' and that having done so, producing debts instead of profits, — the court should take care of its own officers, and order them paid out of the property mortgaged to others. It was the duty of the re- ceiver to keep his current expendi- tures within the current income, and if he could not do so he should have reported to the court and ask leave to contract debts on the faith of the property. This would have given the parties an opportunity to be heard upon the question whether a receivership should be continued which was not clearing expenses. Many authorities have been cited as to what are proper allowances in a receiver's accounts, which are un- doubtedly correct ; but none of them, so far as we can discover, clearly mark the line which is important between ' income ' and ' corpus.' When general reference is made to the 'receiver's fund or the 'trust fund ' in the hands of the court, or ' funds to the credit of the suit,' we infer that the funds meant arose from ' income,' as nothing else can with any degree of appropriateness be called the ' receiver's fund.' The referee rests his judgment on the 294 LIMITATIONS UPON THE POWERS, ETC. [CHAP. VIII, knowledge of the limited powers of the receivers and contracts at his peril. If the income derived from the operation of the case of Cowdrey v. Railroad Com- pany, 1 Wood, 336 (also reported in 11 Wall. 459), and the circuit judge relies on the authority of Meyer v. Car Company, 103 U. S. 13. In both these cases questions were discussed as to what expenditures should be allowed the receiver out of the ' trust fund ' under the control of the court, or out of ' the fund to the credit of the suit ' ; but it does not appear whether such ' trust fund ' arose from ' income ' or the sale of the property. These cases do not decide the precise question here, and therefore can give us little assist- ance. We may concede that under the authority of these cases, and others, these claims would be al- lowed if there was a fund from ' income ' out of which to pay them ; but there is no such fund, and the question recurs, ' shall they be paid out of the proceeds of the mort- gaged property against the protest of the mortgagees ? ' In this vague state of the authorities, we are obliged, through some hesitation, to render our own unaided judgment on the subject. A mortgagee has a lien on the property itself, but with- out special provision no lien upon the income. The mortgagor is en- titled to the use and rents and pro- fits until an order of foreclosure. He may use this income in working the property, paying current expen- ses or in any other way ; but he has not the power to give any liens upon the corpus for any purpose whatever, even that of cultivating or operating the property itself, which will postpone liens already fixed upon it. Any debts he may contract must take their place be- hind liens already resting upon the property. There may be cases where the court will declare an equity on account of addition made to the value of the property ; but such are exceptional cases and proceed upon different principles. When the court takes the place of both the mortgagor and mortgagee, and takes, possession of an insolvent railroad by appointing a receiver to preserve it and make it profitable pending litigation, it has been established as a rule to allow the receiver to pay the necessary epenses of run- ning the road, including damages to persons and property inflicted in so doing, out of the income in his hands called the ' receiver's fund.* (Ex parte Brown, 15 S. 0. 518.) This is manifestly just, as the mort- gage only covers the corpus, and the mortgagee has no right to the income until current expenses are paid. It would clearly be inequit- able to allow the receiver to use the labor of the employees, and then turn over all the fruits to the mort- gagees, leaving them unpaid. In administering this equity, the courts have gone so far in providing for the payment of current expenses as even to recall any income that may have been paid to the mortgagees, and in that way temporarily di- verted from the payment of the ex- penses. * * * * But it seems to us that as a general rule this equity must be limited to the ex- istence of income. The very fact that it is thought necessary to in- voke the doctrine of diversion, shows that in this respect there is a diflerence between ' income ' and 'corpus.' As the mortgagor him- self could not contract debts to dis- place liens upon the corpus, it is not SEC. 64.J IN THE MANAGEMENT OP KAILROADS. 295 road is not sufficient to pay the debts so contracted, they will not be paid from the fund arising from the sale of the railroad in priority to the mortgage indebtedness against the protest of parties holding the latter, and who have not had an oppor- tunity to be heard on the question of the expediency of post- poning their liens to the payment of debts contracted by the receiver. If, however, the receiver, with the consent of such mortgage lien- holders, though without the express authority of the court, contracts for the construction of an extension to the line of road, he is then acting outside of the scope of his authority and not really as receiver, but as the agent of the consenting lien- holders, who will be bound by any agreement so made which clearly perceived how the court can give that eflfect to debts contracted by the receiver, who has nothing whatever to do with the finances of the company except the money which arises from the 'income.' Possibly the court might do so in an extraordinary case, where it clearly appeared that the debt was con- tracted at the instance of the mort- gagee and for their benefit, but not in an ordinary case of excess of ex- penditures over income, without ex- press authority to contract debts upon the faith of the property. # » * » WTe have no reason to doubt that these are meritorious claims and regret that there are no ' profits ' out of which they could be paid. If it were proper for a court to express a wish, it would be that they could be paid, but they are not receiver's certificates issued by the express order of the court for a par- ticular purpose. They are simply debts contracted with the receiver, limited in authority, of an insolv- ent railroad, known to be covered with mortgages and not making ex- penses. We are not satisfied that there is any principle which would authorize the court, overlooking the terms of its previous orders, trans- pose legal priorities and order these debts paid out of the proceeds of property bound by prior mortgages." And the Court said further that " this disposes of the claim of Daniel Green for damages for a horse killed and mule injured by the train, while the railroad was under the control of the receiver. If the damage was negligently done, this claim ranks as high as other debts of the re- ceiver ; but it is not a lien to take priority, and there is no ' receiver's fund ' out of which it can be paid. In Union Trust Co. i). Illinois Midland Co., 117 IT. S. 436, 479, the court refused to allow claims for large sums of money borrowed by the receiver without previous au- thority from the court, priority over the mortgage bondholders, although the moneys were applied to pay expenses of the receivership, re- pairs, supplies and pay-rolls, and to replace moneys which had been so applied ; because there never could be any diflSculty in obtaining an order of the court, if one were prop- er, to borrow money to a specified total amount, for specified purposes. 296 LIMITATIONS UPON THE POWEKS, ETC. [CHAP. VIII. creates a lien upon the corpus of the property in preference to the mortgage indebtedness, and who, therefore, cannot object to the priority of payment of such indebtedness out of the fund derived from the sale of the road. But those lien-holders whose consent was not obtained and who protest against such priority, are not obliged to content themselves with a postpone- ment of their liens, but are entitled to priority of payment out of the fund derived from the sale.^ The inherent powers of a court of equity, independent of the wiU of the parties, as to receiverships created by it over rail- roads, are indeed large, but, nevertheless, a receivership outside of the court, created by contract, must be controlled by the terms of that contract. For example, when a public statute provides that, upon the happening of the contingency, the receiver shall take possession of a railroad, and run the same, and manage the entire road until a sufficient sum shall he real- ized, exclusive of costs and expenses incident to said proceed- ings, to pay off and discharge the interest due on bonds issued by the state to aid the railroad company, and, when done, that the receiver should surrender the road to the company — while such a receiver is authorized to run the road, his authority to make contracts is derived from the statute of which everyone is bound to take notice ; and whenever the rights of the re- ceiver's creditors are drawn in question, the contract, so far as it speaks, must be the law of the case. Such a statute intends that the receiver should take the place of the company and employ the same means which it employed, and its object is only to insure to the state a prudent and honest management of the road's finances, and the appropriation of its net profits ' Hand ■». Savannah and Charles- held that the receiver acted only as ton R. Co., 17 S. C. 219. The re- the agent of the consenting bond- ceiver in this case was authorized holders, and that the extension was by a consent order, without a refer- covered by a lien, superior to exist- ence, to construct an extension of ing liens, in favor of those who fur- the railroad, at a cost not to exceed nished the money to build it and an amount stated, to be paid for out that they were entitled to such rat- of surplus income, and the exten- able proportions of the proceeds of sion to stand pledged for such pay- sale as the value of the extension ment. The extension was built at bore to the value of the entire road, a greater cost and then sold as a considered only in reference to the part of the entire road. It was purchase money of the vrhole. ■SEC. 64.J IN THE MANAGEMENT OF RAILROADS. 297 to the payment of interest and sinking fund. It is not intended that the receiver should create debts and charge them to the road by a lien superior to that of the state, or against the latter itself. But the expenses of the road should be paid out of its earnings and not otherwise ; and all persons contracting with the receiver are bound to know that the earnings of the road are their only means of payment, and that the state has a right to cut off this source at pleasure. They therefore assume the risk of its adequacy and its continuance, for the statute does not amount to an agreement on the part of the state not to terminate the receivership until the costs and expenses are paid.' ' State of Tennessee v. Edgefield & Kentucky K. Co., et al., 6 Lea (Tenn.), 353. Under the act of the General Asaembly of the State of Tennessee in this case the state ex- tended its aid to the various rail- road companies of the state by issuing to them the coupon bonds ■of the state. One of the conditions of the grant, as fixed by the statutes, was that each company should pay into the State Treasury, at least fifteen days before the interest be- came due, from time to time, upon •said bonds, an amount sufficient to pay the interest upon such bonds; and also an annual sum in state bonds, as a sinking fund, prepara- tory to the extinguishment of the principal. To secure the payment of the bonds and interest, a lien was reserved in favor of the state upon the respective roads, both that pre- pared at the time the bonds were issued and that to be thereafter completed and furnished, which lien was expressly made superior to all claims existing or to exist against the companies. As further Becurity for the payment of the in- terest on the bonds, it was provided, that in case any of said companies flhould fail to pay the interest in accordance with the above provi- sion, " the Governor shall immedi- ately appoint some suitable person, at the expense of the company, to take possession and control of said railroad, and all the assets thereof, and manage the same and receive the rents, issues, profits and divi- dends thereof," and pay over the same, under the direction of the Governor, towards the liquidation of such unpaid interest, and that " said receiver, so appointed, shall continue in the possession of said road, fixtures and equipment, and run the same, and manage the en- tire road until a sufficient sum shall be realized, exclusive of the costs and expenses incident to said pro- ceedings, to pay off and discharge the interest as aforesaid, due on said bonds, which, being done, the receiver shall surrender said road and fixtures and equipments to said company.'' Two railroad companies made default in the payment of in- terest, and were placed in the hands of receivers who operated the roads for two years, during which time the roads did not pay their running expenses. A bill was filed by the state to determine the interest of the state in the roads, and claimants for labor and supplies furnished the receivers claimed priority over the 298 LIMITATIONS UPON THE POWERS, ETC. [CHAP. VIII. Sec. 65. When acting outside their jurisdiction and beyond the scope of their authority. — The decree of a court of equity appointing a receiver entitles him to its protection only in the possession of property of which he is authorized or directed by the decree to take possession. When he assumes to take or hold possession of property not embraced in the decree appointing him, and to which the debtor never had any title, he is not acting as the officer or representative of the court, but is a mere trespasser, and the rightful owner of the property may sue him in any appropriate form of action for damages or to recover possession of the property illegally taken or detained.^ The receiver's power over the property of the corporation is limited to the territorial jurisdiction of the court which appointed him, and beyond such jurisdiction he cannot do any- thing whereby the status of the affairs of the corporation can be effectually changed, or its rights in any way lessened or prejudiced, without the sanction of a court whose jurisdiction was invoked over the subject matter. For example : A tele- graph company, organized under the laws of New York owned lines in Maryland. The company having become insolvent, a receiver was appointed by the New York court, and subse- quently in a suit, at the instance of a creditor, a Maryland court appointed receivers of the company to take possession of its property in Maryland. The receiver appointed in New York thereafter made an agreement with certain parties in regard to the disposal of the Maryland property to another corporation. It was held that the receivers appointed by the court in New York had no extra territorial power over the property in Maryland, and therefore had no power to dispose of such property or alter its status in the hands of the Mary- land receivers, and that, as against the latter, the contracting parties acquired no rights under the agreement.^ The law forbids a receiver who is charged with an official state's lien. It was held that while not bound by their acts ; and that, the receivers were, to some extent, the state's lien was superior to all public agents, the scope of their others. authority was expressed in the ■ Hill v. Parker, 111 Mass. 508. above statutes, and, having acted ' Day ■». Postal Telegraph Com- beyond such scope, the state was pany, 66 Md. 354. SEC. 65.J ACTING OUTSIDE THEIR JURISDICTION. 299 duty of a fiduciary nature to betray his trust for private gain or for any purpose whatever, and if he betrays his trust courts will not give him any assistance to enable him to reap any profit and advantage resulting therefrom.^ ' Farley ■». St. Paul, Minneapolis & Manitoba R. Co., et al., 4 McCrary (U. S. C. C), 138. The complainant in this case was the receiver of the St. Paul & Pacific R. Co., and while holding that office and engaged in operating the road, he entered into a contract with defendants K. & H., whereby the three were to acquire, by purchase or contract, for their joint interest, outstanding bonds against that company, for the pur- pose of using the same in the pur- chase of the railroad property at an expected foreclosure sale under a decree to be thereafter rendered in the foreclosure proceedings then pending, in which complainant had been so appointed receiver. Com- plainant furnished no money with which to purchase said bonds, but gave information known only to him, and aided and assisted the other par- ties in their negotiations. Complain- ant was not known ii) the transac- tion except to K. & H., and the lat- ter purchased in their own names. Afterwards the railroad was sold under foreclosure, and bought in by K. & H. and others and the defend- ant railroad company was organ- ized by said purchasers, and in the corporate name acquired the title. Defendants, after their purchase, refused to recognize the claims of complainant, who thereupon brought this bill to recover his share of the profits of the transaction, for an ac- counting, etc. District Judge Trbat said : "It is contended that this case does not fall within the general rule, because the fraudulent scheme ended with the purchase of the bonds, and the aid of the court is not invoked to enforce the same. It is clearly shown, however, that such purchase was merely the initia- tory step towards effecting the main design. The theory of the bill, the plaintiff's own testimony, and all the facts and circumstances proved, demonstrate that the scheme was to acquire the large railroad proper- ties through the acquisition and use of the depreciated bonds. The plaintiff urges that he devised the plan, and that without the assist- ance he alone could give, the plan would necessarily fail. He goes even further in disclosing that it was only through concealment of his connection with the operations could success be realized. He held an eminently fiduciary relation to all interested in the property com- mitted to his management, and it was through information thus ac- quired and concealed from the beneficiaries, also from the State and United States courts, that the contemplated fraud could be effect- ed. It may be conceded that in private trusts, where constructive frauds have been consummated and the wronged parties do not com- plain, courts have refused to listen to the volunteers, or, as between parties litigant, examine into the means whereby the one or the other has become charged with a new trust toward his associates. This rule rests largely on the reason that the court is called upon, not to as- certain the sources whence the fraud was derived, in the absence of beneficiaries complaining, but 300 LIMITATIONS UPON THE POWERS, ETC. [CHAP. VIII. The receiver cannot vacate or avoid liens legally acquired by- creditors after Ws appointment upon property of the corpo- merely to decide whether a new trust was created which has been or is about to be violated. It may be that there is discernable in ad- judged cases a distinction between acts mala prohibita, and maia in se, through which funds or prop- erty have come into the hands of one confederate for the benefit of all — acts which have no in- trinsic turpitude further than is applied in the violation of i mere statutory prohibition. The strong- est case cited for the plaintiff (Brooks v. Martin, 2 Wall ) contains that element, and seems to be shad- ed with the thought that the parties sought to be protected by the stat- utes not only failed to complain, but most of them ratified expressly all that had been done. That case was peculiar in many of its features, and, like the English cases cited in the opinion, is clearly distinguish- able from the transaction now under review. In those cases there was no act of moral turpitude, like the betrayal of trust for selfish greed, which called for investigation; but merely the relationship of the liti- gant parties, independent of prior dealings between them and others. * * * There is another class of cases — the most pointed of all — the rigid enforcement of whose rules is essential to the pure admin- istration of justice. Those rules not only forbid one charged with an official duty of a fiduciary nature from betraying his trust for private gain or any purpose whatever, but, among other penalties, subject him to whatsoever loss may fall upon liim through the dishonesty of his confederates. That salutary end is effected by a resolute refusal to give him any aid toward the en- forcement, against his confederates, of their fraudulent scheme. Courts will not and ought not to be made the agencies whereby frauds are to be in any respect recognized or aided. They will not unravel a tangled web of fraud for the bene- fit of any one enmeshed therein through whose agency the web was woven. Especially must that be the rule where a trusted ofiicer of a court, whose position is both advis- ory and fiduciary, seeks its assist- ance to compel confederates to share with him the spoils acquired through his concealments and de- ceits, which he admits were deemed by his confederates and himself necessary to their success, through his betrayal of his trusts. The plaintiff conceived a scheme to wreck the vast interests which it was his duty to protect. He had acquired, in his fiduciary capacity, information through which the de- sired end could be reached. It was necessary for him to have confeder- ates, that he should impart to them his secret information, that he should continue through the pro- gress of the scheme to advise with, and inform them of what, from time to time, became known to him; that his connection with them should be concealed from the courts, to whose orders he was subject, and which had a right to rely upon his fidelity. Through a betrayal of his trust under such circumstances, according to his version of the facts, these vast railroad properties have been se- cured, and a profit realized of possi- bly $15,000,000 or more. » * * * Plaintiff's cause of action is based SEC. 65.] ACTING OUTSIDE THEIR JURISDICTION. 301 ration located in a foreign jurisdiction when in accord with the latter's laws.^ Nor can he maintain an action in the juris- diction wherein his powers are exercised against the purchaser of real property of the corporation situate in another jurisdic- tion to determine the title thereto." upon inherent turpitude, and hence the fundamental maxim applies, Ex turpi caiLsa, etc. ; therefore an- other maxim has potential force, viz. : Portior est conditio defendentis. In plain English, courts of equity- will not recognize as valid or en- force any agreement grounded in turpitude; nor will they undertake to unravel a tangled web of fraud for the purpose of enabling one of the fraudulent parties, after such judicial disentanglement, to con- summate his fraudulent designs." The court, for these reasons, sus- tained a demurrer to the bill. ' Dunlop V. Paterson Fire Insur- ance Co., 13 Hun, 637; affirmed, 74 N. Y. 145; Hunt v. Columbian In- surance Co., 55 Me. 390; City Insur- ance Co. of Providence D Commer- cial Bank of Bristol, 68 111. 348. In the latter case the attaching credi- tor and the debtor were both corpo- rations created by the laws of Rhode Island. The statute of that state provided for putting banks in liquidation, and an equal distribu- tion of the assets. (Laws 1869, chap. 370.) The state authorities commenced proceedings against the defendant bank, under that statute, by virtue of which commissioners were appointed to examine its af- fairs, who afterwards filed a peti- tion alleging the insolvency of the bank, whereupon the court pro- nounced a decree enjoining the bank from further transacting business, and appointing the interpleading claimant receiver of its effects. The insurance company was a creditor of the bank at the time these pro- ceedings were had, and subsequent- ly commenced this action in attach- ment against the property of the bank situate in Illinois. The at- tachment writ was levied upon real estate only, as the property of the bank, whereupon the receiver inter- pleaded as owner. It was held that the attachment was valid as against the receiver. ' Simpkins v. Smith & Parmalee Gold Co., 60 How. Pr. ( N. Y.), 56. The plaintiff In this action was the receiver of a mining company — a corporation organized under the laws of New York, and appointed by a court of New York. All the property of the corporation con- sisted of real estate situated in Colorado. Subsequent to the plain- tiff's appointment, several judg- ments for large amounts were re- covered against the corporation in Colorado and on these judgments executions were issued, and there- upon all the property of the corpo- ration was sold at sheriff's sale in Colorado. The receiver gave pub- lic notice of his appointment at the sale. This action was brought to have it judicially determined that, as against the plaintiff, no title to the property, in Colorado, of the corporation was acquired through such sale, and to have the defend- ant, in whose possession the proper- ty was, account for the same. Upon demurrer thereto, it was held that the action could not be maintained. And see Union Cattle Co. ■». Interna- tional Trust Co., 149 Mass. 493. 302 ' LIMITATIONS UPON THE POWERS, ETC. [CHAP. Till. "Where the court has no power to appoint a receiver, but nevertheless makes an order appointing a receiver, the latter has not by Aartue of such order any power whatever to exercise any of the functions of a receiver. The order is absolutely void and of no effect whatever, is binding upon nobody and may be questioned in any collateral action or proceeding.' Sec. 66. Of National Banks. — In order to render void a transfer of the assets or securities of a National Bank in contem- plation of insolvency, it must be made with a view to prevent the application of the assets in the manner prescribed by the National Banking Act, or with a view to the preference of one creditor to another. The policy of the law is plainly to pre- vent preference among creditors holding pre-existing debts. It clearly was not the purpose of the Act to forbid the bank from giving security to its friends for moneys to be advanced at the time or in the future. The general creditors are not injured by such an arrangement ; they may be greatly benefited by it. A loan by a creditor to the bank, on receiving security for the amount loaned by a part of its assets, cannot be fairly con- strued as giving him a preference over other creditors. For the securities that such a creditor takes out he leaves an equiva- lent in cash and becomes a creditor solely on condition of receiving security. Such a transaction, if it be free from fraud, is not prohibited by the Act, and cannot be attacked by the receiver as void.^ ' Colwell ■». Garfield National ing an appeal, althougli the judg- Bank, 119 N. T., 408. After trial ment denies relief to the plaintiff ; and a decision adverse to the plain- but the Code contemplates that such tifi in an action in which a receiver application be made upon the whole pendente lite had been appointed, case, including the adverse judg- but before the judgment, an order ment, and does not permit the was granted continuing the receiver- order to be made in anticipation of ship until after the decision of any the judgment, and that, therefore, appeal from the judgment. The the order was void and the corn- receiver then brought this action to plaint bad. recover a claim, a part of the assets ^ Casey ». La Societe de Credit in his hands as receiver, and the Mobilier, 3 Woods (U. S. C. C), 77. facts appeared in the complaint. A national bank in this case, being Upon demurrer thereto, it was held embarrassed, entered into an arrange- that under the N. T. Code of Civil ment with the defendant whereby Procedure the court may appoint a the latter agreed on its part to ac- receiver after judgment, and pend- cept bills of exchange drawn by the SEC. 66.J OF NATIONAL BANKS. 303 The statute inhibits transfers and payments made "after the commission of an act of insolvency, or in contemplation thereof, made with a view to prevent the application of its assets in the manner prescribed by this chapter, or with a view to the preference of one creditor to another." A transfer of property or a payment of money made in good faith to a cred- itor at a time when the bank is insolvent, of which fact the creditor has no knowledge, does not come within the inhibition of the statute. An act of insolvency must have been com- mitted, or the transfer or payment made in contemplation thereof, and either with a view to prevent the prescribed appli- cation of its assets, or to the preference of one creditor to bank, payable ninety days after sight, to the amount of one million {rancs, and the bank agreed to place with, the defendant ten days before the maturity of the bills the amount thereof, and further agreed to deposit securities in the hands of a firm of which its president was a member, for the purpose of securing defendant against loss from the fail- ure of the bank to place the amount required to meet the bills at ma- turity. Said firm was constituted by the defendant, its agent, for that purpose. Such arrangement was carried out, and on the day of the date of the drafts, or the day follow- ing, the bank delivered to said firm notes due the bank, amounting to a little more than the amount of the drafts. Some time subsequent thereto, additional notes were placed with said firm as additional security, and as the notes matured they were replaced by others of like amount. At the time the bank closed its doors, said firm held in its hands notes amounting to $335,011.36 as surety. A receiver subsequently appointed filed a bill in equity for a decree that all of such notes be- longed to the bank, and that the same or their proceeds be placed in his hands as receiver. It was held. that the pledge of the notes was a good one to secure defendant against loss by the failure of the bank to comply with its contract, and the receiver was not entitled to the pledged notes, or their proceeds, until defendants had been made whole. In Eastern Township Bank v. Vermont National Bank, 33 Blatchf. (U. S. C. C), 498, the bank had seven directors. Its president wanted to borrow $50,000 from it, but it had not that amount to lend to him, and he applied to a bank in Canada, which refused because it could not lend the amount to him without ex- ceeding the limit allowed to it for loans to individuals. But it de- posited $50,000, on interest, with the National Bank. Four of the di- rectors of the latter assented to the transaction, and the $50,000 was en- tered on its books as a deposit by the Canada bank. It paid interest on the deposit for eight months and afterwards suspended. Its receiver rejecting the claim, in u suit to re' cover it, it was held that the bank had power to enter into the tralisac- tion, and the claim must be allowed to be certified by the receiver, and paid ratably from the assets. 304 LIMITATIONS UPON THE POWERS, ETC. [CHAP. VIII. anottier, in order to render the transfer or payment null and void/ The Act does not prohibit a bank which has in good faith accepted the draft of a national bank the day before the latter's- insolvency, and afterwards paid the same, from applying the proceeds of collections made by it on paper in its hands be- longing to the insolvent bank, to the payment of the draft, since its lien on such collections runs from the date of the- acceptance, and the receiver, therefore, cannot recover such proceeds.^ The statute is directed to a preference, not to the 1 Hayes v. Beardsley, 136 N. Y. 399. In this case the defendant de- posited in the bank $15,000 and took two certificates of deposit for the same, payable with six per cent, in- terest, and soon after he made an- other deposit of $10,000, and took a similar certificate. Three years thereafter, the bank, through its cashier, paid and took up the first two certificates by transferring to the defendant negotiable paper and paying to him, in cash, the difier- ence between the value of the paper and the two certificates. These pay- ments were made voluntarily by the cashier for the reason assigned by him to the defendant " that his di- rectors did not like his paying so large a rate of interest." The third certificate, the defendant, nearly four years after he received it, trans- ferred to another bank, and the amount thereof was by it credited to him in his account, and the cer- tificate was, on the same day, paid in the settlement of exchange be- tween the banks in the usual course of business. At the time of these payments, the bank, of which the defendant was a director, was, in fact, insolvent, and had been so for some years ; but its insolvency was known only to its cashier, was un- known to its directoiB and other ofiScers, and the bank was in good credit with the public, and contin- ued to do business in the ordinary way for forty-eight days after the payment of the third certificate. The plaintiff was thereafter ap- pointed receiver of the bank, and he brought this action to recover these amounts paid to the defendant, but it was held that he could not recover. '■' In re Armstrong, 41 Fed. Hep. 381. The Fidelity National Bank in this case issued to one Zimmer- man a sight draft for $15,000 on the Seventh National Bank of Phil- adelphia. Two days thereafter, Zimmerman offered this draft to the Merchants' National Bank of Cincin- nati for deposit as cash ; but before receiving it the latter bank tele- graphed to the Seventh National Bank, which replied, saying it would pay the draft at sight. The Mer- chants' Bank then took the draft as cash and forwarded it to Philadel- phia for payment. The Seventh National Bank paid it two days after its acceptance, and after it had notice of the failure of the Fidelity National Bank, which occurred the day before. The receiver of the latter bank claimed that he was en- titled to the balance to the credit of his bank on the books of the Seventh National Bank at the date of the failure of his bank, in preference to SEC. 66.J OF NATIONAL BANKS. 305 giving of security when a debt is created ; and if the tran- saction be free from fraud in fact, and is intended merely to adequately protect a loan made at the time, the creditor can retain property transferred to secure such loan until the debt is paid, even though the bank is insolvent, and the creditor has reason at the time to believe that to be the fact.' The receiver has no custody, possession or control of the bonds deposited by the bank with the Treasurer of the United States to procure circulating notes, and, under no administra^ tion thereof, can they, or any proceeds thereof, ever come to his possession or control. He has no title nor interest in the bonds, or their proceeds, legal, equitable or official, nor has he any duty to perform in respect thereto.^ He in no sense repre- sents the government of the United States, and cannot subject it to the jurisdiction of the courts. Nor can the Comptroller of the Currency, though he may submit himself to the jurisdic- tion of those courts, and consent to be governed in his official action by their decrees, so far as they effect rights of parties who may come into court and be impleaded in the same suit, subject the United States to such jurisdiction, nor submit the rights of the government to litigation in any court.' The lawful acts of the bank or its officers, or those which appear to be authorized, are as much binding upon the receiver as upon the corporation itself.* By his appointment he acquires the claim of the Seventh National the Comptroller of the Currency and Bank upon said $15,000 draft. It two other parties. The prayer for was Tidd, that the latter bank had relief was that a certain admitted the right to apply the proceeds of debt due to the United States from the collections upon the paper in the the bank be ascertained; that they hands of the insolvent bank, at the (the United States) be charged with date of the acceptance, to the pay- certain sums and required to ac- ment of the draft. count for them, and that a writ ' Armstrong ■». Chemical National of injunction issue restraining the Bank, 41 Fed. Bep. 334. comptroller from making a dividend ' Van Antwerp v. Hulburd, 8 of the bonds of the bank until this Blatchf. (U. S. C. C), 286. account be adjusted. It was held. 'Case «. Terrell, 11 Wallace (U. that the bill could not be main- S.), 199. In this case certain cred- tained. itors of a national bank, which had * Burton «. Burley, 9 Bissell (U. S. failed, brought this bill in chancery C. C), 353. In this case the presi- against the receiver who had been dent of a National Bank " A " intro- appointed the receiver of the bank, duced its correspondent Bank " B," 306 LIMITATIONS UPON THE POWERS, ETC. [CHAP. VIII. no right to property in the custody of the hank which the lat- ter does not own as against the real owner, and the National Banking Act was not intended to protect the receiver's custody as against such owner. It aims to protect the property of the bank in his hands, and not to give him arbitrary control of what the bank does not own.^ The receiver is limited as to his functions by the object of the receivership and the duties which it involves. Every per- son dealing with him in his official capacity is bound as a matter of law to have knowledge of his authority to act, and if con- tracts and agreements are entered into with the receiver in excess of his authority as conferred by law, the parties contract at their own peril, and the estate of the bank cannot be charged for the default or inability of a receiver acting outside of his functions as receiver and beyond the duties which it involves.^ The receiver has not the privilege in all cases of being sued in the Federal Courts, and cannot remove such cases against him from State Courts to the Federal Courts.' The general proposition, no doubt, is that a stockholder of a national banking association is estopped from denying that the association has been legally organized, and from setting up and relying upon irregularities and informalities on the part of the association in making an increase of its capital stock, where it was invested with the power to issue or create new or additional stock. But this is confined to cases in which the association had the right or power to issue the stock. National banking associations have no authority of law by their own action to increase their capital stock to any amount whatever. They can make no increase to any extent, without the approval of the Comptroller of the Currency as the representative of the government. His approval confers the right to make and fixes to charge up against the former and that its receiver could not set bank the amount of a private note aside the transaction, which the latter bank held against ' Corn Exchange Bank v. Blye, 101 him, in payment of said note, and N. T. 303. this was done, and account rendered, ^ Ellis v. Little, 27 Kan. 707 ; Bar- showing the transaction, which was rett «. Henrietta Nat. Bank, 78 Tex. accepted by the first bank ; in a bill 223. filed by the receiver, it was held that ' Bird's Executors v. Cockrem, 3 Bank " A " was estopped from deny- Woods (U. S. C. C), 32. ing the correctness of the charge. SEC. 66.] OF NATIONAL BANKS. 307 the limit of the amount of such increase. If they act in this respect without his approval, their acts are utterly void for want of power, and within the principle that the subscriptions to the capital stock of corporations are made upon the implied condi- tion that valid stock, such as wiU confer upon the subscriber all the rights and privileges of a stockholder, is to be issued, there is no enforceable liability against the subscriber for the stock. And until there has been an approval by the Comptroller of the Currency of such increase no waiver or acquiescence on the part of such subscriber would render him liable as a share- holder. In respect to contracts of this character the receiver occupies no position superior to that of the bank ; he stands in the place of the latter, and can only enforce what it could have enforced at the date of his appointment ; and he is sub- ject to the same obligations as the bank would have been under had it continued in existence, and never passed into the hands of the receiver.^ ' Winters v. Armstrong, 37 Fed. Rep. 508. This was an action by a receiver of a national bank to en- force subscriptions to a proposed in- crease of its capital stock. There was no formal or proper assent of the association to the proposed increase, neither was the whole amount of such increase paid in as part of its capital, or notice of the proposed increase given to the Comptroller of the Currency who never approved of the increase, and never issued any certificate specify- ing the amount of such increase. The question arose upon the plead- ings in the case, and it was held that the receiver could not maintain i;he action. The Court, per Jack- fiON, Circuit Judge, said : " The claim made by one of the counsel for the receiver, that his position as the representative of creditors is better than that of the Fidelity National Bank, and that he can ■enforce rights on behalf of creditors which would not exist in favor of the association, is not sound as ap- plied to a case like the present. Where the conclusion is reached that Winters, Stanage and Woods are only to be regarded and treated as subscribers for valid stock which has not been and cannot be issued to them by the association, the re- ceiver cannot, in behalf of either the bank, stockholders, or creditors, enforce against them any right which the association could not it- self have asserted. A receiver can- not enforce the payment of subscrip- tions to stock which the corporation could not have enforced at the time of his appointment. ( Cutting v. Damerel, 88 N. Y. 410.) In re- spect to contracts of this character the receiver occupies no position superior to that of the bank, for the reason that the corporate man- agement, while in charge of its business, just as much as a receiver after his appointment, represents the interests of all persons, credit- ors as well shareholders. * * * 308 LIMITATIONS UPON THE POWERS, ETC. [CHAP. VIII. So one who subscribes and pays for a specified number of shares of a proposed increase of the capital stock of a bank, which increase is in fact never made and issued, and to whom the bank officials transfer, instead, old stock of the bank with- out his knowledge or consent, is not a shareholder, nor as such liable for the debts of the bank. And the fact that such sub- scriber for the increase received a dividend on the old shares so transferred to him does not estop him from denying his liabihty as a shareholder, if he received such dividend in the belief that it was paid to him by virtue of his subscription to the new stock.^ It is for the Comptroller of the Currency to decide when it is necessary to institute proceedings against the stockholders to enforce their individual liability. This action on his part is indispensable whenever the personal liability of the stock- holders is sought to be enforced, and must precede the institu- tion of suit by the receiver.^ But if such decision of the comptroller is delayed, without sufficient apparent reason, more than siK years from the appointment of the receiver, and the State Courts have decided that an act necessarily preliminary to the commencement of a suit upon a contract must be done within six years, the statute of limitations is a bar to any action instituted thereafter by the receiver iipon such liability.^ The statutes of limitations of the states are applicable to actions of this character brought by the receiver of a national bank.^ Subscribers to tbe new stock, which as the bank would have been under they have not and cannot obtain, had it continued in existence, and are in no sense the recipients of the never passed into the hands of the corporate property or assets which receiver." have been fraudulently or wrong- In Wilters v. Foster. 33 Blatohf. fully divested, misapplied or dis- 457, it is held that a cause of action posed of, to the prejudice of credit- against a director for neglect of duty ors. The rights and obligations as a director, does not survive his growing out of these subscriptions death, in favor of the receiver. rest upon contract, and in respect ' Stephens v. Follett, 43 Fed. Rep. to such matters the receiver stands 842. precisely in the shoes of the assooia- ^ Kennedy v. Gibson, 8 Wallace tion, and can only enforce what it (U. S.), 305. could have enforced at the date of * Price •». Yates (IT. S. 0. C. Pa.), his appointment, and is subject, so 19 Albany Law Journal, 295. far as the assets of the bank are * Butler v. Poole, 44 Fed. Eep. concerned, to the same obligations 586. SEC. 66.] OF NATIONAL BANKS. 309 The decision of the comptroller is only binding and con- clusive in the case of an assessment against the shareholders upon their shares of stock, and is not conclusive against the directors of the bank for the purpose of enforcing the personal liability created by section 5239 of the Kevised Statutes. In order to create a liability on the part of the directors under that section, it must be adjudged in a proper proceeding, insti- tuted by the comptroller in his own name by a court of the United States, that acts have been done in violation of that section and which justify the forfeiture of the charter of a bank. The comptroller cannot determine whether violations of that nature have or have not occurred ; he is only authorized to bring a proceeding for the purpose of ascertaining whether such violations have taken place as wiU justify the forfeiture of the charter, the adjudication to be made by a court of the United States. If the court adjudges against the forfeiture, it is not within the power of the comptroller to disregard such adjudication and to authorize the receiver to proceed against the directors. If, however, the court finds that certain acts, justifying the forfeiture of the charter, have been done or per- mitted by the directors, and awards judgment of forfeiture, then the comptroller can authorize the receiver to proceed against the directors. In such a proceeding, it wiU not be open to the defendants to question the facts necessarily found and adjudged in the forfeiture case, to wit, that certain acts were done or certain requirements of the statute were not obeyed, and that the same were causes of forfeiture, and con- sequently grounds for liability on the part of the directors. The questions open to investigation relate only to the assent or participation of the particular directors in the several acts adjudged to be causes of forfeiture, and the amount of dam- ages caused thereby, and recoverable under the statute.' ' Welles «. Graves, 41 Fed. Hep. U. S. Revised Statutes, providing : 459. This action at law was brought " If the directors of any national by the receiver of a national bank, banning association shall knowingly Tinder the direction and by the au- violate, or knowingly permit any of thority of the Comptroller of the the oiHcers, agents or servants of Currency, to enforce the liability of the association to violate any of the the directors of the bank under the provisions of this title, all the rights, provisions of section 5339 of the privileges and franchises of the asso- 310 LIMITATIONS UPON THE POWERS, ETC. [CHAP. VIII. Under the amendment to the Banking Act, passed June 30, 1876, the individual liability of the shareholders, provided for by section 5151, may be enforced by any creditor of the bank, by bill in equity in the nature of a creditor's bill brought by such creditor on behalf of himself and all other creditors of the bank against its shareholders, in any court of the United States having original jurisdiction in equity for the district in which the bank may have been located or established. In an action so instituted a stockholder's liability can be completely en- ciation shall be thereby forfeited. Such violation shall, however, be de- termined and adjudged by a proper circuit, district or territorial court of the United States in a suit brought for that purpose by the Comptroller of the Currency, in his own name, before the association shall be de- clared dissolved. And in cases of such violation, every director who participated in or assented to the same shall be held liable in his per- sonal and individual capacity for all damages which the association, its shareholders or any other person, shall have sustained in consequence of such violation." The violations complained of were for declaring and causing to be paid certain divi- dends to stockholders at a time when the bank had sustained losses exceeding its undivided profits then on hand, and other violations based upon § 5200. The petition did not allege that the charter of the bank had been declared forfeited in a suit brought for that purpose by the comptroller. A demurrer was inter- posed and it was held that the action could not be maintained, and that such liability is in the nature of a penalty and comes within § 1047 of the Revised Statutes, limiting suits for any penalty or forfeiture accru- ing under the laws of the United States to five years. And see Hayden V. Thompson, 67 Fed. Rep. 273. But in Stephens i). Overstolz, 43 Fed. Rep. 771, an action brought by a re- ceiver under § 5239 to recover of a director the damages sustained by the bank in consequence of excessive loans made by him in violation of § 5200 while serving in the capacity of director, it was observed that the receiver's right to maintain the ac- tion is not affected by the fact that the comptroller has or has not pro- cured » forfeiture of the bank's charter. This, however, was not necessary to a decision in the case, since the bank's charter had been declared forfeited in an action brought by the comptroller. It was, however, especially decided in the case that the action by the re- ceiver against a director was prop- erly brought at law, and that there was no necessity for invoking the aid of a court of chancery because of the nature of the issues involved, or to avoid a multiplicity of actions. Upon demurrer to the petition filed by the receiver in this same case the Circuit Court for the Eastern District of Missouri (Mr. Justice Miller sitting ), held that this sec- tion is a remedial and not a penal statute, and that an action under it survives against the estate of a di- rector. Stephens ■». Overstolz, 43 Fed. Rep. 465. And see Winters v. Sowles, 43 Fed. Rep. 405. SEC. 66.J OF NATIONAL BANKS. 311 forced, and a suit at law subsequently brought by a receiver of the bank to enforce the same liability cannot be maintained while the former suit is pending.^ While, doubtless, the principle is that if a person permits his name to appear and remain in the outstanding certificates of stock of the bank and on its register as a shareholder, he is estopped, as between himself and the creditors of the bank, to deny that he is a shareholder, yet this rule is subject to excep- tion. The responsibility of a shareholder ceases upon a hona fide sale of his stock during the solvency of the bank, and upon a surrender of the certificates to the bank and the delivery to its proper ofiicers of a power of attorney sufficient to effect and intended to effect to the purchaser a transfer of the stock on the books of the bank, even though such oificer fails to make the transfer.^ It is not necessary that the holder should deliver a power of attorney to the bank to effect such transfer. If he ' Harvey v. Lord, 11 Bissell (U. S. C. C), 144. This was an action at law brought by a receiver against the defendant to enforce his liabil- ity as a stockholder of the bank of which the receiver was appointed. The defendant pleaded in abate- ment that previous to the com- mencement of this action, a judg- ment creditor of the bank filed in the same court a creditor's bill to enforce his judgment, and therein one Harvey was appointed receiver of the bank, and subsequently, but prior to the commencement of this action, an amended bill was filed in said cause to which all the stockholders of the bank were made parties, by which the complainant sought, in behalf of himself and all other creditors, to enforce the liability of the stock- holders of the bank for the purpose of discharging the indebtedness of the bank ; that the defendant in this action was made a party there- to and said suit was still pending. A demurrer was interposed by the receiver to this plea and the court overruled the demurrer and directed judgment for the defendant. '^Briggs V. Spaulding, 141 U. S. 132,153. In Whitney B.Butler, 118 U. S. 665, A., an owner of shares in the capital stock of a national bank, employed a broker and auctioneer to sell them by public auction. They were bid off by B., who paid the auc- tioneer for them, and received from him the certificate of stock, with a power of attorney for transfer, duly extended in blank. The auc- tioneer paid the purchase money to A. B. was employed by the presi- dent of the bank to make this pur- chase for a customer of the bank, who had made a deposit in the bank for the purpose, and he delivered the certificate and power of attorney to the president, and received from the bank the money for the pur- chase. No transfer of the stock was made on the transfer book of the bank. Shortly afterward the bank became insolvent and went into the receiver's hands, who brought this action against the executors of A. to recover an assess- 312 LIMITATIONS UPON THE POWEBS, ETC. [CHAP. YIII. personally directs the transfer to be made on the books of the bank, and the officer to whom such direction is given fails to make it, the holder has done all that is incumbent upon him to discharge his liability.' In a recent case it was sought to hold liable the pledgee of stock, named as such upon the stock register, in an action to recover an assessment imposed by the comptroller, upon the ground that the pledgee of stock is the legal owner thereof. It was, however, held that since the stock register showed that it held the same as pledgee, there was no estoppel, and consequently the real owner only could be held liable.^ And so if a judgment has been recovered against the true owner of stock, which, however, stands upon the stock register in the name of another, the latter cannot be compelled to pay the assessment, even though nothing is realized upon the judgment against the true owner.^ As between the parties to a sale of shares of stock, it is enough that the certificate is delivered with authority to the purchaser, or any one he may name, to transfer it on the books of the company, and that the price is paid. The power of attorney indorsed on the certifi- cates is usually written or printed, with a space in blank for the name of the attorney to be inserted, for the accommodation of the purchaser. The subsequent filling up of the blank by him with another name, instead of his own, as it may suit his con- ment made by the comptroller upon certificate and deliver it to him the holders of shares of the stock of with the power of attorney, which the bank. A. had no knowledge as was done. The cashier was author- to the purchaser and no reason to ized and directed to make the pro- suppose that the transfer had not per entries in the books of the bank been made. It was held that the and he promised to do so. The de- responsibility of A. ceased upon the f endant supposed that the stock had surrender of the certificates to the been properly transferred and never bank, and the delivery to its presi- was informed to the contrary until dent of the power of attorney, and just prior to the commencement ol that the receiver could not recover. this action against him to recover ' Hayes v. Shoemaker, 39 Fed. an assessment levied by the comp- Rep. 319. In this case the attorney troUer. It was held that the de- fer the defendant holder of the fendandant was not liable as a share stock went to the bank and there holder. met the purchaser and they in- " Pauly v. State Loan and Trust formed the cashier of the bank that Co. 56 Fed. Rep. 430 ; 58 Fed. Hep. they had come to make a legal 666. transfer of the stock. The cashier » Yardley i). Wilgus, 66 Fed. Kep. directed the attorney to indorse the 965. .SEC. 66.] OF NATIONAL BANKS. 313 venience, does not so connect the vendor with the party named as to charge him with the latter's knowledge and thus effect the previous transaction. The name with which the blank may he subsequently filled up by the purchaser is not, in practice, regarded as affecting the previous sale in any respect, but only as a matter which concerns the purchaser. When, therefore, a shareholder sells his stock in good faith to a person com- petent to purchase and hold it, and receives the stipulated price, without notice of the illegal purchase by an officer of the bank in buying the stock, or of his intended misappropriation of the funds of the bank in paying therefor, a sale under such circumstances is not vitiated by the relation of the purchaser to the officers of the bank, of which the seller had no knowl- edge, or any ground to entertain a suspicion.^ ' Johnston v. Laflin, 5 Dillon (U. attorney, and transferred the stock S. CO.), 65, affirmed 103 U. S. 800. to B. as "trustee" on the official It appeared in this case that the stock register. The entry in the •defendant, in good faith and with- stocli ledger and other books of the out intent to evade his responsi- bank showed that B. purchased the bility as a shareholder, sold his stock for it, and reimbursed him- Bhares to a broker, to whom he de- self with its funds. The book, livered his stock certificate and a keeper had actual knowledge of all power to transfer them, leaving the facts. This suit was brought blanks for the names of the attor- by the receiver of the bank subse- ney and transferee. The broker quently appointed, to compel B. to sold them to B., the president of the retransfer the shares and the de- bank, who gave his individual check f endant to repay the price therefor, in payment therefor, and received and to have the latter declared a the certificate and power. By the stockholder in regard to them. It ■directions of B., a book-keeper of was held that the suit could not be the bank inserted his own name as maintained. 314 LIABILITY OF EECEIVERS. [CHAP. IX. CHAPTER IX. LiABiLiTT or Receivers. Sbc. 67. For torts and breaches of contract accruing prior to their appointment. 68. Upon leases made by the corporation. 69. For trust funds misapplied by the corporation. 70. Of insurance companies to policy-holders. 71. For services rendered by attorneys of the corporation or of other parties interested after the appointment of the receiver. 7. Gleason, 105 N. Y. 256. In Illinois it is the established rule that in order to pursue a trust fund its identity as a fund must be preserved so that it can be distin- guished from all other funds, or if intermingled, that such act was without the consent of the cestui que trust. Chapin «. Wabash Mfg. Co., 43 111. App. 446. ' People 1). City Bank of Rochester, 96 N . T. 82 ; Peak v. Ellicott, 80 Kan. 156 ; Ellicott v. Barnes, 31 Kan. 170. And see Arnot », Bingham, 55 Hun (N. Y.), 553, where a note, made by a corporation doing busi- ness at Dansville, was made pay- able at a bank of that place, at which the corporation kept an or- dinary open account. The owners of the note sent it to the Dansville Bank for collection, indorsed: " For collection, account of Chemung National Bank, Elmira, N. T., M. H. Arnot, Prest.," accompanied by a letter stating that it was in- closed for collection. The maker's check was drawn on the Dansville Bank for the amount due on the note, and delivered to the bank, and the note was thereupon cancelled and surrendered up to the maker. SEC."69.] FOK TKUST FUNDS MISAPPLIED. 333 receives on deposit a draft by parties who are ignorant of its insolvency, it commits a fraud upon the parties deposit- ing the draft, and does not acquire any title thereto, but be- comes the trustee of the depositors as to its proceeds, and if the identical money received upon its collection cannot be reached, the depositors are not thereby deprived of their right thereto as against a receiver of the bank subsequently appointed, but certain other equitable rules will apply ; as, for example, if the proceeds of the draft have been deposited by the bank in its general account at another bank, the depositors can follow them and have a charge on the balance in the banker's hands, although they be mingled with other funds of the bank, and are drawn upon by checks by the latter gener- ally and in the ordinary manner ; for the drawer of the checks must be taken to have drawn out his own in preference to the trust money.' and its check was charged against its account, which was good for much more than the amount of the check, the Dansville Bank hav- ing at that time current funds more than the amount of the check. The hank continued to conduct its husi- ness for four or five days and then failed. It was held that after the transaction above stated, relating to the payment of the note, the rela- tion between the former owners of the note and the bank was that of bailor and bailee, or trustee and cestui que trust, so that the fund re- ceived by the receiver was, in fact, the property of the owners of the note, or so far impressed with a trust in their favor as to give them an equitable title thereto and en- titled them to collect from the re- ceiver the same. And see a case nearly parallel in facts and legal conclusions in Ryan & Sons V. Paine, 66 Miss. 678. In Frank v. Bingham, 58 Hun (N. T.), 580, upon facts somewhat similar in their material aspects to those stated in the above case the court held that the plaintiff was not entitled to priority of payment. ' Importers and Traders' National Bank ■». Peters, 123 N. Y. 272. In this case it appeared that certain firms deposited for collection, with the E. Bank of Norfolk, Va., their sight draft on M. & Co., of New York City, for $12,303.53, which was indorsed by the drawers in the form in which, by agreement and custom of the parties, drafts for collection only were to be indorsed, and was mailed the same day to the plaintiff at New York. The draft was paid on presentment, and the amount credited to the E. Bank on plaintiff's books, together with the avails of other drafts mailed at the same time and under similar cir- cumstances. On the next day the E. Bank suspended payment ; it was insolvent at the time it received the draft, and had been for more than six months, to the knowledge of its managing officers, which fact was not known to the drawers of the draft. The credit to the E. Bank was reduced to $5,849.45 subse- 334 LIABILITY OF EECEIVEES. [chap. IX. So, if a party send to a bank a draft for collection with specific instructions to remit the proceeds, which latter the bank appropriates to its own use, and thereafter the bank passes into the hands of a receiver, it is not necessary that the sender trace the identical moneys collected by the bank into the hands of the receiver, but it is enough that in some shape or form they went to swell the assets which fell into his hands, and he may, therefore, be compelled to pay the amount of the draft to the sender out of any funds in his possession.^ These cases, however, it will be observed, stand upon the principle of a trust relation, the violation of which constitutes a fraud from which the bank cannot derive any profit, and to the benefit of which the receiver is not entitled. When there is no such trust relation existing it is absolutely necessary to trace into the hands of the receiver the money or property claimed, and if this cannot be done the claimant is merely a general creditor entitled only to a distributive share in the assets.^ quent to ths collection of said draft, by payments for or on its order be- fore plaintiff received notice of its suspension. The drawers of said drafts and the receiver of the E. Bank having commenced actions against the plaintifE to recover said balance, this action, in the nature of an interpleader, was brought to determine who was entitled thereto. It was held that the receipt of the draft by the E. Bank was, under the circumstances, a. fraud upon the drawers, and they, on discovery of the facts, had the right to reclaim it or its proceeds from any one to whose hands it came who did not occupy the position of iona fide holder ; that as the B. Bank acquired no right to the draft and its pro- ceeds save as trustee, the balance in plaintifPs hands was to be deemed part of such trust fund, and so the drawers were entitled thereto ; and the fact that the account of the E. Bank with plaintiff was credited with the proceeds of drafts received by it from other parties under the same circumstances and conditions, and so, that these parties were en- titled to the same equities, was im- material, as the owners of the other drafts had not made claim to the fund in question, but had elected to come in simply as contract creditors, confining their claim to the assets in the hands of the receiver. See also Wasson v. Hawkins, 59 Fed. Rep. 333; Lake Erie & West. K. Co., «. Indianapolis Nat. Bank, 65 Fed. Rep. 690. ' People •». Bank of Dansville, 39 Hun (N. Y.), 187; Thompson v. Gloucester City Savings Bank, 6 Cent. Rep. 838; Kinney & Co. «. Paine, 68 Miss. 358 ; QriflBn v. Chase, 86 Neb. 338 ; Anheuser-Busch Brew- ing Co. ■». Morris, 86 Neb. 81 ; Jones B. Kilbreth, 49 Ohio St. 401. " People «. Merchants and Mechan- ics' Bank, 78 N. T. 269. In this the C. N. Bank, having received SEC. 69.] rOR TRUST FUNDS MISAPPLIED. 335 Ttis qualification of the rule was applied in an extreme case in Michigan, where the owners sent to a bank for coUeotion a from a customer of the M. & M. Bank a check upon that bank, sent it to the drawee for payment ; the M. & M. Bank charged the check to the drawer, whose account was good for the amount, and returned the check to the drawer as paid ; it sent to the C. N. Bank a draft on a N. Y. bank for the amount of the check ; two days after the M. & M. Bank closed its doors and a receiver of its assets was appointed ; the draft was not paid. On application by the C. N. Bank for an order requiring the receiver to pay the amount of the check, upon the grounds that the assets came to the hands of the re- ceiver impressed with a trust in favor of the C. N. Bank, it was held that charging the check and return- ing it to the drawer did not amount to a payment and setting apart of sufficient of the drawer's deposit to cover it, nor did it impress a special trust on any part of the drawer's assets, and therefore the applica- tion was properly denied. And see Butler v. Sprague, 66 N. T. 393; Anheuser-Busch Brewing Co. ■». Clayton, 56 Fed. Rep. 759; Citizens Bank d. Bank of Greenville, 71 Miss. 371; First Nat. Bank of Richmond v. Davis, 114 N. C. 343; Commercial Bank of Pa. «. Arm- strong, 148 U. S. 50; Commercial & Farmers Nat. Bank ■». Davis, 115 N. C. 236 ; Freiberg v. Stoddard, 161 Pa. St. 359; Lebanon Trust & Safe Deposit Bank's Estate, 166 Pa. St. 623 ; Akin v. Jones, 93 Tenn. 353. In Atkinson «. Rochester Print- ing Co., 114 N. T. 168, the action was brought by plaintiff, as re- ceiver of an insolvent state bank, to recover the amount of certain bills of exchange alleged to have been transferred by the bank to de- fendant in violation of the provi- sions of the N. Y. Laws of 1883, chap. 409, sees. 186, 187, which pro- hibit a conveyance, assignment or transfer by " bank, not authorized by a previous resolution of its board of directors, of property exceeding in value $1,000, except in the trans- action of its ordinary business, and also prohibit giving a preference to creditors in case of insolvency. It appeared that when the bank was, to the knowledge of its presi- dent and cashier, insolvent, it dis- counted for defendant promissory notes and gave it credit for the avails, and also received from it cash deposits. On the day after the bank stopped payment, but before the usual hour of opening the bank for business, the bank's cashier de- livered to defendant six bills of ex- change, aggregating a little more than the balance credited upon the books of the bank to' defendant, which gave its check for the amount, and the transaction was entered upon the books of the bank. It was held that although the recep- tion of the deposits from the de- fendant was a fraud, and as be- between it and the bank the latter acquired no title to them, and they might have been recovered from the bank or its receiver if they could have been identified or their avails traced, yet the transaction in question was not a restoration or restitution by the wrong-doer, but was a compensation for the fraud, which, in the case of an insolvent bank, is prohibited by statute ; that the fact that defendant became a creditor through the fraud of the bank officers, and, that the bank 336 LIABILITY OF RECEIVERS. [chap. IX. note made by one of its depositors, and the latter paid the note with his check, he having on deposit a sufficient amount of was a trustee ex maUficio, gave de- fendant no righ-t to a preference over other creditors. In Booths. Welles, 43 Fed. Eep.(U. S. C. C), 11, the Comptroller of the Currency having notified a national bank that its capital vras impaired, it was agreed that it might continue business on the directors putting in $100,000 in cash, and retiring that amount of objectionable securities. That sum was contributed ; the ac- count being opened with trustees appointed by the directors to man- age the fund, with full power, as far as the bank was concerned, and to account therefor to the contribu- tors in such manner as to protect the equities of each individual and the bank, in relation to the bank and its legal rights. It was under- stood between the trustees and the examiner that the securities to be retired were to be designated by the comptroller or examiner, but there was ho such understanding with the comptroller. The full amount of objectionable securities had not been selected and given to the trustees when the bank was closed, the receiver taking and pro- ceeding to collect the whole assets. It was held that the receiver was not required to account for the bal- ance of the $100,000 as n, special trust fund, but merely as a, debt. Shiras, J., said i " The money be- came part of the assets of the bank, and was no longer subject to the control of the trustees. The bank did not receive the fund to be held in trust, but received it just as it would an assessment of an equal amount upon the stockholders; that is, as money paid in as part of the general capital of the bank. By force, however, of the agree- ment between the bank and the contributors, the latter were en- titled to have delivered to the trustees named the objectionable paper that was retired to off-set the fund contributed. This is a right and equity which the con- tributors have not lost, or been in any way deprived of. It is imma- terial, in this respect, whether it was the duty of the bank officials or of the comptroller to select out and designate the particular paper to be retired. It appears from the evidence that some $54,804 of ob- jectionable paper had been selected out and delivered to the trustees be- fore the final closing up of the bank. When the bank closed its doors the trustees were entitled to receive some $35,000 in the objectionable paper. If, before the bank ceased its business, this amount in objec- tionable paper had been delivered to the trustees, the full duty of the bank to the contributors would have been performed. Having failed to deliver over this paper, the bank has not relieved itself from lia- bility to account for the $35,000 contributed to it. The receiver having taken entire possession of the assets of the bank, and having proceeded with the collection there- of, it is now impossible to carry out the agreement with the contributors by delivering the full amount of the objectionable paper. This leaves the bank liable for the balance of the fund not thus accounted for, but this liability is in the nature of a debt. It cannot be construed to be a trust which reaches the fund itself as originally paid in." SEC. 69.] FOK TRUST FUNDS MISAPPLIED. 33T money for that purpose, but the bank, being at that time in- solvent, no money being set apart by it for the owners of the note, none reached the hands of the receiver soon after ap- pointed for the bank. It was held that the owners could not claim that a trust fund had been created which should be paid them in fuU. by the receiver.' The mere insolvency of a bank and knowledge of its officers of its actual condition, does not entitle a depositor ignorant of the bank's condition and making a deposit, to a preference of his claim over others. While the acceptance of the deposit is a fraud upon him, he will not be allowed to subject the bank's assets in the hands of a receiver to the payment of his claim in preference to other claims, unless he can trace into the hands of the receiver the moneys deposited in the bank.^ ' Sherwood v. Milford Bank, 94 Mich, 78. In another case where the customer of a bank directed it to apply a portion of his deposit to the payment of specified claims, in- cluding a note held by complain- ants, the bank assented to this and provision for it was made by the customer drawing his check for the required sum, which was charged to his account. The complainants did not know of this arrangement, but upon the maturity of their claim, the bank forwarded to it a check upon Its New York corre- spondent for the amount of the claim, and this check was by com- plainants promptly sent on for pre- sentation and payment, and the note of the customer cancelled and re- turned; but the bank meantime having failed, the check was dis- honored, and it was held that no trust was created in favor of the complainants against the assets of the bank in the hands of the re- ceiver. Louisville Banking Co. i). Paine, 67 Miss. 678. And when a bank, having a note for collection, received payment by check on itself of another having ample funds on deposit, whose account it debited, and after thus mingling the collec- tion with its general assets, remitted therefor its New York check, but failed, and passed into the hands of a receiver, its check being dishon- ored, it was held, that the owner of the note had no lien on the assets of the bank, and could not enforce priority of payment out of the same- Billingsley v. Pollock, 69 Miss. 759. 2 Matter of North River Bank, 60 Hun (N. Y.), 91 ; Wilson «. Coburn, 35 Neb. 530. If the oflScers of the bank did not know of its insolvency at the time the deposits are made and accepted, the deposits cannot be reclaimed from the receiver of the bank, even though it turns out subsequently that the bank was in fact insolvent at the time. New York Breweries Co. D. Higgins, 79 Hun (N. Y.), 250. Though the oflBcers of the bank knew of its insolvency, and the deposits be in the form of a check which has been turned over by the bank to a bona fide purchaser there- of for value, without notice of the fraud, such purchaser is entitled to collect and hold the amount of the. 338 LIABILITY OF EECEIVEES. [CHAP. IX. In England it was at first considered to be the law that when no actual trust attached itself to the fund, but, at most, the obligation was one of a fiduciary character, the right to follow and reclaim it was lost if the fund were mingled with other funds of the corporation.^ But later this conclusion was over- ruled, and it was held in substance that there was no real dis- tinction, so far as the right to follow the fund was concerned, between the case of a technical trust and the existence of a fiduciary obligation.^ Following this latter rule, the Supreme Court of New York has applied it to the facts of a case some- what novel in character. A company was incorporated to refine sugar under an alleged secret process discovered by one Freind. The president and secretary of the company induced certain persons to buy from them certain shares of its stock upon the understanding that the money realized from such shares should be used to buy such process. The stock was ac- cordingly paid for, and the sums paid in were deposited by the treasurer of the company in a bank, and mingled with other moneys derived from the sale of other stock. All of this money was drawn out by the corporation for different purposes, and f 10,000 of it was sent to Michigan where it was depos- ited. There was in fact, however, no such process, but this was not known to any of the parties at the time of the sale of the stock. Upon discovering this subsequently, the purchasers elected to rescind the purchases, and notified the president and secretary of that fact, and demanded the purchase money. This being refused, the purchasers assigned their claims to the plaintiff in the action which was brought against the president and secretary, and the receiver of the corporation subsequently appointed, to reach this $10,000. Upon the trial the action was dismissed as to the receiver and sustained against the two other defendants. An appeal being taken, the court arrived at the conclusion that the plaintiff could follow this fund and reclaim it as against the receiver.' check. Grant v. Walsh, 81 Hun » Moore «.Williams, 62 Hun (N.Y.). (N. Y.), 449. 55. The same court in another case 'In re West of England, etc., wherein it appeared that money paid Bank, L. R. 11 Ch. Div., 773. to a bank on account of the principal ' In re Hallett's Estate, L. R. 13 and interest of a bond and mortgage Ch. Div., 696. with which the bank had previously SEC. 69.] FOR TRUST FUNDS MISAPPLIED. 339 The ordinary relation between a bank of discount and de- posit and its depositors is that of debtor and creditor. A deposit, whether it be of money or business paper, becomes the property of the bank, upon the depositor's receiving credit therefor. In this there is not the existence of a trust relation, such as will permit a depositor, upon the insolvency of a bank, to recover the amount of his deposit in full as a preferred claim against the bank's assets in the hands of a receiver. So the certification of a check or the issuance of a certificate of deposit by a bank, creates no trust relationship between such bank and the holder of the check or certificate. The bank is not bound, or supposed, to set apart a particular fund for the payment of either. It becomes a debtor to the holder of such check or certificate. These principles are not new. They ex- clude the existence of a trust relation which requires a specific appropriation of a particular fund for the payment of a par- ticular claim. Their operation extends as well to those cases where a bank transmits its paper to a clearing house for col- lection, and against which is offset all obligations issued by it or properly drawn on it, whether they be certified or not. This is a method banks have of making their collections and pay- ments as between each other and does not enure to the benefit of their depositors. The latter cannot demand that the paper sent by a bank to the clearing house for collection, shall be charged with the payment of checks certified by the same bank, and through another bank sent to the clearing house for collection.^ The primary relation of a depositor in a bank or savings institution to the corporation, is that of creditor and not of a beneficiary of a trust. The deposit when made becomes the property of the corporation. The depositor is a creditor for the amount of a deposit, which the corporation becomes parted (this fact being unknown to the application of the party who "the party paying the money), di- paid the money. People ■». Madison rected the receivers of the hank Square Bank, 75 Hun (N. Y.), 114. subsequently appointed to pay out See also Florida Land & Imp. Co. i>. of funds in their hands, to the party Merrill, 53 Fed. Rep. 77. holding the bond and mortgage, the ' People v. Saint Nicholas Bank, amount of money so received by the 77 Hun (N. T.), 159. bank. This order being made upon 340 LIABILITY OF EECEIVERS. [chap. IX. liable to pay, according to the terms of the contract under which it is made. When payment is made, the claim of the depositor is extinguished, and he has no further claim upon the funds or assets of the bank. Upon insolvency the assets and property of the corporation, as in the case of other corpo- rations, are a trust fund for the payment of creditors, and depositors stand as other creditors, having no greater, but equal, rights to be paid ratably out of the insolvent estate.' ' People V. Meolianica & Traders Savings Inst., 92 N. T. 7. In this case a creditor who had recovered judgments against the institution, which was insolvent, asked of the court that his judgments be paid in preference to the claims of deposi- tors. It was held that he was not entitled to a preference. The Court, per Andrews, J., said: "The fact that savings banks are public agen- cies, created by law to receive and invest the money deposited in them, does not change the status of de- positors, upon insolvency of the bank, from that of creditors to that of beneficiaries of a trust, so as to subject the assets of the bank to the payment in the first instance of other creditors. The statutes, under which savings banks are organized contain restrictions and provisions intended to secure depositors against loss. These institutions are de- signed to encourage economy and frugality among persons of small means. But the depositors have no voice in the management. The di- rectors or trustees are designated in the charter or the certificate of in- corporation, and constitute n self- perpetuating body. There is noth- ing like a private trust between the corporation or its trustees and the depositors, in respect to the deposits. The trustees assume the manage- ment of the aggregate fund under the special provisions of the statute, and the depositors can, under the most favorable circumstances, re- ceive but a moderate rate of interest on their deposits. The deposits are not made as a business venture, bat the supposed security of the fund is the great motive put forward to in- duce deposits. The other creditors of the corporation have no superior equity to the depositors to payment in case of deficiency of assets. They deal with the corporation upon the footing of general creditors, and the fact that the corporate franchises are granted primarily for the man- agement of funds of depositoiB, does not entitle the former to pri- ority of payment." In First National Bank v. Arm- strong, 39 Fed. Eep. 231, by agree- ment and custom the Fidelity Bank received drafts from its correspond, ent at E., and credited them to it as cash, with the understanding that any draft which was unpaid should be charged back to the correspond- ent. The latter forwarded drafts which were credited to it, but were not collected before the Fidelity Bank failed. The drafts were paid after the appointment of a receiver, and the moneys actually came into his hands. The drafts were indorsed payable to the Fidelity Bank " for collection for the " bank at B. It was ?ield that as the drafts were, when received, credited as cash to the bank at B., which had the right at once to draw against them, the indorsement for collection did not SEC. 69.] FOE TRUST FUNDS MISAPPLIED. 341 Each person, on becoming a creditor by deposit, loan or other- wise, has the legal right to full payment of his entire debt, but if the fund is insufficient for the purpose, equity requires each should receive his proportion of his debt, and it is the duty of the court to distribute the fund according to the rights of all creditors as they existed at the time of the receiver's appoint- ment. The claim of the court itself for the, funds deposited with the bank under its directions is of no higher grade or superior equity than claims of other creditors, and the mere fact that the court has acquired possession of the assets of the bank confers no legal or equitable right upon it to retain its deposit in fuU from the fund. It stands upon the same footing as the claims of other depositors and the court must adopt and include itself within the rule that equality is equity, and dis- tribute the fund of the insolvent bank amongst all^ro rata} The funds of a municipality and county stand upon the same footing even though an officer of such county or munici- efFect the result, and the bank had only the rights of a general creditor. ' Otis v. Gross, 96 111. 613. It ap- peared in this case that the Circuit Court of Cook County, by an order entered on its records, designated a savings institution as the depositary of moneys in the hands of the offi- cers of the court and under its con- trol. By resolution the bank ac- cepted the trust. Subsequently the institution became insolvent and a receiver was appointed to take charge of its afEairs. The clerk of the Circuit Court made deposits of funds under the control of the court, and at the time the bank failed there was so deposited and not checked out the sum of $2,597.43, which the clerk petitioned the court to have declared a trust fund, and paid to him in full out of the bank's assets. The money, when deposited, was commingled with the general funds of the bank, as was that of other depositors. It was held that this was not a trust fund but must share the fate of the claims of other depositors, and the clerk must share pro rata with other depositors. In McLain ii. Wallace, 103 Ind. 562, the clerk of the court of a cer- tain county filed his petition alleg- ing that, as clerk, he held money in trust which he deposited with a bank, and when the latter became insolvent, it held $15,286.51 of said money deposited by him as " clerk " with the knowledge and consent of the bank and subject to his order, and subject to the order of the court. The petition prayed for an order, directing the receiver to pay said money to him out of the bank's as- sets. Upon demurrer to the petition it was held that he was not entitled to be paid in full, but only pro rata as other creditors; and the demur- rer was sustained. And see South- ern Development Co. ii. Huston & T. C. Ey. Co., 27 Fed. Bep. 344, an- notated. 342 LIABILITY OF EECEIVEES. [CHAP. IX, pality wrongfully commingled its funds with the general assets of the bank/ The equality of footing upon which depositors and creditors in a savings institution stand has not been followed in New- Jersey under their statute law creating savings institutions. Thus, where such an institution was empowered to receive from any person or persons disposed to obtain and enjoy the advan- tage of the institution, any deposit or deposits of money, and to use and improve the same for the purposes and according to the directions mentioned in the statute, and to accept and exe- cute all such trusts of every description, and to receive any moneys that might be committed or given to it by last will, or by any order of any court or otherwise, and all deposits of money received by it should be by it used and improved to the best advantage, and the income or profit thereof should be by it applied and divided among the persons making the deposits, in just proportion, after reasonable deductions for necessary expenses, and the principal sums should be paid to depositors at such times and with such interest and under such regulations as the board of managers should from time to time prescribe ; it was determined that the institution was a mere trustee for the benefit of the depositors, and none of the latter, under the statute or in equity, had any right to any particular security in the hands of the institution for his deposit, any more than any other depositor, and all the assets, after deducting neces- sary expenses, was held as a common fund for the security of all depositors, and that therefore the debts and expenses con- tracted by the institiition in carrying on its ordinary business, were entitled to preference in the distribution of its assets in case of insolvency.^ ' Spokane County «. Clark, 61 Fed. ceived deposits under two different Rep. 538 ; Multnomah County v. regulations, one of which provided Oregon Nat. Bank, 61 Fed. Rep. 912; for receiving deposits which should Shields v. Thomas, 71 Miss. 360. participate in the profits of the in- And see In re Plankinton Bank, 87 vestments, which deposits were to Wis. 378. But see coniras San Diego be payable only on 30 days' notice to County V. California Nat. Bank, 53 the institution, unless notice should Fed. Rep. 59. be waived, and the other provided * Stockton B. Mechanics & Labor- for the receipt of deposits which ers' Savings Bank, 33 N. J. Eq. 163. should not participate in the profits. The institution in this case also re- but should be payable on demand. SEC. 70.] INSURANCE COMPANIES TO POLICY-HOLDERS. 343 Sec. 70. Of insurance companies to policy-holders. — The implied agreement of a life insurance company with its policy, holders is not only that it will receive the premiums and keep the policy in life, hut the agreement also necessarily implies that it will obey the statute, the law of its creation and of its existence ; that it will do its business as required by the statute ; that it will properly keep and invest its funds, and be in a con- dition at all times to discharge all its liabilities as the statute requires. Therefore, when it violates the law, fails to keep on hand funds required by law and becomes insolvent, discontinues business, makes it impossible for the assured to pay premiums, and fails to carry the policies, it has broken its engagements with its policy-holders, and becomes liable to them on account of such breach. The policy-holders then have a claim for damages, just as they would have if while doing business it had without just cause refused to receive the payment of pre- miums and to continue the policies in life ; and, therefore, are in the same positions as any other persons would be who had running contracts of value with the company, which it had broken — claimants for damages entitled to a distributive share out of the assets of the company if placed in the hands of a receiver.^ If the further payment of premiums is excused by the failure of the company, the policies are just as effectual for the purpose of enforcement as if the premiums had actually been paid.^ There is no principle of law which permits an insurance company any more than a private individual by its own act to avoid the performance of its contracts. It has no power to turn its policy-holders over to another company against their consent. In order to protect their legal rights, the policy- holders are under no obligation to protest against an effort to These latter were called " special," " special " depositors were not en- aud though kept in separate books, titled to priority in payment over the funds of both kinds of deposit the other class of depositors, were undistinguishably mixed. The ' People ■». Security Life Ina. & corporation having become insol- Annuity Co., 78 N. Y. 115; McDon- vent, and unable to return to its de- nell v. Alabama Gold Life Ins. Co., positors in full the moneys due 85 Ala. 401. them, a receiver was appointed, and ' Attorney General «. Guardian it was held that the so-called Mutual Life Ins. Co., 82 N. Y. 336. 344 LIABILITY OF RECEIVERS. [CHAP. IX. do SO, or to accept an enforced change of policies in a company not of tteir own selection, and concerning whose responsibility they know nothing. And by omitting to pay annual premiums upon the policies after the company issuing them has ceased to do business, transferred aU its assets and become insolvent, the policy-holders do not thereby forfeit their policies.^ The holders of running or of matured life policies are not entitled to have refunded to them a pro rata portion of the premiums paid by them, before the payment out of the assets of any other creditors. They are not partners in the company, even though they share in the profits of the company in the shape of dividends. Every policy-holder in such a company enters into engagements with the company, and not with any other policy-holder. No policy-holder, unless he be a stock- holder, has any voice, in any way, in the election of the com- pany's officers or the management of its business. The profits are not paid to them as the income of any business which they are carrying on or in which they are interested; they are the profits of the company in a business wherein there may be profits earned by good management and excessive premiums — profits earned solely out of the stockholders, which, when divided, result simply in an equitable adjustment of pre- miums paid. Such policy-holders are creditors and entitled to share with other creditors in the assets of the company in the hands of the receiver. The damages sustained by each of the policy-holders is the value of the policy which has been destroyed, and when such value has been ascertained, the true measure of damage will be determined. If the time of death were certain and the rate of interest determined, there would be no difficulty. Then the present value of the amount to be paid at death, diminished by the amount of the present value of all the premiums to be paid, would give the value. But the time of death is uncertain, and hence the present value of a running policy must always be somewhat uncertain and specu- lative. To persons of a certain age there is an average expect- ancy of life ; and this is shown in certain tables used in the business of life insurance, showing the expectancy of life for persons of all ages, and which are deemed sufficiently reliable, ' People v. Empire Mutual Life Ins. Co., 93 N. Y. 105. SEC. 70.J INSURANCE COMPANIES TO POLICY-HOLDERS. 345 in the absence of a better basis, for the guidance of the courts, of public officers and of insurers. During the early years the assured has paid more than sufficient to carry the risk during those years ; and this excess is to aid in carrying the risk dur- ing the later years when the annual premiums would be insuffi- cient for such years. This excess is called " the equitable value of the policy," and goes to make up what is called " the reserve fund." This " reserve," together with the same annual premiums, ought to be sufficient to enable the assured to obtain a policy for the remainder of his life for the same amount in another solvent company, and therefore may be taken as the measure of present value, assuming that there has been no change in the value of his life since his insurance, except that caused by the efflux of time. But the health of a policy-holder may, since his insurance, have become so impaired that his life is not re-insur- able, and in his particular case the value to be arrived at upon this basis would not be the measure of his damage. But even in such cases the basis would have to be generally adhered to, because it would be wholly impracticable in the cases of thou- sands of policy-holders to determine the state of health for re-insurance of each policy-holder, compared with his state of health at the date of his policy. The case of an unmatured paid-up policy should not be treated differently from unma- tured policies upon which annual premiums are payable. The value of such a policy must be computed in the same way as the others. It is the balance of the premium, — ascertained by the rules used in such cases, — necessary to carry the policy to maturity, or, in other words, the unearned premium which is called the reserve. Claims for death maturing before the receiver's appointment are not entitled to a preference over the claims of holders of unmatured policies. The fact that one claim is matured gives it no preference over others not matured. One who has paid his money to carry a policy to maturity has no better right or greater equity than another who has paid his money to carry a policy toward maturity. The holder of a running policy has a right to expect the benefit of the money he has paid, either by receiving the amount insured at the maturity of his policy, or damages for the breach if the com- pany fails to carry his policy to maturity. To the extent of 346 LIABILITY OF EECEIVEES. [chap. IX. such damage, lie is on the same footing, legal and equitable, with, every other creditor. If the persons insured die subsequent to the appointment of the receiver but before the time to which premiums have been paid, the value of such policies cannot be computed in the same way as the values of running policies are computed, in disregard of the fact of the subsequent death of the assured. Such claimants are entitled to be allowed as their damage the value of their policies. The rules to ascertain the value of running policies are adopted because of necessity and should not be used where upon facts existing the precise value of a policy may be easily ascertained. Their use is not then justified by any necessity or consideration of convenience. When the whole premium has been paid, and the insured is not alive at the time when the claim is presented, the precise value at the time of the receiver's appointment can easily be shown. The present value of the amount insured on the day of the receiver's appointment is the value of the policy, and that value can be ascertained like the present value of any certain sum of money payable at a definite future day.^ The fact that the persons so ' People «. Security Life Ins. Co., 78N.y.ll5. It was claimed upon the part of some of tlie holders of unma- tured policies that they were en- titled to have refunded to them a pro rata portion of the premiums paid by them, before the payment out of the assets of any other credit- ors ; and this claim was based upon the following provisions of the N. Y. Revised Statutes (3 R. S. § 75) : "If there shall be any open and subsisting engagements or con- tracts of such corporation, which are in the nature of insurances or contingent engagements of any kind, the receivers may, with the consent of the party holding such engagement, cancel and discharge the same, by refunding to such party the premium or consideration paid thereon by such corporation, or so much thereof as shall be in the same proportion to the time which shall remain of any risk assured by such engagement, as the whole premium bore to the whole term of such risk ; and upon such amount being paid by such receivers to the person holding or being the legal owner of such engagement, it shall be deemed cancelled and discharged as against such receiv- ers." By the act (N. T. Laws of 1853, chap. 463, § 17) under which the company was organized, the corporations organized under the act were made subject to such pro- visions of the Revised Statutes as were applicable. It was held that the above section was not applicable to life insurance companies, but could only apply to fire and marine or other insurances having a definite term to run. In Attorney-General ®. North American Life Ins. Co. 83 N. Y. 173, it was contended that the spe- cial fund created by the company for the benefit of parties holding SEC. 70.] INSURANCE COMPANIES TO POLICY-HOLDERS. 34T insured die subsequent to the time to which premiums have been paid, does not take the claims upon such policies out of the operation of this rule. They are not, properly speaking, death claims, but claims for damages upon policies running at the appointment of the receiver ; and the rule last stated furnishes registered policies should be dis- tributed among all creditors pro rata, for the reason that the Regis- tration Acts, so called, (N. T. Laws of 186G, chap. 576; Laws of 1867, chap. 708 ; Laws of 1869, chap. 903), which permitted an insurance com- pany to set aside such a fund, im- paired the obligation of the con- tracts between the company and its policy-holders. This contention was held untenable. It was further claimed that the holders of running registered policies were entitled to payment out of such fund in prefer- ence to the death claimants under registered policies. This claim was held unfounded. There were also certain paid-up unregistered poli- cies issued in lieu of registered policies surrendered and in pursu- ance of provisions contained in the surrendered policies. The latter policies contained no provisions spe- cifying what kind of paid-up poli- cies should be issued upon their surrender, whether registered or unregistered, and the claim was made that these unregistered poli- cies should be treated as if regis- tered, and paid out of the special fund pro rata with registered poli- cies. This claim was also held un- tenable. One of these holders of unregistered policies so issued was induced to accept his policy upon the assurance of the agents of the company that the record would show that it was registered, and that it would have the same force and efEect as if registered. He was given a preference in the general fund for a dividend of the same amount given to registered policies out of the special fund. Upon ap- peal it was held, without deter- mining the question whether the court below was right, that he had no reason to complain. It was fur- ther claimed, by some of the holders of unregistered policies, issued after January 1, 1870, that their policies must be regarded as registered by virtue of the statute (Laws of 1869, chap. 903, § 2), which provided " that any company hereafter electing to make special deposits, as authorized by this act, shall do so in respect to all policies thereafter issued, and not a portion of them only, but any company which has already made such election shall not be required to make special deposits for all its policies, until after the first day of January, 1870." Another section contained the following : " Pro- vided that any company availing itself of the provisions of this act may issue unregistered policies and annuity bonds, as heretofore author- ized by its charter." It was held that such policies could not be re- garded as registered. And finally it was contended that in allowing claims the date of the dissolution of the company should have been taken as the time in reference to which their value should have been com- puted, instead of a previous date when the receiver was appointed. It was held that the date of the re- ceiver's appointment was the proper date. 348 LIABILITY or KECEIVEKS. [CHAP. IX. an accurate and just basis for the computation of sucli damages, the only difference being that deductions from the sums, which would otherwise be allowable, should be made for the amounts of premiums unpaid at the time of the deaths.' When notes are given for portions of the annual premiums upon paid-up policies so called and the latter contains a pro- vision that in case this interest shall not be paid as agreed, upon any note thus given, the policy shall become void, and the company shall not be liable for the payment of the sum assured, or any part thereof — such provision is not oppressive, unconscionable or usurious. It is merely a contract between the parties that the policies shall be carried along so long as interest shall be promptly paid upon the notes ; and if not paid that the company shall cease to be liable. If the interest upon such notes has not been paid as required before the re- ceiver's appointment, there can be no claim upon the policies.^ But annuity bonds issued by an insurance company, author- ized so to do, are cases where, for a gross sum paid, the com- pany becomes bound to pay certain sums annually during the life of the annuitants. They are not cases of insurance, and are not to be governed by any of the rules applicable to life insur- ance. In computing the value of the bonds where the annuitant is alive, the American experience table of motality should he taken as a basis. The purchasers of such bonds each pay not only such a sum as will be sufficient, drawing some rate of ' Attorney-General i). Guardian a re-insurance or further insurance Mut. Life Ins. Co., 83 N. Y., 336. of liis life by any life insurance In People v. Knickerbocker Life company in good standing. This Ins. Co., 40 Hun (N. T.), 44, an order disease continued until the time of was made directing a claim, under a his death, and was in part its cause, policy issued by the defendant, to be It was shown upon the hearing that filed with the receiver as of August no disturbance in the accounts or 15, 1883, and directing a reference dividends of the receiver would be for Its valuation. Before the hear- made by valuing this as a death ing the person upon whose life the claim, and that it could be provided policy was issued died, and evidence for and disposed of as such without was given tending to prove that at substantial injustice to other claim- the time when the company became ants. It was held that it was pro- insolvent and suspended its busi- perly valued as a death claim, ness, he had attained an age and ' Attorney-General ». North Amer- had become subject to a mortal dis- ican Life Insurance Co., 83 N. T. ease which would have precluded 172, 189. SEC. 70.j INSURANCE COMPANIES TO POLICY-HOLDEKS. 349 interest, to pay the annuity for the term expected, but also an additional sum, which in insurance business is called " the load- ing " — to pay for expenses of the company and contingencies. If the annuitants receive only the present value of the future annual payments of the term expected, they wiU not get a proper proportion of the purchase money paid, because if they should desire to purchase another annuity, they would again be obliged to pay for " the loading " and thus would not be able, with the gross sum received, to purchase an annuity for the re- mainder of their lives. The true rule to measure the value of such annuities is to take such a sum as wiU, for the remainder of the life of the annuitant, purchase an annuity for the same amount. But while this basis must be taken in case the annui- tant is alive, the result reached by such a computation will be only approximately accurate, and when, therefore, the precise value of an annuity bond can be ascertained by reason of the death of the annuitant after the receiver's appointment, this value is all that the claimant is entitled to, and the bond should not be valued as of the day when the receiver was appointed.' No authority has ever been granted to a receiver, or to the courts regulating his proceedings — so far as we have been able to discover — by which one class of policy-holders may be whoUy or partially excluded from their proportionate part of the assets of the company, by reason of previous payments ■ People «. Security Life Insurance agree to pay an annuity on the and Annuity Co., 78 N. T. 116. In basis of six per cent, interest; that this case it -was held that in com- it would take a less sum to purchase puting the value of the annuities an annuity on a basis of six per cent, then in question, the Northampton interest than in a basis of four and Tables with interest at six per cent. one-half per cent.; and that the dif- should be used. But in Attorney- ference, at the age of twenty-five, General i). North American Life Ins. would be about twenty per cent., Co., 83 N. Y. 173, it was proved that and at the age of seventy-five about the Northampton Tables, with in- five per cent. The court, therefore, terest at six per cent., were not used determined that the first case cited by any company doing an annuity ought not to control, and in order to business, and that the American do justice to such annuitants, the Experience Table and Carlisle and American Table and interest at four Actuaries' Tables were used. It and one-half per cent, should be was also proved that no life insur- used in computing the value of their ance company could with safety bonds. 350 LIABILITY OF KECEIVERS. [CHAP. IX. made upon their claims before the appointment of the receiver. To illustrate : Proceedings were instituted against a life insur- ance company in Virginia, and certain policy-holders, who were residents of Virginia, procured judgments against the com- pany upon policies issued to them, and received a portion of the amounts due thereon under a decree of a court of Virginia distributing the proceeds of certain securities belonging to the company and which had been deposited in that state for the benefit of policy-holders. Subsequently in a separate and dis- tinct proceeding in New York State the company was adjudged by the courts of the latter state to be insolvent and a receiver was appointed, to whom these policy-holders presented their policies and claimed a dividend upon the balance remaining unpaid in the same proportion as should be paid on other claims against the company. It was determined that they were entitled to such dividends out of the assets of the com- pany without deducting therefrom the amount previously paid.^ In fire insurance companies the rights of policy-holders become fixed at the date of the adjudication of insolvency and the appointment of the receiver. Policies under which no losses have occurred are not debts or liabilities of the company. In respect to them its liability depends upon the contingency of losses by the assured during the life of the policies, and when losses have not occurred before the adjudication of insolvency, the only liability to the policy- holder is for the breach or cancellation of the contracts by the adjudication of insolvency and consequent suspension of business by the company, and its disability to fulfill its con- tracts of indemnity. Policy-holders who sustain losses after the adjudication of insolvency and the appointment of a re- ceiver, are not entitled to share in the distribution of the com- pany's assets otherwise than as stated.^ The measure of ' People own personal rights, and are in no manner authorized to speak for or act for any person but themselves, and they cannot become volunteer trustees for those who never asked or requested their interference. They have no funds in their hands for the preservation of which they are responsible. While it is true that the control of the fund furnishes the opportunity and imposes the duty upon the court of recognizing every substantial equity and every existing right in making distribution of that fund, yet claims of this character have no right to or equity in any part of the fund. The services rendered may have been valuable to the court and to the fund itself, and may have been rendered to resist improper claims made by the receiver himself against the trust fund, and the compensation claimed for them may be reasonable ; neverthe- less, they are not performed for, or on behalf of, or by the employment of the receiver, but solely to protect the interests of the parties themselves intervening, and, therefore, create no indebtedness against him, for the payment of which the funds officially held by him can be lawfully appropriated.^ ' Matter of Attorney-General v. Insurance Co., 122 Mass. 431, certain North American Life Ins. Co., 91 policy-holders employed counsel to N. Y. 57. It appeared in this case, contest the validity of assessments an action brought by the Attorney- laid upon them after the court had General, that after the entry of appointed receivers, and they were judgment dissolving the corporation in part successful in that contest, and appointing a receiver of its as- The receivers, after paying losses Bets, certain of the policy-holders and claims, had a large sum in their were allowed to intervene, who ap- hands, which, after deducting ex- peared by attorneys and contested penses, was to be distributed among the allowance of commissions, the policy-holders. The counsel so claimed by the receiver, which were employed petitioned the court to be materially reduced. It was 7i,eld paid for his services out of the that the court had no power to make funds in the hands of the receivers, an allowance to the intervenors out It was 7ield that there was no pre- of the funds in the hands of the re- cedent or rule of practice which ceiver for their disbursemonts and would justify a court of chancery in counsel fees, as they were simply making an allowance for such individual parties protecting their services out of the fund in its own interests. To the same effect hands, but the petitioner must look is Attorney-General ». Continental for his compensation to the parties Life Ins. Co., 31 Hun (N. T.), 623. who employed him. In Commonwealth v. Mechanics So in a suit to dissolve a partner. 358 LIABILITY OF EECEIVEKS. [chap. IX. In New York, where it is made the duty of the Attorney- General in certain cases to bring actions for a dissolution of corporations, allowances to the Attorney-General, for services of special counsel employed by him to aid in the settlement and adjustment of the affairs of corporations in the hands of receivers to be paid out of the fund, are unauthorized.' Sec. 72. Upon contracts made in the executiou of their trust. — The general rule is that a receiver in equity cannot charge the trust estate in his hands by his executory contracts unless authorized so to do by the court appointing him. If a receiver is not authorized to make contracts binding upon the trust estate, he has no responsible principal behind him for whom he may contract and against whom the creditor may enforce his demand. He is not the agent or hand of the court concerning those contracts which he has received no authority to make, but acts upon his own responsibility and is individually liable to perform them.^ This principle is not in ship, it was held that counsel for the plaintifi in the case was not en- titled to compensation out of the funds in court, as associate counsel for the receiver, the latter having employed his own counsel. Adams V. Woods, 8 Cal. 306. And see Cen- tral Trust Co. V. Valley Ey. Co., 55 Fed. Rep. 903. ' Att'y-General «. Continental Life Ins. Co. 88 N. Y. 571. The defendant corporation, in this case, having be- come insolvent, upon the application of the Attorney-General the corpor- ation was dissolved, and a receiver appointed of its property. It ap- peared by the petition for the allow- ance in question that after the dis- solution the petitioner was retained by the Attorney-General to appear for him In the action in which the receiver was appointed, " and in all proceedings therein and in relation thereto, with full authority to rep- resent him and act for him therein, and receive all papers and plead- ings in said proceedings." The pe- tition set forth in some detail the services rendered by the petitioner, and neither the receiver nor the counsel for the policy-holders con- tested the value of the services, or objected that the amount claimed was excessive. It was held that the amount claimed for such services could not be paid out of the funds in the hands of the receiver. = Ryan -o. Rand, 20 Abb. N. C. (N. Y.), 813. The defendant in this case was appointed a receiver of a hotel in another action, wherein the court afterwards ordered a reference to state the defendant's accounts as receiver. C, as the attorney for de- fendant, representeted him upon the reference. The plaintiff, a sten- ographer, took notes of the evidence before the referee, and transcribed and furnished full copies of the evidence to defendant's attorney, who subsequently promised to pay the plaintiff's bill. It was held that the defendant was individually liable for the same. SEC. 72.] UPON CONTKACTS MADE, ETC. 359 conflict with those cases where a receiver operating a railroad under the orders and directions of the court has heen held not to he individually liable for accidents arising from the negli- gence of his employees, for there the receiver has not only express authority, but is directed to operate the road, and In Rogers v. Wendell, 54 Hun (N. T.), 540, the action was brouglit against the executors of the estate of a receiver appointed of a cor- poration known as The Carthage Co. , in an action to dissolve it. It appeared that the receiver employed the plaintiff to take charge of the property of the company, and to pay certain disbursements necessary for its protection. The plaintiff entered upon, and continued in, such em- ploy, furnishing materials, looking after the property generally, mak- ing reports to the receiver weekly, and drawing drafts upon the latter for various sums disbursed by him, which were paid until the time of the receiver's death. The services were of the value of $409-, which were not paid for, and $38 were dis- bursed by the plaintiff and not re- paid. It was Tield that the plaintiff was entitled to enforce his claim against the receiver personally, and that upon the latter's death his estate was liable for the same. The Court, per Martin, J., said : " It is no answer to the plaintiff's claim to say that it is just and proper, and the court will allow it and order it paid. It may have been perfectly proper, so far as the plaintiff is con- cerned, and still improper as against the estate. The receiver may have been guilty of some act which would render the allowance of his claim against the estate improper. In such event the plaintiff's claim would be disallowed, and he com- pelled to lose his demand, although his action was in all things proper. The plaintiff's rights under his con- tract should be dependent upon no such uncertain remedy for their enforcement. He made his contract with the receiver, presumptively upon his individual responsibility, and the receiver should be required to perform it. But it is said that the receiver ought not to be held personally liable upon a contract made for the benefit of the estate he represents. Why not ? If this action was of doubtful propriety, or if the estate was of doubtful suffi- ciency, why should not the receiver be liable, if, acting under the cir- cumstances, he obtains the services and property of another? If the estate was insufficient, he knew it better than any other person, and should not have incurred the lia- bility. Under such circumstances the law would not require it of him, and common honesty would forbid his making such a contract at the expense of another. If held to be individually liable, no im- proper harm can fall upon the receiver or his estate. If the ac- tion of the receiver, in making this contract and incurring this expense, was proper and author- ized, the demand, when paid, can properly be charged in his accounts, and will be allowed by the court. If the receiver acted improperly or without authority in employing the plaintiff, and directing him to make such disbursements, then his estate should bear the burden of his unau- thorized act, and it should not be cast upon the plaintiff." 360 LIABILITY OF EECEIVEES. [CHAP. IX. te does so, not in his individual capacity, but as the agent or officer of the court, which becomes the principal in the undertaking.^ But the receiver may relieve himself from this liability by an express agreement exonerating him from individual liability and making the party with whom the contract is made look to the trust estate or the receiver as such for his compensation. And if a receiver is authorized to make an expenditure and he has no trust funds, and the expenditure is necessary for the protection, reparation or safety of the trust estate, and he is not willing to make himself personally liable, he may, by express agreement, make the expenditure a charge upon the trust estate. In such a case he can himself advance the money to make the expenditure, and he will have a lien upon the trust estate, and he can, by express contract, transfer the lien to any other party who may, upon the faith of the trust estate, make the expenditure.^ Such contracts may be estab- lished as other contracts are allowed to be proved in courts of justice. This may be done by the language used on the occasion when the agreement is alleged to have been made or by circumstances disclosing its nature and effect. It is not sufficient, however, to show that the contract was made upon the faith or credit of the trust estate, nor is a mere intention ' Sayles i). Jourdan, 2 N. Y. Supp. tlie time-tables of the railway com- 837. The defendant in this case was pany he was referred to as the lessee the receiver of a railway company, of the hotel. The plaintifE had no and the Hotel Brighton was owned notice of this change in the relation by such company, and the defendant of Dodge to the management of the was in possession of the same and hotel, and he continued to supply assumed to run the hotel, and em- meats to the hotel, and for the bal- ployed one Dodge as his manager, ance remaining unpaid thereon this of which the plaintiff was aware, action was brought. There was no and during that time the plaintifi evidence that the defendant was supplied some merchandise to the running the hotel as receiver by hotel. Very shortly thereafter the direction of the court. It was held defendant, as receiver, executed a that the defendant was individually lease to Dodge of the hotel, and it liable to the plaintiff for the balance was claimed that subsequently to so remaining unpaid, this time the business was run by " New v. NicoU, 73 N. T. 131 ; Dodge. This business was run,how- Davis v. Stone, 16 Abb. N. S. (N.T.), ever, to all outward appearances by 355 ; Rogers i>. Wendell, 54 Hun Dodge, as before, except that upon ( N. Y.), 540. .SEC. 72.] UPON CONTRACTS MADE, ETC. 361 to look to the estate or to the receiver as such, sufficient to exclude the receiver's individual liability.' But it has been held, that when a receiver assigns claims as receiver and cov- enants that the assigned claims are due and unpaid, he is not personally liable on his covenant, in the absence of an expressed ' Rogers v. Wendell, 54 Hun (N. Y.), 541 ; Foland v. Dayton, 40 Hun (N. T.), 563; NewD. Nicoll, 73 N. T. 127. When upon application by a re- ceiver to an attorney-at-law the latter was employed by the receiver as such to act as his attorney in the settlement of the estate, and the attorney acted in that capacity dur- ing a portion of the time that the estate was in the course of settle- ment, and subsequently the court refused to allow more than $75 for such services. In an action by the attorney against the receiver indi- vidually to recover the balance of what he claimed the services were reasonably worth, it was held that the attorney was concluded by the action of the court and could not recover anything more from the receiver individually. Walsh v. Raymond, 58 Conn. 251. In Ex parte Williams, 17 S. C. 396, an order was made constituting the officers of a railroad company, in effect, receivers of the road, the company continued tO' conduct its business as before, officers were an- nually elected and no separate books were opened by them as re- ceivers. During this time a note was given by the company, in its corporate name, signed by the presi- dent and treasurer as such, in settle- ment of an account due another railroad company, and which, it seems, had matured after the afore- said ordar was made. Certain sec- ond mortgage bonds of the company were also given as collateral se- curity for the payment of the note, and the latter with the bonds were delivered to one Williams, as treas- urer, etc., who sold said bonds for a comparatively small sum. The rail- road was subsequently sold on a foreclosure sale, and Williams, the holder of the note, claimed to be en- titled to payment of the balance of such note out of the proceeds of the Bale of the road, the same being for labor and material furnished, and therefore entitled to priority of pay- ment before the mortgage bond- holders. It was held that the note was not made or received with reference to the receiver's fund, and, therefore, it could not be given priority. McGowan, J., said : " In the meantime the officers of the company, elected, as usual, by the stockholders, without making re- turns to the court, or opening sep- arate books, or contracting, or in any other way acting as receivers, con- tinued to conduct the affairs of the company in all respects as they had done before. During this period an account, in the ordinary course of business, was contracted, as alleged, with the South Carolina Railroad Company, which that company, taking no notice whatever of the order of 1873, charged not against the officers as receivers, but in the usual way against the Greenville & Columbia Railroad Company. It may be that the identity of the per- sons described as receivers with the regular officers of the company tended to some confusion in this respect; but making every allow- ance for that, we cannot doubt that the parties were ignorant at that 862 LIABILITY OF RECEIVERS. [chap. IX. intent to make a personal covenant.^ And wten a person is appointed receiver of a railroad by the governor of a state and employs counsel, any services whicli the latter may render under such employment is not rendered to the receiver as an individual but as a public agent and officer of the state in charge of the railroad, and no personal liability is incurred by him.^ A receiver is not the representative of the receiver who pre- ceded him. In his character as receiver, his predecessor can have no representative, in the legal sense of that term. He is, at best, a mere agent or instrument, and when he dies, his power time of tlie effect of the order in re- spect to contracting accounts and their powers under it ; and that credit was not in fact given to the officers of the road as receivers, or on the faith of a, receiver's fund, but, as the form of the account indi- cates, to the corporation of the Greenville and Columbia Railroad Company. Even if the parties had understood the full effect of Judge Melton's order, as we conceive, that order did not and could not interfere with the corporate existence of the company, or displace the officers who held their places under an act of the Legislature and the election of the stockholders." ' Livingston ■». Pettigrew, 7 Lans- ing (N. Y.), 405. It appeared in this case that the receiver of a bank sold at public auction, through an auctioneer, certain judgments in favor of the bank to the plaintiff and executed an assignment which was as follows: "I, John Pet- tigrew, of the city of New York receiver of the Central Bank of the said city of New York, in consider- ation of the sum of $169, to me in the hand paid by Matthew H. Liv- ingston, of the city of Albany, as such receiver have sold and trans- ferred to the said Matthew H. Liv- ingston and to his use and benefit the several judgments and claims mentioned and set forth in the an- nexed bill of sale of Benjamin P. Pairchild, auctioneer, of the city of New York, bearing date the 24th day of July, A. D. 1866, made by and under my direction, as such re- ceiver aforesaid, to the said Matthew H. Livingston, and I hereby cove- nant that the said several judgments. and claims are due and unpaid. In witness whereof, as such receiver, I have hereunto set my hand and seal, this 15th day of August, A. D. 1866. John Pettigrew, [l. s.], Receiver." The plaintiff in this action sought to recover upon the co>fenant damages from the estate of Pettigrew, after the latter and his sureties had been discharged under the receivershp. It did not appear that the receiver had been authorized to make the covenant in question. It was held that even as- suming that the covenant was void, because the receiver exceeded his powers and that it did not bind the trust estate, yet the instrument itself showed that the act was done as receiver and could not be con- strued as a personal covenant, and therefore the plaintiff could not maintain the action against the receiver's estate. * Newman b. Davenport, 9 Baxt^ SEC. 73.] CONTRACTS AUTHORIZED BY THE COURT. 363 also ends, and he leaves behind him, as receiver, nothing of either property or power, wherein he can be represented so as to make his acts binding on his successor.^ The duties of a succeeding receiver differ in no respect from those of any other receiver. The property in his hands is in custodia legis and he has only such power and authority as are given to him by the court. His duties, in respect to the contracts of his pre- decessor, are only such as, in view of all the circumstances of the case, it is equitable to impose; such as he can perform without risk of personal liability and with safety to the trust. If the circumstances surrounding the particular transaction are such as to justify reasonable doubts respecting the validity or fairness of the contract, it is the duty of the succeeding receiver to decline to perform them until he shall be directed to do so by the court.^ This rule cannot be said to be unjust to parties contracting with receivers, for they must be assumed to know that the receiver can make no contract effectual against the trust estate, which is not first authorized or subsequently ratified by the court, and they are at liberty to decline to con- tract until such authority is obtained, or to require the receiver to bind himself in his individual capacity. If they choose to contract with a receiver as such without adopting such pre- cautions as are necessary to insure them against loss, they do so at their peril.^ Sec. 73. Upon contracts authorized by the court. — The court should be slow to authorize or direct its receivers to enter into obligations. None should be created unless they should appear to be absolutely essential to the protection or preserva- tion of the trust property or estate. But whenever it creates (Tenn.), 538. The defendant in this assume any personal liability, and case was appointed receiver of a this must have been understood by railroad by the Governor of Ten- the intestate, and therefore the neasee, under certain Acts of the plaintiff could not recover. Legislature. He employed counsel ' Lehigh Coal & Nav. Co. v. Cent. when the interest of the road R. Co. of N. J., 38 N. J., Eq., 175, seemed to demand it, and the ad- 180; Battaile v. Fisher, 36 Miss. 821; ministratrix of the former brought Kansas Pac. K. u. Bayles, 19 Col. 348. this action against the receiver in- ' Lehigh Coal & Navigation Co. «. dividually to recover compensation Central R. Co., of N. J.,41 N.J. Eq., for the services so rendered. It 167; 43 N. J. Eq. 669. was held that the defendant did not ' Tripp ®. Boardman, 49 la. 410. 364 LIABILITY OF RECEIVERS. [chap. IX. such, obligations it is the imperative duty of the court to see that such obligations, thus authorized or directed, are fulfilled in letter and in spirit ; and though afterwards it may seem that these obligations were improvidently or inconsiderately created, the character or binding effect of the obligations is in no manner lessened or destroyed.' As long as the agreements and the orders authorizing them remain in force, their stipulations and directions should be sacredly observed by the receivers. The fact that they have been improvidently granted does not justify the receiver in disregarding them, although in a proper appli- cation that might be a very good reason for diminishing their stringency. If the inquiry is necessarily limited to whether the receiver has become bound to pay what is demanded, then he cannot escape performing the obligations which may be found existing in full force and effect, and he cannot absolve himself from their terms merely because a compliance therewith would not prove beneficial to the proper management of the trust property.^ ' Wabash, St. Louis & Pac. Ey. Co. V. Central Trust Co., 23 Fed. Rep., 269. A railroad company, in this case, contracted for rails, but be- came insolvent and passed into the hands of receivers before they were delivered, and — in order to avoid litigation and with the expectation •of earning freight by transporting ores for the vendor — the receivers having, it seems, authority, agreed to receive the rails at the contract price and pay for them at a specified time, though the contract price was more than the rails could then have been purchased in the market for, and the rails were delivered; but upon its thereafter appearing that there was no hope of earning any- thing in transporting freight for the vendor, said receivers declined to pay the agreed price. Upon ap- plication being made to the court to require the receivers to pay, it was Jidd that they were bound to comply with their obligation. ^ Matter of United States Rolling Stock Co., 57 How. Pr. (N. T.), 17. The Rolling Stock Co. entered into a contract with the receiver of a railroad corporation, for the lease to the latter of certain of its rolling stock. The contract was approved by the court. In payment of the rental provided for in the contract, the receiver issued his certificates in the terms provided by the contract. They were not paid. The Rolling Stock Company then made this appli- cation to the court for directions to the receiver to pay the same, and the application was opposed on the ground, among others, that the pay- ment of the certificates in the man- ner prescribed by the contract would prove injurious to the proper man- agement of the road by the receiver. It was 7ield that he was bound to comply with the obligations of the contract so long as it remained in force, and the court directed him in the future to redeem the certificates SEC. 73.] CONTRACTS AUTHORIZED BY THE COURT. 365 The liability of a receiver upon such contracts is representa- tive and not personal. Their enforcement, or the payment of damages for their non-performance by him, must fall primarily upon the property and the fund in the hands of the court. When the receiver of a railroad is invested with discretion- ary powers by the court not only to operate the road, but to con- tract, purchase and pay for such material and supplies as may seem to him necessary and proper in the exercise of a wise dis- cretion, his position is peculiar, and the contracts he makes for that purpose are sui generis. Such a receiver is not exempt from liability to answer for injuries inflicted by the wrong- doing or negligence of those he employs in operating the rail- road. Yet such liability is not a personal one, but only falls on the receiver as the representative of the property and of the fund managed by the court, and damages recovered for such injuries are to be thus collected.^ Analagous principles should be applied to those acts of a receiver which constitute contracts with third persons in the operation of an insolvent railroad in BO far as it could be done by apply- possession of the bond and mort- ing to that object the funds remain- gage, but in the meanwhile the ing in his hands, after paying certain receiver should collect it and pay other expanses which had priority. over the proceeds. The receiver In Jay b. De Groot, 3 Hun (N. ¥.), brought this action to foreclose 205,thereceiver of a dissolved insur- said bond and mortgage and prose- ance company entered into a contract cuted it to judgment, when the in the State of New Jersey with a assignee demanded an absolute foreign insurance company, for the assignment of it, with the power re-insurance of outstanding risks of of entering and collecting a judg- the dissolved company, and, in de- ment for the deficiency due there- fault of cash to pay for such re- on. It was held that the assignee insurance, to assign certain assets would be estopped from alleging, in of the company in payment thereof, its own defense, that the contract This contract was made under the was made in violation of the laws authorityof the court. The receiver of New York, relating to foreign specifically assigned, among other insurance companies ; and that as it assets, a bond and mortgage exe- would be liable upon the contract, cuted by the defendants in this it was entitled to insist upon its case, as security, and the assign- fulfillment upon the part of the ment was confirmed by the court. receiver. The assignment contained a clause, ' Thornton i). Highland Ave. R. R. that, at any time that it might elect, Co., 94 Ala. 353. the assignee should have absolute 366 LIABILITY OF EECEIVEKS. [CHAP. IX. his charge. Relief upon such contracts must in all cases be originally pursued in the court appointing the receiver, and it is obvious that the first question to be determined is whether, if the alleged contracts exist, they are of a character to entitle the party applying, to the relief asked. The determination of this question cannot be reached upon the theory that the court can disregard or annul such contracts at pleasure, but only upon equitable principles applicable to the management and winding up of an insolvent estate of this peculiar character. If the contract has been completely performed, and its performance accepted by the receiver, and the claim is merely for compensation, relief of that nature would seem necessarily to be awarded, unless the applicant should appear to have dealt fraudulently or col- lusively with the receiver, to the detriment of the trust. Even if, in the judgment of the court, the contract be improvident and unreasonable, unless the contractor should appear to have con- tracted with notice of the improper character of the contract, there would seem to be no just reason for debarring him from the agreed-on compensation, which, however, the receiver may, for his negligence or misconduct, be required to repay to the fund. But if the contract has not been performed, and the ap- plicant seeks a direction for its performance, or damages for its non-performance, the course of equity, under such circumstances, seems plain. The contractor with a receiver must be assumed to know that, if he seeks to enforce his contract, it must come under the scrutiny of a court of equity, and if it there appears to be injurious to the trust managed by that court, it will be impossible for that court to carry it out. He cannot complain, therefore, if the court declines to direct such a contract to be performed, or — if it has been repudiated by the receiver — to award damages, in the ordinary sense of the term, for its non- performance. If, however, the contractor has, in good faith, en- tered into a contract with a receiver clothed with discretionary powers, and, before the unreasonableness or improvidence of such contract has been brought to his notice or judicially determined, has made preparations for its performance, and has therein expended money or contracted obligations, which, if the contract goes unperformed, he cannot, with reasonable diligence, be reimbursed or protected against, then it would be SEC. 73.] CONTEACTS AUTHORIZED BY THE COTJKT. 367 obviously inequitable to turn him away to submit to such loss, or to leave him to such redress as he might be entitled to against the receiver. If he has acted in good faith, then, although he may not be entitled to enforce his contract, because the receiver has acted improvidently, yet he ought not to be allowed to suffer actual loss, but should be made whole, and since the receiver merely represents the fund, he should be made whole out of the fund. If the conduct of the receiver requires it, the court may compel him to reimburse the fund for what wiU thus be taken from it. If a contract for supplies is made for a period not otherwise unreasonable, but it is then, in fact, known to the receiver and contractor that the dispo- sition of the railroad by lease or sale, or its release from the receivership is imminent, and the contractor applies to the court for relief, he will properly be denied any advantage from a contract which is, and must have appeared to him to be, unreasonable. But, if in making such a contract, the eon- tractor was ignorant that the power of the receiver was about to be terminated, and proceeded in good faith to prepare to perform the contract, then, although the court can not compel its performance, and ought not to award damages from the fund for its non-performance, yet, on the contractor's claim for relief for an injury suffered by the miscalculation or miscon- duct of the representative of the trust, the court can and ought, out of the trust fund, to indemnify him against actual loss.^ ' Vanderbilt «. Central R. Co., 43 were not made in good faith. It N. J. Eq. 669 ; reversing in part 41 is true that the materials contracted N. J. Eq. 169, annotated. It was for were enormous in amount and finally determined in this case that value. Whether such materials as these contracts were, under the cir- were contracted for would be needed, cumstances, so ill-advised and Inju- was to some extent a question of dicious as to be properly considered judgment. Looking at the circum- and dealt with as improvident, and, stances as afterwards developed, the therefore, no redress by way of dam- learned Vice-Chancellor concluded ages could be claimed for their non- that the orders were in excess of performance. But the Court said : any needs that might be reasonably " There is nothing in the evidence anticipated. This court, on review, to show that the appellants had any finds that conclusion sustained by notice of the improvident character the weight of evidence. But the of the contracts. Nor do I think discrepancy between what needs that there is anything to Justify might have been reasonably antici- the conclusion that the contracts pated, and the orders given, is not 368 LIABILITY OF EECEIVEES. [CHAP. IX.. But, on the other hand, if the receiver is not in default he has a right to insist upon the performance of a contract, and it is not absolutely necessary that the receiver should apply to the court for instructions in relation thereto. To illustrate: A railroad company entered into a contract with another railroad company for the use of part of the track of the latter company, and of terminal and other facilities, and the former was hound to pay to the latter certain compensation, and to that end was to account, by the fifteenth of each month, for the month next preceding, and to pay the ascertained balance within ten days thereafter. A receiver of the company to whom such compen- sation was to be paid having been appointed, severed the con- nection between the two roads under the contract upon the ground that the compensation for three months had not been paid. The company applied to the court to order the receiver to restore the connection between the roads and to direct him to refrain from again interrupting the connection, and for com- pensation for the damages sustained by the interruption. It was held that while the court respected, as far as practicable, the public convenience in dealing with the lines of public travel so gross as to justify an inference of preserve themselves from loss. But fraud or bad faith. It may all be if, after taking every reasonable pre- well attributed to neglect in obtain- caution for that purpose, they have ing information as to such needs, or been left out of pocket by their to the exercise of a careless and ill- attempt, in good faith, to carry out advised judgment by the receiver these contracts, I think they are on the information obtained. But entitled to be made whole therefor, there is nothing to indicate that They will not be entitled to dam- appellants were at all affected by ages, nor to such profits as they these errors of the receiver. When would have made if the contracts Receiver Little refused to perform had been enforced or carried out; these contracts, appellants had ex- but they will be entitled to be made pended considerable sums of money whole for such loss as has fairly in preparations for carrying on the fallen upon them by reason of such contracts on their part. Materials acts as they did in preparing to per- which they had prepared and which form these contracts up to the time they tendered for delivery, were re- the contracts were repudiated. For jected ; preparations for getting out such amount they should be corn- materials, which were to be tendered pensated out of the fund. My ex- for delivery on the contracts, had amination of the evidence convinces considerably progressed. It was, of me that the amount of such corn- course, the duty of appellants to pensation cannot be properly ascer- take every reasonable precaution to talned and adjudicated by this court, SEC. 73.] CONTKACTS AUTHORIZED BY THE COURT. 369 and transportation, it would not, however, disregard or sub- ordinate to that convenience the rights of those by whom those lines were owned, or who were pecuniarily interested in them, and it was stated that the court would not have hesitated to have exacted strict justice had the receiver applied to it, at the hands of the petitioner in the premises, towards the receiver and the interests which he represented.* Where the contract has been fuUy performed and the receiver has obtained aU the expected benefits to be derived from it, he should not be allowed to retain the fruits of its' performance, which by the terms of the contract belongs to the other con- tracting party. Good faith, not only on the part of the receiver but also of the court whose officer he is, requires that such fruits should be paid over by the receiver without regard to the original validity of the contract.^ and it seems necessary to remand the case to the court below for further proceedings. In my judgment, so far as this point is concerned, the decree below should be reversed, and a decree made establishing the right of appellants to the measure of relief hereinbefore described, -with directions that the amount of the compensation to which they will be entitled shall be ascertained, either by a rehearing or by a reference upon the testimony already taken, and such additional testimony as the parties may produce." ' Elmira Iron and Steel Rolling Co. «. Erie Railway Co., 26 N. J. Eq. , 284. The court made an order providing that if within ten days the petitioner should pay to the re- ceiver the amount due and give him satisfactory security for the pay- ment of two other months due within sixty days, the receiver should con- tinue to perform the contract, and that, in default of such payment and security, he should be at liberty to sever the connection between the roads, without further notice. ' Central Trust Co. v. Ohio Central R. Co., 23 Am. & Eng. R. Cases (U. S. C. C), 666. The petitioner in this case applied for an order direct- ing the receiver to pay over to it the sum of $50,000 in his hands, claimed to be due to it under a contract en- tered into between the petitioner, the railroad company over which the receiver was appointed, and an- other railroad company. The con- tract was of that description known as pooling contracts and had refer- ence to the coal business of the several railroads in respect to which they were competitors. • It provided that the business and earnings of the parties should be equalized upon the basis of 543^ per cent, to the petitioner, 27 per cent, to the receiver's road and 18)^ per cent, to the other road ; the prices of trans- portation being fixed by commis- sioners appointed under the con- tract, and at the end of each year the joint earnings from this busi- ness, of which a separate account should be kept, were divided ac- cording to the same percentage, any excess received by a party to be paid over, after deducting one-hal£ 370 LIABILITY OF RECEIVERS. [chap. IX. Sec. 74. For taxes imposed by the state. — The fact that the property of a corporation is in the hands of a receiver appointed by a court of equity does not exempt the property from taxa- tion ; it is as much hound to sustain its proportionate burden of taxation as any other property; and the state has priority of lien for such taxes over all other liens whatsoever, except judicial costs, which are first to be paid where the property is rightfully in the custody of the law.^ And such a lien by a state for taxes upon the property of a railroad is subject to the same rules as to the mode of its execution as other hens for the cost of carriage. This con- tract was in force and in operation between the parties when the bill was filed in this case, and the re- ceiver was appointed. No specific directions in regard to it were given to the receiver at the time of his appointment, or since, and think- ing the contract fair, reasonable, and probably beneficial, he contin- ued to act under it. In consequence of a strike among the miners in the coal regions through which the roads run, the amount of coal trans- ported during the year over the petitioner's road was greatly re- duced below its usual proportion and that of the receiver's road rela- tively increased and in consequence a, fund of $50,000, net receipts aris- ing from that excess, had accumu- lated in the hands of the receiver. The order to pay it over, in accord- ance with the terms of the contract asked for by the petitioner, was resisted by the complainant in this suit on behalf of the mortgage bondholders, who were prosecuting the suit for a foreclosure and sale, upon the ground : First, that the contract was illegal, being in re- straint of trade, and void as con- trary to public policy ; second, that it was void as vitra vires ; and third, that the receiver was not authorized to recognize and continue it in operation. It was held that these objections could not be considered, and the receiver was directed to pay over to the petitioner said amount. ' Union Trust Co. «. Illinois Mid- land R. Co., 117 U. S. 434; St. Joseph and Denver City R, Co. v. Smith, 19 Kan. 225 ; Perry & Hale Co. v. Selma, Marion & Memphis R. Company, 65 Ala. 391. Union Trust Co. ■». Weber, 96 111. 346, was a suit in chancery for the purpose of en- joining the collection of certain taxes upon a railroad upon the ground, among others, that the taxes were not brought forward and placed on the collection books each year, and therefore the lien was lost under the Illinois Revenue Laws of 1874, § 278, which provided : "No such charge for tax and interest for previous years, as provided in the preceding section, shall be made against any property prior to the date of ownership of the person owning such property at the time of the liability for such omitted tax was first ascertained." The preced- ing section, to which reference is made, required, as to property liable to taxation, where the tax thereon is prevented from being collected for any year or years by any erro- neous proceedings or other cause, the amount thereof should be added SEC. 74.J FOR TAXES IMPOSED BY THE STATE. 371 are or writs of -fieri facias, whict are issued on judgments in favor of private parties. A railroad is a public highway. It is not land, nor like land, in the ordinary sense. The company holds the land under a franchise for a particular purpose, namely, that of a roadway for the operation of a railroad, under and by virtue of the franchises which have been conferred upon it, and for the purposes of travel and transportation thereon by the public. The interest which the public has in it is greater than the interest which the company has in it. It cannot be supposed that the legislature, in authorizing its construction, and granting peculiar franchises for its operation and use, ever intended that execution-creditors might levy upon parcels of it, and cut it up into sections, and destroy it as a great public thoroughfare. Such a supposition cannot be made without contemning the power of the state by which it was created and made a public highway.^ to the tax on such property for the next succeeding year. The receiver, it seems, was appointed after such taxes were placed on the collector's books. It was held that the receiver was not a purchaser, but that he re- ceived the poBsession and title to hold for all persons in interest and therefore the lien of the taxes was not ail ected by his appointment. In Matter of Receivership of Col- umbian Ins. Co., 3 Abb. N. Y. Court of Appeals Deo. 239, the receiver of taxes applied to the court for an order requiring the receivers of the company named to pay personal taxes due from the company to the city of New Tork, which were assessed prior to the receiver's ap- pointment. The latter claimed that the taxes could only be paid pro rata with other claims, the com- pany being insolvent. It was held that the lien of such taxes was paramount over all other liens, and it was proper to direct the receiver to pay the taxes in full. In Commonwealth v. Bunk, 36 Pa. St. 285, the Commonwealth sued the receiver of a Bridge Company to recover certain taxes upon the capi- tal stock of the company, some of which became due prior to and some after the receiver's appointment. It was held that the Commonwealth was entitled to judgment for the amount of the taxes to be levied upon and paid out of the efEects in the receiv- er's hands belonging to the company. ' In State of Georgia v. Atlantic & Gulf R. Co., 3 Woods (U. S. C. C), 434, an application was made on behalf of the state for leave to sell the depots, freight-houses, pas- senger-houses and offices of a rail- road company, by virtue of a writ of fieri facias, which had been levied on said property to enforce the collection of taxes due the state. It was ^«M (Justice Bradley sitting) that the court would take care that the full right of the state should be preserved in the superiority of its iien, but also that the court would not permit the road to be sold piece- meal, and therefore denied the appli- cation. And see Ex parte Chamber- lain, 55 Fed. Rep. 704. 372 LIABILITY OF EECEIVEES. [chap. IX. Not only because of these considerations will the court pro- hibit any interference with the property in the hands of its receiver, by the officers of a state seeking to collect the pay- ment of a tax, but also upon the general principle that the possession of the receiver is the possession of the court, and cannot be disturbed without the leave of that court. A state officer intentionally interfering with such possession, though it be for the purpose of collecting a tax, commits a contempt of court, and is liable to be punished therefor.' When, however, the tax is upon the corporate franchise as distinguished from the property of the corporation, as, for example, a tax of a certain per cent, upon the deposits in sav- ings banks, and while the power of the legislature to impose such a tax upon the franchise of savings banks, and the right ' In re Tyler, 149 U. S. 164. It appeared in this case that a re- ceiver being in possession of a rail- road in South Carolina hy virtue of his appointment hy an order of the Circuit Court of the United States for the District of South Carolina, refused to pay certain state taxes ■which he claimed to he illegal, and upon his petition the court issued an order restraining the officers of the state from interfering with the property. A state officer ( sheriff ) disregarding the restraining order proceeded to seize and levy upon some of the property for the pur- pose of enforcing the collection of the tax. The court then upon the return of an order to show cause which accompanied the restraining order, directed the property to be restored to the custody of the re- ceiver and adjudged the officer in contempt and ordered him to pay a fine, and in default of paying the fine committed him to the custody of the marshal. A writ of habeas corpus was then applied for to the United States Supreme Court, and denied. Chief Justice FtrLLEE, writ- ing the opinion, asserted that the property was as much withdrawn from the reach of the sheriff as if it were beyond the territorial limits of the state, and said : " The inevit- able conclusion that this must be so, if constitutional principles are to be respected in governmental administrations, does not involve interruption in the payment of taxes or the displacement or im- pairment of the lien therefor, but, on the contrary, it makes it the imperative duty of the court to recognize as paramount, and en- force with promptness and vigor, the just claims of the authorities for the prescribed constitutions to state and municipal revenue. And when controversy arises as to the legality of the tax claimed there ought to be no serious difficulty in adjusting such controversy upon proper suggestion. The usual course pursued in such cases is by inter- vention pro interesse suo, as in the instance of sequestration." This case overrules the cases of Central Trust Co. v. Wabash, St. Louis & Pacific R. Co., 36 Fed. Kep. 11, and, Stevens c. Midland R. Co., 13 Blatch- ford, 104. SEC. 74.] FOE TAXES IMPOSED BY THE STATE. 378 to assess it on their average amount of deposits, cannot be questioned, yet after a bank is placed in the hands of receivers and perpetually prohibited from transacting the business for which it was incorporated, and deprived of the right to exercise its franchise, and of the profits and benefit to be derived there- from, neither the bank nor the receivers are liable to pay any part of such tax assessed after the latter's appointment, because the franchise ceases to exist, and for that reason the tax cannot be imposed.' And again, state legislation exists in almost every state tax- ing shares of stock in all banks to the owners thereof, and providing that the tax be paid in the first instance by the bank itself, which shaU. then have a lien on the shares and the rights of the shareholders in the bank's property. Such legislation, as applied to shares of stock in national banks which are in the hands of receivers and insolvent, and whose property rep- ' Commonwealth v. Lancaster Sav- ings Bank, 123 Mass. 493. The stat- utes nnder consideration in this case required savings banks to pay a tax of three-quarters of one per cent, upon their deposits, to he assessed one-half on the average amount of their deposits for the six months preceding the first day of May, and the other half in like manner pre- ceding the first day of November of each year, and their officers were required to make returns of the same on or before the second Mon- days of those months (Mass. Sts. 1863, chap. 324; Sts. 1868, chap. 315). The receivers of the bank were appointed in December, 1875, and the latter was perpetually pro- hibited from transacting its business. The treasurer of the Commonwealth claimed from the bank the payment of the tax on the average amount of its deposits for the six months pre- ceding May 1, 1876. The receivers petitioned the court for instructions ill the matter, and it was held that the claim of the Commonwealth to recover such tax was invalid. In Connecticut under their gen- eral statutes relating to taxation ( §§ 3803-3841 ) and providing a com- plete scheme for taxing property "belonging to" all persons of every town in the state, and belonging to any trust estate, it has been held, in the case of an insolvent life insur- ance company whose charter was annulled and receivers appointed of its property, which was nearly all converted by them into money and deposited in the banks of a town, that the property did not be- long to the receivers in the sense in which that term is used in the statutes, and further that that pro- vision of the statute relating to trust estates applied only to prop- erty in the hands of trustees which was invested in some permanent form and from which interest or income was sought to be derived, and therefore the funds in the hands of the receivers could not be taxed. Brooks v. Town of Hart- ford, 61 Conn. 113. And see In the Matter of George Mather's Sons Co., 53 N. J. Eq. 607. 374 LIABILITY OF KECEIVEES. [CHAP. IX. resenting the capital stock no longer exists, cannot be enforced against the receivers, because it would in effect be taxing the assets of the bank, which is unconstitutional.-^ But the receiver of a railroad, while operating the road, is operating it under and by virtue of the franchise which has been conferred upon the corporation by the state. Under the order of the court he takes possession of all the property of the corporation, and proceeds to operate, that is, to run its trains and to do all that was formerly done under the direction of the board of directors. In this way he uses the franchise which has been conferred by the state upon the company, and he uses it as an officer of the court which is administering the affairs of the company, and through the court he acts as the company to the same extent pro Jiac vice as if the board of directors were operating the railroad. It is the franchise which is being used in both cases, only in one case it is used for the company, and substantially by it, by means of its board of directors, while in the other the same franchise is being used and the road is operated under it by an officer of the court. When such officer receives the gross earnings arising from its management and has in his hands money enough to pay the taxes upon the franchise, the state has a paramount right to coUect them before the moneys applicable to such payment shall be paid away by the receiver. Having such paramount right, the court may, in its discretion, listen to the petition of the state, and direct its officers to make the payment of the tax, without compelling the state to pursue the remedies given by special laws.^ ' City of Boston «. Beal, 51 Fed. of 1880, chap. 542, as amended by Rep. 306; affirmed, 55 Fed. Eep. 26. Laws of 1881, chap. 361, on the ^ Central Trust Co. v. New York gross earnings of the road was City & N. R. Co., 110 N. Y. sought to be collected. The man- 250, reversing 47 Hun, 587. The ner of proceeding to collect these Comptroller of the State in this case taxes was designated in the act as made an application for an order other taxes were recoverable by law directing the receiver of a railroad from such corporation and might be company to pay certain state taxes. sued for in the name of the people It appeared that the then receiver of the state and recovered in any and his predecessor operated the court of competent jurisdiction, road for four years and for which The receiver had in his hands a sufil- the tax, as provided by N. Y. Laws cient sum to pay the taxes, but he SEC. 74.J FOR TAXES IMPOSED BY THE STATE. 375 The state having a paramount right to be paid out of the assets in the hands of a receiver for taxes due it, it devolves upon the court to be satisfied, and upon the receiver to see that insisted that the corporation was alone answerable for the taxes, and that recourse must lie had to it for the payment of the same, or to such funds as might remain in the re- ceiver's hands after the claims of the mortgagees, for the benefit of whom the action was brought, had been satisfied. And it was further insisted that as proceedings to en- force the collection of the taxes thus imposed were provided for in the act which imposed them, such proceedings must in all cases be taken and that all other remedies were absolutely excluded. It was held that the claim of the state for the payment of the taxes was para- mount, and that the proceedings to obtain payment of these taxes were not confined to those provided for in the act, but that a direct applica- tion for an order on the receiver for their payment might be made to the court by petition, the corporation and the receiver being made a party thereto. In Philadelphia & Reading R. Co. «. Commonwealth, 104 Pa. St. 80, the Commonwealth sued the corpor- ation to recover a similar tax on the gross receipts of a railroad while being operated by receivers under directions of a United States Circuit Court. It was claimed by the receivers that their receipts while operating the road were not liable to taxation and that the cor- poration received no earnings during that time upon which the tax could be laid. The Court said: "That these receipts were taxable under and by force of the act of 1879, there can be no doubt, and if they were not to be assessed against the Philadelphia & Reading Railroad Company, we know not who was to account for them. If the owner of this property was not to bear the burden of the public charges against it, we are at a loss to de- termine upon whom they should fall. The receivers, the appointees of the United States Circuit Court, were owners neither of these re- ceipts nor of the property whence they were derived, and they were certainly not personally accountable for the taxes upon it. The decree of the Circuit Court made no charge in the title of this property, and the receivers, Messrs. Lewis, Gowen and Caldwell, had nothing but a qualified right to the receipts which, by force of that decree, came into their possession. They had the right to receive them, but only for the purpose of applying them to the debts of the company ; an applica- tion which was as much for the company's use as was the payment of the wages of the employees who maintained and operated the road- bed and engines. If, then, this was the defendant's property, and was used for the defendant's benefit, we cannot see to whom else the taxes could properly have been charged. At best the defendant's controversy is but technical, for had the account been settled against the receivers cui ionol The money to pay the taxes must, at all events, come from the purse of the com- pany. In either event the Common- wealth was entitled to her taxes, and that the owner of the property should be made to pay the charges upon it is a conclusion that is but just and reasonable." 376 LIABILITT OF EECEIVERS. [CHAP. I the taxes due the state are paid before the trust estate is dis- tributed to other creditors. This paramount right of the state, upon the untrammeled exercise of which depends the power to protect the very fund being distributed, and to maintain the existence of the tribunal engaged in distributing it, cannot be reduced to the level of an ordinary debt, and be cut off even if it be not presented to the court for allowance within a prescribed period.' Sec. 75. For rents and profits accruing the different mort- gagees, — When a mortgage executed by a corporation covers income as well as its property, it is not bound to account to the mortgagee for earnings while the property is in its possession until a demand is made therefor, or for a surrender of pos- session under the mortgage.^ But the commencement of a suit in equity to enforce a surrender of possession to the mort- gagee in accordance with the terms of the mortgage is a demand for possession, and it follows that after the suit is begun and the corporation refuses to deliver possession of the property, it wrongfully withholds it; and equity forbids that it should retain, as against the mortgagee, the fruits of its refusal to do what it ought to have done. It is a matter of no consequence that a receiver is not also appointed at the same time or that an application is not made until later. If the surrender of possession is made, as soon as the suit is begun, a receiver is unnecessary. AU that is done by the subsequent appointment of a receiver of the property is in aid of the suit and because ' In Greeley ■». Provident Savings an order requiring the receiver to Bank, 98 Mo. 458, a receiver was ap- pay the same. The court refused pointed of the assets and property to make the order on the ground of the bank, and the court made an that the collector failed to intervene order requiring all persons having within the time prescribed. Upon demands against the assets in the appeal it was held that the claim of hands of the receiver to intervene the state for this tax was paramount on or before a day named, other- which could not be cut off by limita- wise their claims would be forever tion, but that it was the duty of the barred. One month after the expi- court to make no order for the dis- ration of such time the collector of tribution of the assets of the bank taxes of St. Louis intervened In the except in subordination to the state's cause by petition, setting forth that claim, and that the receiver should he had a tax bill for a certain year be directed to pay the tax. against the personal property of the ^ Galveston R. Co. «. Cowdrey, U • bank, and praying the court to make Wallace (U. S.), 459. ■SEC, 75.] TO DIFFEREKT MORTUAGEES. 377 of the refusal of the company to comply with the demand that was made. It follows that from the time of bringing the suit the corporation itself is to be treated in aU respects as a receiver of the property, holding for the benefit of whomsoever in the end it should be found to concern, and liable to account accord- ingly.^ The fruits arising from the management of the prop- erty then and while in the custody of the court thereafter, do not belong to the corporation in any such sense as to be liable to any other claims than those of the parties for whose protection the property is taken into custody, and such charges as apper- tain to its management and administration.^ But after the session of its said railroad, rolling stock and all other money and prop- erty of every character " to him. At the time the receiver was appointed the company had a large balance de- rived from the earnings of the road after the suit was begun, and this balance was paid over to the receiver subject to the order of the court and to be repaid the company should the court so adjudge. Afterwards the court ordered the receiver to pay back this balance to the company, and turn over the road to the mort- gagees, and from that part directing the restoration of the money to the company, the mortgagees took an appeal. It was held that such bal- ance was to be treated as income covered by the mortgages, and should therefore have been paid to the mortgagees. 5 North Carolina B. Co. ■». Drew, 3 Woods (U. S. C. C), 711. In this case a receiver was appointed of the property of a railroad company in an action to foreclose a mortgage executed by the latter. Previous to his appointment it seems a cred- itor obtained a judgment against the company, issued an execution there- on, and sold the railroad and its appurtenances, and became the pur. chaser at such sale. This sale was afterwards adjudged illegal and was ' Dow ■». Memphis & Little Hock E. Co., 124U. S. 653. In this case a railroad executed two mortgages, covering, among other things, "all the incomes, rents, issues, tolls, profits, receipts, rights, benefits and advantages had, received or derived by the party of the first part from any of the hereby conveyed prem- ises," which included the railroad of the company ; but it was provided that until default in the payment of interest or principal, the company should " retain the possession of all the property hereby conveyed, and receive and enjoy the income there- of." In case of default for sixty ■days in the payment of interest, the trustees were authorized to enter upon and take possession of all and singular the charter, fran- chises and property * * * con- veyed, and take and receive the income and profits thereof." The company failed to pay its interest, falling due July 1, 1882, and there- after, and for that reason, the mort- gagees began this suit February 12, 1884, praying that they might be put into possession of the road. On March 24, application was made for the appointment of a receiver, and on April 15 next, a receiver was appointed, and the company was ordered at once to " surrender pos- 378 LIABILITY OF EECEIVEKS. [chap. IX. mortgage — to satisfy which the property is so taken into cus- tody — has been discharged, the balance remaining of such ac- cumulated rents and profits, belongs to the second mortgagee, so far as the property is insufficient to pay his debt.' The appointment of a receiver of the property of a corpora- tion, unless it be at the instance of a mortgagee, gives to the latter no right to the earnings and profits accruing during the receivership. The fact that the mortgagee is made a party to the action confers no such right ; for it is quite well settled that imtil the mortgagee asserts his rights under the mortgage to the possession of the property by filing a biU of foreclosure, or — if the road be in the hands of a third party — by demanding pos- session of such party, and, if it be a receiver, by demanding possession from the court which appointed him — the mortgagee has no right to its earnings and profits.^ And, if the receiver is not appointed upon the applica- set aside. Said judgment creditor then claimed to have the moneys, in the hands of the receiver derived from the operation of the road_ applied to the payment of his judgment for the reason that such moneys were the property of the company, and basing his claims par- ticularly upon a statute of Florida, which declared that a claim in favor of a mortgagee to the right of possession of the property speci- fied in the mortgage by reason of any alleged failure of payment, as breach of promise, or other default, should in no case be recognized or admitted in a court until all other steps and forms prescribed by law for the foreclosure of mortgages be complied with and observed, and, further, that a, constructive posses- sion by the mortgagee should not be allowed to impair the actual right of possession of the mortgagor until deprived thereof by decree, and that the mortgage should be held a specific lien on the property, and the mortgagee incapable of acquiring possession until after decree of foreclosure. It was held that this statute did not apply so as to pre- vent the interference of a court of equity in a case where, by the vol- untary negligence or misfeasance of the mortgagor, the property is being wasted and consumed so as to peril the security intended by the parties ; neither did it apply to prevent the court from appointing a receiver of a railroad when the latter was in- solvent, and using up and wasting the property as in this case ; and that therefore the earnings derived from the operation of the road while in the receiver's hands could not be applied towards the payment of the claimant's judgment until af- ter the payment of the mortgage, which was a prior lien upon such earnings. 'Hitz V. Jenks, 123 U. S. SOT; Keogh V. McManus, 34 Hun (N. Y.), 521. ''United States Trust Co. v. Wabash Western By. 150 U. S. 287,. 808, annotated. SEC. 75.J TO DIFFEEENT MORTGAGEES. 37& tion of a mortgagee and the latter is not made a party to the action in which such appointment is made, and does not become a party thereto, the accrued income arising during the receivership does not belong to the mortgagee but to the cor- poration, subject to any lien or equity acquired by creditors thereon.' So a junior mortgagee may, by diligence in filing a biU for the foreclosure of his mortgage and having a receiver appointed therein, acquire a lien upon the income of the prop- ' Thomas «. Brigstocke, 4 Russ. entitled to demand that such earn- (Eng.), 65. In Sage v. Memphis & ings be paid over to them ? Clearly Little Rock R. Co., 135 U. S. 361, a not. ' It is well settled,' this judgment creditor of a railroad com- pany had a receiver appointed of the latter, and it was claimed that such appointment was made by im- position upon the court, and the latter, on learning the imposition, discharged the receiver. During the receivership a fund had accumulated from surplus earnings which the trustees .representing mortgage cred- itors of the company who did not intervene in the suit pending the receivership, claimed. It was held that such surplus earnings was the property of the company and that the judgment creditor had a prior right to the same to the extent of satisfying his judgment. Justice Harlan, writing the opinion in the case, said : " But did the imposition, if any, practiced upon the court, inducing it to appoint a receiver when one would not have been ap- pointed had it been aware of the exact situation, add anything to the legal or equitable rights of the trustees in the mortgage executed by the railroad company ? Had the receiver never been appointed, and had the railroad company operated the property just as the receiver did, producing the same amount of net earnings that were in the hands of the receiver, at the time of his discharge, would the trustees in the mortgage of May 1, 1877, have been court said, in Dow v. Memphis & Little Rock Railroad Co., 134 U. S. 653, 654, ' that the mortgagor of a railroad, even though the mortgage covers income, cannot be required to account to the mortgagee for earnings, while the property re- mains in his possession, until a de- mand has been made on him there- for, or for a surrender of the pos- session under the provisions of the mortgage. That was the effect of what was decided by this court in Galveston Railroad ii. Cowdrey, 11 Wall. 459, 483. * * * The trustees filed their bill of foreclosure June 36, 1883, but they did not intervene as trustees in this suit until Febru- ary 33, 1884, some time after the discharge of the receiver, and after the property had been surrendered to the company. Their claim and intervention shows upon its face that no part of the interest accruing upon the bonds secured by their mortgage subsequent to January 1, 1883, had been paid at the time they so intervened. By the terms of that mortgage, it was provided that, in case of continuous default by the railroad company for thirty days, after maturity, in paying any of the sums specified in the interest coupons, the principal sums in all the bonds ' shall immediately be- come due and payable,' and there- 380 LIABILITY OF EECEIVEES. [chap. IX. erty superior to that of the first mortgagee, and he will be entitled to such income until the prior mortgagee intervenes, and appears in the suit or in a separate suit asks that the receiver hold for him as well as the junior mortgagee, or that the receiver be discharged and he be put in possession of the upon, the trustees, upon the written request of the holders of a majority of said bonds, ' shall enter upon and take possession of all and singu- lar the charter, franchises and prop- erty hereby conveyed, and shall and may sell the same to the high- est bidder for cash in hand,' etc. There was no moment pending the receivership when these trustees, upon the request of the holders of. a majority of the bonds, might not have appeared in this suit, or in a separate suit in the same court, and asked that the receiver hold for them as well as Sage, or that he be discharged and they put in posses- sion of the mortgaged property, for the purpose of sale, pursuant to the mortgage. Neither they nor the bondholders elected to pursue that course. It may be that their action was dictated in part by the fact, found by the master, that the rail- road, the principal security for their debts, was being largely improved during the receivership out of the income of the property, and that no part of the income was being di- verted to pay Sage's judgment or the debts of the company. If the trustees, pending the receivership, had intervened and asked possession of the property, they might per- haps have been entitled, as against general creditors, to the income of the property thereafter accruing, upon the principles announced by this court in Dow v. Memphis & Little Rock R. Co. (as reorganized), ■ 124 U. S. 653. But we do not per- ceive any legal ground upon which they are entitled to the net earnings of the property, while it was in the hands of the receiver, in a suit instituted by a judgment cred- itor for the protection of his own interests, and not of the interests of the trustees, or of the bondhold- ers, or of other creditors. His suit was, in effect, an equitable levy for his benefit, upon the net income of the property. Other creditors, who filed their claims based upon judg- ments, gain nothing, as between themselves and Sage, by the fact that their judgments were rendered upon coupons, which were secured by lien upon the mortgaged prop- erty. Neither they nor their trustees, prior to the termination of the receivership, chose to assert this lien. Nor did they, pending the receivership, ask that the re- ceiver should, from and after their appearance, hold for them as well as for Sage. They took action as simple contract creditors, whose claims were reduced to judgment. If the bondholders, when interven- ing simply as judgment creditors, acquired an interest in the fund, they could not, upon any recog- nized principles of equity, deprive the creditor, at whose instance and for whose benefit the receiver was appointed, of his priority of right, arising from the institution of suit for the purpose of reaching the in- come of the debtor's property. The j udgments at law obtained by bond- holders upon their coupons were all rendered after the receiver took possession of the property.'' SEC. 75.] TO DIFFERENT MORTGAGEES. 381 mortgaged property. This is on the same principle that a mortgagee acquires a specific lien upon the income by obtain- ing the appointment of a receiver of it ; and if he be a second or third incumbrancer, the court will give him the benefit of his superior diligence over his senior in respect to the income which accrued during the time that the elder mortgagee took no measures to have the receivership extend to his mortgage and for his benefit. Such senior incumbrancer has no right to call upon the junior mortgagee in possession to refund any part of such income which he had received, before he has himself attempted to obtain a specific lien upon such income.^ But this rule has not been applied to such a receivership where the first mortgagee was made a party to the suit insti- tuted by a junior mortgagee. The authorities limit the exclu- sive right of a junior mortgagee to the income of a receivership created under a bill filed by him to a case where the first mortgagee is not a party to the suit.^ ' Post V. Dorr, 4 Edw. Ch. ( N. T.), 412 ; Howell «. Ripley, 10 Paige ( N. T.), 43 ; Seibert v. Minn. & St. L. R., 53 Minn. 246. To illustrate: In an action to foreclose a mortgage upon a leasehold interest, plaintiflF was, upon his own motion and by consent, appointed receiver of the rents and profits of the mortgaged premises, with power to keep the buildings insured and in repair, and " to pay the ground rent and taxes." Subsequently M. , the holder of prior mortgages, foreclosed, and upon the sale the premises were bought in by M. for a sum less than his mort- gages. PlaintifE, out of the rents collected by him as receiver, paid the ground rent from the time of his appointment to the time of sale ; also for some repairs, and to M. a sum for interest on his mortgages. Upon settlement of his account as receiver, plaintiff was required to pay over the balance in his hands in payment of taxes, and the remainder, if any, to M. Upon appeal it was held that the terms of the order ap- pointing plaintiff receiver as to the rents and taxes, were permissive, not mandatory, and he having, by diligence, acquired a specific lien upon the rents superior to the equities of M., was entitled to re- tain them to apply on his mort- gage. Ramsey v. Peyser, 83 N. T. 1 ; reversing 20 Hun, 11. * Williamson v. Gerlach, 41 Ohio St. 683; Beverley «. Brooke, 4 Gratt. (Va.). 187. In Miltenberger i). Logansport Ry. Co. , 106 U. S. 286, 807, a second mort- gagee filed a bill to foreclose a mort- gage upon the property of a railroad company and made the first mort- gagee a party to the suit. During the receivership the receiver con- tracted certain expenditures under the direction of the court, and the claims arising therefrom could not be paid from the earnings of the road. The first mortgagee ejected to giving these claims priority over its mortgage upon the property itself B82 LIABILITY OF KECEIVEKS. [chap. IX. Sec. 76. For interest and profits earned upon funds in their hands. — A receiver is not permitted to make a profit out of the trust fund for Ms own benefit ; and if he has employed the fund in trade, whereby he has made more than simple inter est, he may be charged with the whole of such profits ; either by making periodical rests, and charging him with compound interest, or in such other manner as may carry out the principle of giving the trust estate the benefit of all profits made beyond the simple interest. In cases of this kind the intent of the court appears to be to allow simple interest only, when it is evident that the profits made by the receiver could not have exceeded that amount.^ But if it is doubtful whether the and a preference in the distribution of the proceeds upon a sale of the road, upon the ground that under the receivership originally created, the second mortgagee alone was entitled to the income from that receivership, and that the trust under control of the court was only that which the second mort- gagee could put there, namely, the mortgagor's right to an equity of redemption as against the second mortgagee, and not the entire prop- erty. It was held that the receiver- ship was created for both the first and second mortgagees, and that, therefore, this was not sufficient ground to deny such claims a pri- ority over both mortgages. But in Washington Life Ins. Co. «. FleiBchauer, 10 Hun (N. Y.), 117, a subsequent mortgagee who was made a porty defendant to the action, applied in his own behalf for, and secured the appointment of a re- ceiver of the rents and profits of the mortgaged premises, and it was Jheld that he was entitled to retain the amount collected by the receiver as against the claim of a prior mort- gagee who was also a party to the action whose debt the amount real- ized upon the sale of the mortgaged property had been insufficient to satisfy. ' Attorney-General v. North Amer- ican Life Ins. Co., 89 N. T. 107, 108. The receiver of an insurance com- pany in this case, without authority from the court, placed the funds in his hands in the hands of brokers to be loaned on call, and charged himself with the amounts which he asserted he received for interest, but furnished no facts by the aid of which the investments could be traced and their character ascer- tained, and the court had nothing to depend upon but his own asser- tion of the amount of interest re- ceived. The court of original jurisdiction confirmed his accounts, but upon appeal the General Term imposed upon the receiver a charge for interest beyond that which he admitted to have been received. But upon a further appeal to the Court of Appeals, it was held that the receiver's conduct in loaning the fund was a violation of duty, yet he having acted in entire good faith and without trace of any wrong intention, and no part of the fund having been lost thereby, the facts did not justify the court in charging him with increased interest. SEC. 76.] FOR INTEREST AND PROFITS EARNED, ETC. 383 profit is not greater, then tlie purpose of the courts, as we gather it from the decisions, seems to be to allow the person interested to elect between such interest and an inquiry as to the actual profits niade out of the trust fund. Stating the accounts with periodical rests, and compounding the interest, is only a convenient mode, adopted by the court, to charge the trustee with the amount of profits supposed to have been made by him in the use of the money, where the actual amount of profit, which he has made beyond simple interest, cannot be ascertained. It does not follow from this, however, that the trustee who has mixed the trust funds with his own, and has violated the trust by using the fund himself, or by loaning it to others without interest, is to be excused from the payment of simple interest, although he may not have actually made a profit upon the trust fund equal to the simple interest. On the contrary, the rule is well established, that when the receiver mingles the trust funds with his own, and uses the same, or any part thereof, in violation of the trust, he is to be charged with interest on the fund.^ This rule, however, does not require the receiver to keep the identical money received by him in the discharge of his official duties separate from ' Utica Insurance Co. 11. Lynch, 11 Where two receivers were ap- Paige (N. Y.), 520. It appeared in pointed to close up the concerns of this case that the receiver's accounts an insurance company, and one of commenced in 1831, and that the them misappropriated the funds by moneys received by him, between using them for his own profit, and that time and 1839, were not the other was guilty of gross neg- kept separate, but were mingled lect of his duties, giving no atten- with his own moneys, in the bank tion to the matters intrusted to his where he kept his accounts, in his care and supervision, they were own name; and that he drew out both charged with interest upon and used large sums of the trust stating their accounts. Oommon- f und, from time to time, by loaning wealth «. Eagle Fire Ins. Co., 96 the same to his friends, and other- Mass. 344. wise. The master therefore charged In Matter of Commonwealth Fire the receiver with simple interest Ins. Co., 34 Hun (N. Y.), 78, it ap- upon the annual balances in his peared upon a reference, to take hands, commencing December 81, and state the final accounts of a re- 1833. It was held that the receiver, ceiver, that the latter had kept his having violated his duty of keeping accounts as receiver in several banks, the trust fund entirely separate and in which he had also kept his distinct from hia own money, was private or personal accounts; and properly charged with interest. that the funds of the receivership 384 LIABILITY OF KECEIVEES. [chap. IX. other moneys in his hands. No benefit would thereby result to the parties interested in the funds, and the money would be no more safely kept by enforcing such a requirement. If he merely mingles money received by him in the discharge of his official duties with his individual money, and from the funds thus created draws money for his own use, he will not be required to pay interest unless it also appears that he used the whole or part of the trust funds.^ But if he deposits a part of the trust fund to his private account, and upon his accounting had to some considerable extent been credited in his private ac. counts, against which he had from time to time drawn his individual checks. The books in which these deposit accounts had been kept were offered in evidence by interested parties for the purpose of ascer- taining what amount of the funds of the trust estate had been depos- ited to his private credit, and what amount, if any, he had from time to time drawn upon his individual checks, and what amount, if any, had been drawn from time to time also from the amounts deposited by him as receiver, and used by him for his individual business or pur- poses. The referee excluded this evidence, holding in effect that the receiver could not be charged with interest pending the business of the receivership, and " prior to his last payment " upon any of the funds that came into his hands, whether deposited to his private ac- count or not, or used by him for his private purposes. Upon appeal it was held that these parties had a right to show not only the fact that the trust funds had been deposited by the receiver in bank to his own credit, but to follow that up so far as practicable, by showing that they had been drawn out, from time to time, upon his individual checks, and the uses to which they had been put when drawn ; that the bank books produced by the re- ceiver were competent and proper evidence bearing upon these ques- tions ; and that they would doubt- less have shown what sums were deposited and drawn, from time to time, and the condition of the ac- count at verious stages, and would have afforded at least prima fade evidence sufficient to have charged the receiver with interest on the moneys so drawn, and to have thrown upon him the burden of showing that when drawn they were in fact used for the purposes of the trust. In Hooper v. Winston, 24 111. 353, a receiver was charged interest on the proceeds of a sale of property which he received, or might have done so. Also see Battaile v. Fisher, 36 Miss. 321. > Radford v. Polsom, 55 la. 276. It appeared that the receiver in this case had placed the trust funds with his individual moneys, and had drawn from the combined funds for use in his private busi- ness. He was charged with interest upon the annual balances in his hands. Upon appeal it wag held that this was error, and that he could not be charged with interest merely upon such a showing. And in Howe ®. Jones, 60 la. 70, a re- ceiver, without any evidence, was SEC. 76.] FOR INTEREST AND PROFITS EARNED, ETC. 385 refuses to give explanation of the matter and to state what sums he had so deposited, his refusal leaves his conduct open to criticism as to his motive, and he wiU properly be charged with interest upon the whole.^ But the duty of a receiver in respect to unemployed funds in his hand is not one of inaction. If he has a sum on hand which cannot be distributed for a considerable period, it is his duty to ask leave of the court to invest the funds, and to try in good faith to keep them invested for the benefit of those in interest. The performance of this duty is an important one, and receivers should be held strictly accountable for its non- performance. They should be surcharged with interest upon such fund to the extent of the loss sustained by the trust by reason of such neglect.^ The rule which forbids a receiver's making any personal profit out of his office, or out of the trust or trust estate, does not extend to profits which have accrued to the receiver, not as the reward of any act done, or omitted to be done, by him as receiver, but simply by reason of the opportunity afforded him by his position. Thus, when the receiver is employed by debtors of the corporation to raise money for the discharge of their indebtedness, the compensation, if he receives any therefor, is not made out of his office or out of the trust or trust estate. Neither does the receiver, in making it, put himself in any required to pay interest at six per ness lie was asked to give explana- cent. upon the money in his hands, tions of this matter, and to state from the date of the receipt of the what sums he had so deposited, he last item. This, it was held upon declined to answer. It was Tield that appeal, was error. as he had it in his power to furnish ' In Hinckley ■». Railroad Co., 100 the facts on which a just and true U. S. 153, a receiver of a railroad account could be stated, and refused was charged with $4,300 as interest to do so, it left his conduct open to for the use of money held hy him criticism as to his action, and he was as receiver. It did not clearly ap- properly charged with interest, pear how much of this money he so ' Schwartz ■». Keystone Oil Co., 153 used, or how long he held it ; but it Pa. St. 283. The receiver in this case did appear that the money as re- was surcharged with interest at the ceived was deposited in a bank to rate of four per cent, upon $3,000 his account as receiver, and that for three years. This amount he most of it was drawn from there on had deposited in his own name for his check and deposited to his pri- that period in his own bank and. vate account in another bank ; and made a profit by its use. when on his examination as a wit- 386 LIABILITY OF EECEIVEES. [CHAP. IX. adverse relation to his trust or to his duty as receiver. It is his duty as receiver to collect the debts of the corporation as rapidly as possible ; and, therefore, helping the debtors to pro- cure the means of payment is the performance rather than a neglect of his duty.^ But while the rule forbidding a receiver making any personal profit out of his office, or out of the trust or trust estate, is doubtless very strict and ought to be scrupulously enforced, yet it is only the court appointing him which can make him account for any profits which he may have made in violation of this rule. There is no principle creating such a relation between a receiver and a party to a suit, that it makes him liable for profits made by any use of money during the continuance of his receivership ; he is an officer appointed by the court, and responsible to the court alone for the discharge of his duties, and personally liable for any loss of the funds in his hands.^ Sec. 77. For costs in actions prosecuted or defended by them. — The receiver is the custodian of a fund subject to the direction of the court to pay it out to parties establishing claims thereupon. The costs of an action are incurred for the benefit of the fund. It is, therefore, equitable that the ex- penses should be borne by the fund in behalf of which they were ' Bank Commissioners «. Franklin ' Whitesides «. LafEerty, 3 Humph. Institution for Savings, 11 K. I., 557- (Tenn.), 150. In this case the com- In this case the receiver of a bank plainant and defendant were part- had been in the business of a broker ners in trade, and a bill had been before his appointment, and several filed by complainant for a settle- of the mortgage debtors of the bank, ment of the partnership transac- after his appointment, when called tions. Pending the proceedings the upon to repay their loans, found it defendant was appointed receiver, necessary to procure new loans else- and with a portion of the money in where for the purpose, and employed his hands as receiver, he purchased the receiver in procuring the loans a drove of hogs, made them into for them. In some cases the debtor bacon, which he sold at a consid- proposed this to the receiver, and in erable profit, and this suit was others the receiver proposed it to the brought for a division of those debtor. The master required him to profits, upon the allegation that account for commissions earned by they were made out of the partner- him in procuring such loans. Upon ship effects, and in equity and good appeal it was Tieid that for such conscience should belong equally to services he was entitled to charge, the partners. It was held that the and could not be required to account suit could not be maintained, therefor. SEC. 77.] FOE COSTS IN ACTIONS, ETC. 387 incurred. This is not giving a preference to a debt as such ; it is requiring the fund to pay an expense incurred for its own benefit.' A party entitled to such costs is not bound to await the administration of the fund, but is entitled to an immediate order for the payment of the costs out of any funds in the hands of the receiver.^ The receiver is personally liable for costs ' Locke V. Covert, 43 Hun (N. Y.), 484. This was an appeal from an order denying a motion to compel payment by the receiver of a cor- poration of so much of a judgment against him as awarded costs and an allowance. The action was originally brought against the corporation, but after the latter's dissolution, the re- ceiver put in an answer and de- fended the action, judgment being rendered against him. It appeared that all other claims against him, which were entitled to a preference had been paid, and the receiver had more than enough funds in his hands to pay the costs and allowance in this case. It was held that the motion should have been granted, directing the receiver to pay these costs and allowance in full. ' Columbian Ins. Co. «. Stevens, 37 N. Y. 536. The receiver of an insurance company prosecuted this action at law for the recovery of money only. On a trial before a referee, the defendants obtained a report, upon which judgment was entered for their costs of suit. They thereupon applied, by motion, for an order that the recever pay such costs out of funds in his hands, showing by affidavit that he had funds in his possession as such re- ceiver, to a much larger amount. The motion was denied. Upon ap- peal it was held that it should have been granted. Woodbtjff, J. , writ- ing the opinion in the case, says : " If it be assumed that the company was insolvent, and that the funds which the receiver holds or may collect may not prove sufficient to satisfy all the creditors of the com- pany, this does not, in my opinion, upon clear and just rules governing the subject, impair the defendant's right to be paid in full, the fund be- ing confessedly sufficient. The re- ceiver is pro hoc vice the representa- tive of the company, its creditors and stockholders. The action is prose- cuted for the increase of a fund which is to be paid to them. It is not, ac- cording to any rule of justice or equity toward third parties, that ac- tions like the present should be prosecuted by the company or such representative, otherwise than at the expense and risk of the fund which it is sought thereby to in- crease. In my opinion the right of the defendant to this protection and indemnity against groundless prose- cution is clear, and it is not neces- sary to invoke the three hundred and seventeenth section of the Code for its maintenance, further than to say that its provisions warrant the charge of these costs upon the fund ; and such charge should be absolute and prior to the claims of those for whose benefit the action is prose- cuted, if the rules of equity require it. Whether that section impera- tively entitles the prevailing party to such priority of payment in all cases, mentioned in that section, it is unnecessary in this case to de- cide. If the views thus expressed are in conformity with established rules relating to the subject, as they 388 LIABILITY OF RECEIVERS. [CHAP. IX. only when he is guilty of bad faith or mismanagement of the action ; hut if a receiver prosecutes an appeal after being beaten, this alone is not evidence of bad faith or mismanagement.* Although an action is commenced by the corporation before the appointment of the receiver, yet if the receiver elects to go on with that action for the benefit of the fund, it is equitable that he shoidd pay the whole previous costs, as weU as those which occurred after he assumed the control of the action. If the receiver does not think it for the interest of the creditors to run the risks of having the costs charged upon the fund, he should abandon the action and then he will not be liable for the costs.^ The receiver cannot be compelled to pay the fees of a referee appointed to report as to the amount of compensation to be paid to a previous receiver; the report of such referee not hav- ing been confirmed or ratified. If the court should finally confirm the report and adjudge payment, such adjudication would doubtless include all proper fees, taxable or chargeable in such cases. If the court should finally refuse to confirm and should deny the receiver any payment, the fees, if he had paid them, would be a part of his loss for making an unjust claim.' are, in my judgment, confoimable were entitled to their costs, down to to which is obviously just, then it and including the entering of the was not a matter of discretion to re- nonsuit, and the court directed the fuse the order sought." receivers to pay them out of the ' Deveudorf v. Dickinson, 21 How. funds in their hands. Pr. (N. Y.), 275. * Attorney-General v. Continental « Columbian Ins. Co. v. Stevens, 37 Life Ins. Co., 27 Hun (N. Y.), 524. N. Y. 536. In Camp v. Receivers of The receiver of an insurance corn- Niagara Bank, 2 Paige (N. Y.), 383, pany in this case having been re- an application was made for an or- moved by the court, made applica- der requiring the receivers of a tion to the court for the payment to bank to pay the costs of a suit at him of commissions as his compen- law prosecuted in the name of the satiou and to certain persons em- ofBcers of the bank against the ployed by him of counsel fees. The petitioners, and in which the plain- court referred the matter to a referee tiffs were nonsuited at the trial. It who made a report favorable to such appeared that the receivers were removed receiver. It did not appear not appointed until after the case what action, if any, had been had was at issue, but they elected to go thereon. The referee petitioned the on with the suit and prosecute it to court, asking that his fees and corn- trial. It was held that the petitioners pensation as referee be determined, SEC. 78.] IN THE OPERATION OF RAILEOADS. 389 Sec. 78. When personally liable in the operation of rail- roads, for the negligence of their subordinates. — The determina- tion of the question of a receiver's liability is dependent upon tlie nature of his appointment, the scope and object of his act, the position he voluntarily occupies toward the public, and the functions he assumes to discharge. Persons who in a repre- sentative capacity are permitted by the court to operate and control a railway are not in the same position and are not entitled to the same immunities nor vested with the same rights as persons who are directed by the court to do so.^ In refer- ■which was done, and the court directed tlie succeeding receiver to pay them. Upon appeal it was held that the receiver could not he directed to pay them. Leabnbd, P. J., writing the opinion, said: " We are unable to see any author- ity for directing the receiver to pay these fees. The simple case is that Mr. Anderson (who was removed as receiver) has, or thinks he has, a claim against funds in the hands of a receiver. He might petition for its payment, or he might prob- ably ask leave to sue and determine the amount by a suit. If he were to sue, he would have to pay all the expenses of the litigation (including a referee's fees if the case were re- ferred), until final judgment in his favor. That final judgment would include the legal fees, etc., taxable. So in this case he has petitioned for payment. The matter has been re- ferred, not probably to hear and ■decide, but to report. The report being in his favor he can pay the iees and tal Stanton v. Alabama & Chatta- nooga B. Co., 3 A^oodsCU. S. C. C), 618 ; Carr's Admr. ■». MorriB,85 Va. 31, (6 S. B. Eep.) 613. In this case a re- ceiver was directed by the court to lend a trust fund at 6 per cent, an- nual interest on bond secured by deed of trust of real estate, to run to himself, with interest recoverable by suit upon default, and the entire debt to be payable upon two succes- sive defaults of interest, and to make report of his doings, but loaned the same at eight per cent, annual interest on notes running to another, secured by a deed of trust of real estate which was practically worthless, and neglected to enforce the debt upon default and neglected to report to the court. It was held that even though no bad faith was shown on the part of the receiver,yet, since he had not obeyed the instruc- tions of the court, the loss to the trust fund should be ascertained by a sale of the land for whatever it might bring, and a settlement of the transactions of the receiver had, and, after crediting him with what could be realized from the sale of the land and all proper payments on account of the fund, a decree should be entered against him for the balance. In McCay v. Black, 14 Phil. (Pa.), 635, the receiver of a copartnership was directed to sell the business of the concern in the decree of his ap- pointment, but, instead of doing so, took funds of the estate in purchas- ing stock or goods to continue the 414 LIABILITY OF RECEIVERS. [chap. IX. If he owes a duty to a creditor of the corporation and he fails or omits to perform that duty, the trust estate will not be made chargeable for such neglect of duty if loss has been sustained by the creditors, but the liability of the receiver will rest entirely upon his personal undertaking, and can only be enforced in a court of law.' But if he does an act in the discharge of his duty — as, for instance, resisting the rights of a guarantor of the corpora- tion, which causes him damage — the estate represented by the receiver-is liable to the guarantor for such damage as is caused by his acts, and the indemnity for such damage need not be sought for by action, but the court has the power, in the pro- ceeding wherein the receiver was appointed, to ascertain by a reference whether any valid claim exists against the trust estate and to fix the amount.^ business. It was held that lie was properly charged with the amount of the inventory, and if he failed to realize its equivalent, the burden rested upon him to show just where "the discrepancy lay. 1 Gaehle ». Snowden, 56 Md. 343. It appeared in this case that a, mortgage was made to a Building Association, reciting as the consid- eration an advance of a certain amount, for part of which the mortgagors had accepted in lieu of money the promissory notes of the mortgagee, on each of which was an indorsement stating that it was secured by the mortgage. One of these notes came into the hands of the complainant for value and was renewed by a new note for the same amount, bearing the same indorsement, with the same maker and payee, and by the latter indorsed to complainant. The property was sold upon a foreclosure sale under the mortgage and conveyed to K., and an account was stated, dis- tributing the proceeds and showing a balance for further distribution. Subsequently, under proceedings against the association, its prop- erty was placed in the hands of receivers, and after the usual notice to creditors, distribution was made by them of all the money in their hands, including the balance of the proceeds of the mortgage sale which had been handed over to them. The complainant's note was not filed in either case, but he claimed that he had handed the note to one of the receivers to get it filed and allowed as a preferred mortgage debt, and he had promised to do so but negli- gently omitted to do so. Upon this bill filed by the complainant seeking to hold the receivers and the mort- gaged property answerable for the payment of his note, it was heM that the property in the hands of the purchaser was held free from any claim or lien of the complain- ant, and that as against the receiver who neglected his duty, he could not be held answerable for such neglect in a Court of Chancery, in his character as receiver. ' People V. E. Remington & Sons, 19 Abb. N. C. (N. T.), 350. In this case the holders and guarantors of SEC. 81.] FOR NEGLIGENCE OR MISCONDUCT. 415 If a receiver wrongfully or unjustifiably attempts to seU a greater interest or title in chattels than he can legally pass, he is liable to any person who may have an interest or title in such chattels for damages which the latter may sustain thereby. But the law does not permit a receiver to convey a greater title than he possesses, and the purchaser does not acquire a perfect title, but takes it subject to any adverse interest which another may have in it; and, therefore, it follows that unless actual injury has been sustained by reason of the receiver's acts he will not be liable.' If a purchaser refuses to complete his purchase on a sale of real estate by a receiver, on account of a defect of title, and the receiver waives and consents that the sale should be held void, the purchaser is entitled to be paid by the receiver his legal expenses, including reasonable counsel fees, incurred and paid in searching and examining the title, and in resisting any proceeding brought to have the purchase perfected.^ A receiver is not appointed for the benefit of the party who procures his appointment, or for one party in interest, but for all, and as an officer of the court he is subject to its orders and directions. If he is guilty of any fraud, negligence or want of good faith whereby the property or its value is lost in whole or in part, parties interested have a remedy against him and his sureties to make good the loss ; but upon no principle can it be held that the party who procures his appointment is, by reason thereof, responsible for the receiver's conduct or liable for any loss by reason of his misconduct.' The act of the court, in appointing two receivers, does not permit one of them to neglect his duty. He will be held to a note of a corporation, of wtich that the court had power to aecer- receivers had been appointed and tain by a reference whether such a general injunction issued, applied claim should be paid out of the for and procured against the reoeiv- estate or not. er's opposition, a modification of the i Manning «. Monaghan, 33 N. Y. injunction so as to permit them to 544^ reversing 2 Bosworth, 459. sell property of the corporation held as collateral to the note, and then 'Drake v. Goodridge, 5 Blatchf. made an application to direct the (^- ^- ^- ^•)' ^^^■ receivers to pay for counsel fees * Kaisar v. Kellar, 31 la. 95 ; First incurred in procuring a modifica- National Bank of Jersey City v. tion of the injunction. It was held Kimball, 43 N. J. Eq. 107. 416 LIABILITY OF EECEIVEKS. [CHAP. IX. the same accountability as if he alone were appointed, and if one of them misappropriates trust funds by using them for his own profit, and the other gives no attention to the matters intrusted to his care and supervision, but grossly neglects his duties, they will both be held liable for the funds so misappro- priated/ Before, however, a receiver can be made liable to pay any amount for negligence or misconduct, it must appear what the actual loss is that the trust estate has sustained and that it has been caused by reason of his negligence or misconduct. He cannot be held liable for assets or their value for which he has duly accounted or has turned over to his successor under the order of the court. And when a receiver, who, by failure to discharge the duties of his office, has rendered himself liable to account for the loss resulting from his neglect and has been removed, and the entire estate has passed into the hands of his official successor, it is to the latter — who has been placed in the position the former occupied relatively to the creditors who are seeking payment of their debts out of the estate — that he is accountable, and not to the creditors themselves.^ If a receiver procures authority from the court to employ counsel, and then relies upon the suggestions and advice of his counsel — in whom the court itself has full confidence — in the management of the property and the compromising of claims, the receiver will not be held liable for any loss which may result to the trust estate by reason of the want of good faith of his counsel in giving the advice.' And for moneys collected and misappropriated by an attorney in good standing, whom he employed in the business of his trust, wherein it was necessary for him to act by an attorney, the receiver will not be held personally responsible.^ ' Commonwealtli v. Eagle Fire Ins. ' United States v. Late Corpora- Co., 96 Mass. 34. tion of Church of Jesus Christ, 6 ' Clapp ■». Clapp, 49 Hun (N. T.), Utah, 43 ; 21 Pao. Rep. 500. 195; 27 N. T. State Rep. 185; 7 « Union Bank Case, 37 N. J. Eq., N. Y. Supp. 495. 420. The attorney for the receiver For instructions given by the in this case received in a settlement court in surrendering a railroad made by him with a debtor of the and its property by a receiver to bank certain notes, one of which his oflBcial successor. See Central the attorney applied, without au- Trust Co. ■». Wabash, St. Louis & thority from the receiver, to his Pac. R. C, 39 Fed. Rep. 618. own use. A part of the amount of SEC. 81.] rOB NEGLIGENCE OB MISCONDUCT. 417 The rule is that if a receiver acts with proper caution, and for what he deems the best interest of the estate, and a loss occurs without fault on his part, he will not, ordinarily, be required to make good such loss.^ When, therefore, he employs an attorney in a foreign jurisdiction to collect moneys due to the estate from creditors therein, and by inquiry satisfies himself of the integrity of the attorney at the time, he wiU not be held liable to the estate for the moneys collected and mis- appropriated by the attorney.^ But all classes of trustees, including receivers, having money belonging to trust estates in their hands, are bound to keep the trust funds separate and distinct from moneys of their own, and in such a way that they have absolute control over the fund ; and if deposited in bank for safe keeping, the money should be deposited to the credit of a separate account in their own names as trustees, so that the funds can at aU times be traced and identified.* If a receiver parts with the absolute control over the fund and pays into a banking house, under an arrangement with it that all drafts upon the same so paid in should be written by one of it was due him on account of his erty of a partnership, in this case, professional services to the receiver employed a lawyer in Philadelphia who, it appeared, knew nothing to collect a claim in favor of the about the settlement, nor that it partnership against the estate of a had been made, until after the debtor outside of the state and in death of the attorney. It was held Philadelphia. The receiver, through that the receiver should not be held his regular attorney, made due in- liable for the loss. quiry as to the character of the law- ' Knight «. Plymouth, 3 Atk. yer before putting the claim into (Eng.), 480. In this case the re- his hands, and was satisfied that he ceiver did not think it safe to was worthy of confidence, and there remit money in specie to London, was no evidence that he was not a and as a necessary precaution paid lawyer of good standing at that the money to a tradesman, who was time. Such lawyer, after collect- in good credit at the time, and the ing the claim, absconded, and never receiver had no reason to doubt that paid it over, nor any part of it, and themoney was lodged in safe hands; was wholly insolvent. It was AeM and took bills for the sum. The that the receiver should not bear tradesman soon after failed, and it the loss. was held that the receiver was not ' Utica Ins. Co. v. Lynch, 11 Paige liable personally to make good the ( N. T.), 530 ; Matter of Common- loss, wealth Fire Ins. Co. , 33 Hun ( N. T.), ^ Powers V. Loughridge, 38 N. J. 78. Eq. 396. The receiver of the prop- 418 LIABILITY OF KECEIVEES. [chap. IX. his sureties and signed by himself, and the bank subsequently fails, the receiver will be held individually liable for the resulting loss to the estate.' And a receiver who deposits the funds in a bank, not as receiver, but in his own name indi- vidually, and with his own private funds, thereby becomes the creditor of the bank and the debtor of the trust estate ; and ' Salway v. Salway, 3 Ruse, and Myl. ( Eng.), 215. A receiver in this case, in order to prevail upon par- ties to become his sureties, entered into an arrangement with them by which it was agreed that the rents, when received, should be paid over to a person of the name of Ander- son (who was a partner of one of the sureties), and be deposited by him at the banker's in the joint name of the sureties, and that all drafts upon the moneys so deposited should be written by Anderson and signed by the receiver. The bank into which the money was so first paid, failed, and a considerable sum was thereby lost to the estate. The funds of the estate were then trans- ferred to another bank under a similar arrangement as to the pay- ment of money and the drawing of sums out. This bank also failed, and it was held that the receiver was liable for the loss. Lord Chan- cellor Brougham said: "It is ad- mitted on all hands, that if a re- ceiver puts a fund out of his own control, BO that other persons shall be able to deal with it, he guaran- tees the solvency of these persons, and becomes answerable for any loss that may ensue. However good his intention, the departing with the control to the extent of giving that control to another, would be enough to make him a guarantee of the fund. The principle is so ob- vious that I say nothing of the authorities. His Honor, indeed, has observed that the receiver here had not so far parted with the control as to enable the other person to deal with it without his concurrence. He parts with his exclusive control by associating and incorporating with himself the authority of another person. Anderson was to make the drafts ; he, the receiver, was to sign them, and, consequently, Anderson was a necessary party to the draw- ing out of every shilling of the funds in deposit. The question, therefore, assumes a very serious aspect; and if I am to aflBrm this judgment, when possessed of the knowledge of an arrangement, by which an individual, not an officer of the court, not answerable to the court, nor recognized by it, is called in to the extent of exercising a veto, I cannot shut my eyes to the conse- quences. To hold that a receiver, although the court confides in him, and appoints him propter delectum personce, is entitled, notwithstand- ing, to mix up with his delegated authority another person to whom the court is a total stranger, would be a doctrine pregnant with the greatest danger, and one for which I can find no authority. The case of Knight V. Lord Plymouth (3 Atk. 480), has been much doubted, and in Wren v. Kirton (11 Ves. jun. 377), it is clear that Lord Eldon was prepared, if necessary, to have gone against it. Lord Hardwicke, it is well known, has been peculiarly unfortunate in the reporters of his decisions, and there may, there- fore, have been circumstances in SEC. 81.] FOR NEGLIGENCE OR MISCONDUCT. 419 in case tlie trust funds are lost through the insolvency of the hank, the loss wiU fall on the receiver individually.^ Knight V, Lord Plymouth, which, if known, would have thrown a better light upon the decision in that case. But it is unnecessary to discuss or pronounce upon the com- parative authority of these cases now; for the present, as must in- deed generally happen in questions of this nature, it must, after all, be determined upon its own circum- stances. I could not affirm the de- cision of the court below without laying down this rule — that a re- uncan, SEC. 83.] UPON THEIR BONDS. 433 The extent of the sureties' liability can only be ascertained by the terms of their bond.' And the sureties on the official 59 Miss. 740. Pending litigation against a bank, in this case, a re- ceiver was appointed of its property, and gave bond with sureties. The suit having been dismissed, the re- ceiver was directed to make his report, which he did ; the report and exceptions filed thereto were referred to a commissioner who re- ported a large amount due from the receiver who had in the meantime removed from the state. This report was confirmed, and it was ordered that a scire facias issue predi- cated on the bond according to the statute (Act of 1858), commanding the sureties to appear and show cause why the court should not pro- ceed to assess the damages. The sureties demurred upon the grounds that the act, under which the scire facias was issued, was unconstitu- tional and void, and that the court had no jurisdiction. It was Tield that the legislature had the consti- tutional power to change the rem- edy and confer jurisdiction upon the Chancery Court, and, therefore, the demurrer was overruled. ' Thomas ■». MacQregor, 81 N. T. 592. In Ross ■». Williams, 11 Heisk. (Tenn.) 410, certain creditors filed their bill against their debtor to set aside an assignment and the latter's property was attached and placed in the hands of a receiver who gave bond with sureties, payable to the several creditors named in the bill and in the assignment. Afterwards Moore, another creditor, but not in- cluded in the bill or assignment, filed his bill against the debtor and receiver both, and attached the sur- plus, over and above the claims of the attaching creditors, in the hands of the receiver, and obtained a decree against the debtor for his debt. The receiver having defaulted the court proceeded in the same case to give judgment against the surviving surety, and the represent- atives of the other two for the amount found due to Moore. Upon execution being issued, the repre- sentatives of one of the sureties satisfied it and then filed this bill against the surviving surety for con- tribution. The receiver's bond pro- vided that if he " shall perform the duties of receiver as imposed on him in the order of his appointment, make report of sales, and well and truly account for all sums received by him, and pay over all such sums of money as may be decreed against him as receiver, and comply with all such orders as may be made against him by said court in regard to said funds — then this obligation to be void, otherwise to remain in full force and virtue." It was held that if the sureties were liable to pay to Moore the amount of his de- cree against the debtor and the receiver, then the complainant, hav- ing paid the whole amount, was entitled to contribution, whether the judgment, under which he paid was regular or void, and that under the bond the receiver was required to account for all moneys received by him, and, therefore, he having failed to do so, the sureties were liable. In a case where the receiver gave bond to " obey such orders as said court may make in relation to said trust, and in all respects faithfully discharge the duties of said trust," and the receiver had, under an order of the court, taken certain property from the possession of his, 434 LIABILITY OF RECEIVERS. [chap. IX. bond of a clerk of tlie court are not liable for the default of their principal in administering a fund as receiver ; since the duties devolving upon a receiver cannot be deemed to have been in contemplation of the sureties upon their undertaking.^ If a certain sum is ascertained to be due from and ordered to be paid by a receiver by an order or decree of the court, after due proceedings and a fuU hearing, such order or decree, so long as it is valid, is competent evidence against his sureties as well as himself, both of a breach of his bond, and of an amount due from him upon such breach, for which they are responsible.^ insolvent — wMcli liad been sold to th.e latter under an agreement that the title should not pass until it was paid for — and sold it, it was held, in an action brought by the owner upon the bond that it could not be main- tained. People V. Murdock, 50 111. App. 311. ' Kerr «. Brandon. 84 N. C. 128. The receiver in this case was ap- pointed by an order providing " that Henry F. Brandon be appointed a receiver to take into his possession the estate of Sarah B. Russell, Ann E. Russell and Willie Russell, and manage the same to the best inter- est of the said minora ; to lend their money upon good security, and that he rent out the land to the best advantage for the said minors, to collect the rents and lend the same upon good security.'' The appointee was then clerk of the court and the present action was instituted against him and the sureties on his official bond, given for securing the faith- ful discharge of his duties as clerk, to charge them with the trust fund wasted and misapplied while in his hands as receiver. It was lield that they were not liable. To the same effect are Rogers ». Odom, 86 N. C. 433; Syme e. Bunting, 91 N. C. 48. ''Commonwealth ■». Gould, 118 Mass. 300. In this case the bond of the receiver of an insurance com- pany provided that if he "shall faithfully conduct himself in said office, shall faithfully perform its duties as required by law and in obedience to the directions of said court, and shall truly and faithfully account for and pay over the moneys of said company, which shall come into his hands, then this obligation to be void, otherwise of full force and virtue." The receiver having been guilty of negligence and mal- feasance in the duties of his ofBce, the court, after full hearing, made an order that the receiver pay to his co-receiver a certain amount found, for cash lent to him by the com- pany and cash withdrawn by him for his personal use from the aaaets in his hands. Failing to do so he was adjudged guilty of contempt and the present action was brought against the surety upon his bond. In proof of the breach of the condi. tion of the bond, the Commonwealth offered in evidence the order direct, ing the receiver to pay, which was objected to as incompetent. It was held that such order was competent evidence against the receiver's sure- ties as well as himself, both of a breach of his bond, and of the amount due from him upon such breach, for which they were respon. sible ; and that the fact that tlie receiver's compensation bad not SEC. 83.] UPON THEIR BONDS. 435 But such order or decree is not conclusive upon these sureties unless the language of their undertaking expressly and explicitly contemplates a submission to the orders of the court and shows that the sureties must have intended to be bound by them. Thus, if the condition of the bond is that if the receiver " shall Thenceforth faithfully discharge the duties of his trust," the sureties have a right to prove the receipts and payments of the receiver from and after the date of the bond, and to investigate the accounts so as to show that no liability had accrued since such date.^ been determined was not pertinent in this action. ' Thomas v. MacGregor, 81 N. T. 593. The Court, in this case per Finch, J., says: "The argument here is, that as the receiver is the officer of the court, its mere agent or instrument to effect its purposes, his plain duty is to obey all its or- ders, and, therefore, when the surety contracted that the receiver should faithfully perform his duties as such, he in effect contracted to be responsible for any disobedience of his principal, and so was bound by the order disobeyed. We think, however, that the surety is not thus to be brought within the rule by inference or argument, and that, unless the language of his contract expressly and explicitly contem- plates a submission to the judg- ment and shows that the surety must have intended to be bound by it, such rigorous liability is not to be imposed upon him by argu- ing it from general words having another purpose and a different aim, and so understood by him. The bond is not to be a snare in whose meshes he is caught unwit- tingly. The liability argued out is under the surface and concealed, and was probably wholly unsus- pected by the surety. He might have refused to sign, if a cove- nant to be bound by a judgment against his principal had been so expressed as to be understood by him. * * « * The learned judge who wrote the opinion of the General Term seems to have felt the difficulty, for he says 'the order and proceedings leading to it do not comprise something that is binding upon the defendant as an adjudica- tion, but are evidence of the facts as to violation of duty in disobeying the order,' and the same ground in nearly the same language is taken by the respondent. But if not bind- ing as an adjudication upon the surety, it becomes merely evidence, and is not conclusive. It may be rebutted. If the order was wrong, if the receiver owed no balance, if he was required to pay what was not due, then he had faithfully per- formed his duty as receiver, although not obeying the mandate of the court. It is said ' the surety has contracted that the receiver will pay. ' Undoubt- edly, but pay what f Not any sum which the court may order, unless, indeed, the surety has bound him- self by that rigorous contract, but such sum as the receiver justly owes, and as an honest and faith- ful officer ought to pay. And upon that question the surety has a right to be heard. We do not see that it avails anything to try to distinguish 436 LIABILITY OF RECEIVEES. [chap. IX. But it is wholly immaterial that the bond is made payable to- specified creditors. The bond is for the benefit of all who may show themselves interested in the funds secured, and if the receiver fails to pay into court or otherwise account for funds received by him, the receiver and his sureties are liable on the bond to a creditor though not named in the bond.^ And the real party in interest has the right to sue upon the bond, though made payable to the people of the state, or to the court.' between an order which is binding as an adjudication, and an order which is conclusive evidence as a fact. The substantial thing remains, though the phases are changed. The doctrine pushed to its logical results might easily make every surety for the performance of duty bound by the adjudication against his princi- pal, or so nearly so as practically to abrogate the rule which holds him only when he has explicitly con- tracted to submit himself to the judgment of the court. We think the vice of the reasoning lies hid in the failure to sufficiently distinguish the relative positions of the princi- pal and surety. As between the principal and the creditors of the fund, it is the receiver's duty to pay according to the order, for he has been heard and is bound by the adjudication. But as between the surety and such creditors, it is not the receiver's duty to pay according to an order made without the surety's knowledge, as to which he has not been heard, and which is not against him a binding adjudi- cation. We cannot, therefore, affirm this judgment without holding that by the terms of his bond the surety contracted to be bound by the ad- judication against his principal. The case was tried on that theory. The surety's attempted defense was shut out, and the order treated as conclusive. We can give it such effect only when the surety has so contracted, expressly and explicitly and in terms which show that such result was fairly understood and contemplated." ' Ross ■». Williams, 11 Heisk. (Tenn.), 410. ^ Weems ii. Lathrop, 43 Tex. 207. In Baker «. Bartol, 7 Cal. 551, the plaintiff instituted a suit in equity against the defendant Bartol, pray- ing for the appointment of a receiver, and other relief, and the court made an order, at the suggestion of the defendant's counsel, that if the de- fendant Bartol within five days filed a bond coaditioned to account in a certain sum, the motion for a re- ceiver would be denied. He accord- ingly filed such bond, signed by him- self and two sureties, which bond was made payable to the people of the state. A final decree having been rendered against the defend- ant Bartol for a certain sum, a copy of such decree was served upon the makers of the bond, and payment demanded, which being refused, plaintiff brought this suit thereon. The sureties denied their liability, on the ground that the bond being payable to the State of California, plaintiff had no right to sue thereon, and that the order of the court requiring Bartol to file the bond was void. It was hdd that the bond was valid, and the plaintiif , being the real party in interest, could Bue upon the bond. SEC. 83.] UPON THEIR BONDS. 437 A receiver is obliged to account for the moneys borrowed by Mm from the corporation before his appointment; and his omission to pay the amount thereof to' himself as receiver is a breach of the bond, for which he and his sureties are equally liable, and the question, what compensation, if any, is due to the receiver, cannot be determined in an action on the bond for a breach thereof.' If a receiver refuses to comply with an order of the court to distribute moneys, derived from an assess- ment laid by him upon all the members of a mutual insurance company, among the creditors of the company, he and his sure- ties wiU be liable upon his bond, and it will be no defense that such assessment was adjudged to be void, if the money was received by him under such circumstances that he is not liable to repay it to those from whom he received it, as when the payments were so far voluntary that they cannot be recovered back.^ And if a receiver comes into possession of the notes of third parties for the hire of the trust property, the fact that he has obtained no authority from the court to coUect the same wiU not excuse the liability of his sureties, if he did collect and thereby place it out of his power to account for the notes, otherwise than by producing the money, and fails to do so.^ ' Commonwealth v. Gould, 118 tion was, upon leave granted, begun Mass. 800. against the receiver and his sureties, ' Wilde V. Baker, 14 Allen (Mass.), who defended upon the ground that 349. In this case the receiver of a • the money in the hands of the re- mutual insurance company having ceiver, having been collected upon been directed by the court to pay to an illegal assessment, should not be the creditors a certain dividend upon distributed among the creditors, to their claims as proven, out of funds the exclusion of those who paid in his hands collected by him, for such assessment. This was held the most part, on an assessment laid untenable and the plaintiff obtained under his direction, which had been judgment. held invalid (see 9 Allen, 483) ; some « Weems v. Lathrop, 42 Tex. 207. of it having been collected by him It further appeared in the case after judgment and execution re- that the receiver was to hire covered ; some after suits brought, out the slaves at public auction, but before judgment; but the taking bonds or notes and security greater part was paid to him volun- for the hire. The receiver having tarily by the members assessed, collected the notes and failed to without suit. The receiver neg- account, it was insisted by his lected to pay the dividend, and after sureties that under his instruc- notice of such neglect was given to tions the receiver had no power the sureties upon his bond, this ac- to collect the notes, and therefore 438 LIABILITT OF EECEIVEKS. [chap. IX. And in general, the sureties are answerable for such interest, as weU as for such principal, as a receiver himself is hahle to pay.^ they were not liable. But this was held untenable. ' Dawson -o. Raynes, 3 Russ. (Eng.), 467. In this case the bond bound the receiver to account an- nually for and pay what he should receive of moneys and securities for money. The Lord Chancellor said : " The question is, whether the sureties of the receiver are to be charged only with the bal- ance of the trust moneys which came into his hands or whether they are further to be charged with that interest which he would un- questionably be liable to pay, if he were able? The question is one of great importance with reference to all cases in which sureties may be called on to answer for the principal money and interest, which the prin- cipal debtor would have to pay, if he possessed means of payment. The Vice-Chancellor was of opinion that the sureties could not be com- pelled to pay any interest. If the sureties are not liable, within the meaning and intent of the recogni- zance in its present form to pay the interest which the receiver himself would be bound to pay, the conse- quence will be, that the form of the recognizance must be improved and must be rendered more comprehen- sive. It seems to me that it would be difficult to say, that, where the principal debtor would be obliged to pay interest, there would not be an equity that the surety should pay the interest in default of the principal. The penalty is forfeited by the breach of the condition ; the amount of the penalty is the debt due from the sureties at law. How can they have a right to be dis- charged in this court from their legal liability, till they have paid all that the principal could have been required to pay ? " SEC. 84.] TO ENFORCE EQUITABLE AND LEGAL RIGHTS. 439 CHAPTEE X. Remedies against Receivers. Sec. 84. To enforce equitable and legal rights in property in possession of receivers. 85. By parties having claims against them as such. 86. By landlord to enforce payment of rent. 87. For acts done outside the scope of his authority. 88. Upon fraudulent sale of trust property. 89. Of the right to set off. 90. By creditors holding collateral security. 91. When they refuse to prosecute corporate officers for neglect of duty. 93. In the Federal courts upon appeal. 93. After discharge and sale of the property for debts and liabilities arising during the receivership. 94. Of National Banks. Sec. 84. To enforce equitable and legal rights in property in possession of receivers. —The proper course for any person claiming an equitable interest or title to property, real or personal, of which the court has taken possession through its receiver, is to apply by petition to the court in the cause in which the receiver was appointed. The property is in the cus- tody of the court, and the receiver in holding it is an officer of the court, and, therefore, equitable rights which, it is claimed, are superior to the title conferred by order of the court can be passed upon only in the cause in which that title is created, and cannot be set up in an independent suit.^ ' Potter ■». Kingman, 126 Mass, 141. tion and under a mistake of fact, This was a bill in equity alleging and was procured through the false that certain parties executed and and fraudulent representations of delivered to a bank their note for the treasurer of the bank; that an amount named, secured by a the defendant had been appointed mortgage of land; that such par- receiver of the bank, and as such ties were adjudged bankrupt and held the mortgage and note, de- their assignees conveyed the land manded payment of the latter, and to a third person, who conveyed it threatened to foreclose the mort- to the plaintifE ; that the mortgage gage. The prayer was for a general to the bank was without considera- relief. A demurrer to the bill was 440 REMEDIES AGAINST KECEIVEKS. [CHAP. X. .If the authority of a receiver to take possession of the prop- erty under the order of the court is not questioned, the remedy of a creditor or person interested therein, who believes that the property for any good reason should not pass into the hands of the receiver, is to apply to the court appointing the receiver and request the liberation of such property from the custody of the receiver in order that he may proceed against it.' While the possession of the corporation may have been wrongful, and an action of replevin could have been maintained against it, yet after the property has passed into the actual possession of the receiver, it cannot, without leave of the court first obtained, be replevied from him. The remedy is by an action commenced with the leave of the court, or by petition to the court.^ Whatever the rule may be in the different states and their sustained upon tlie ground that the plaintiff must proceed by a petition in tlie cause in whicli the receivers were appointed. And see Smith v. Earl of Effingham, 3 Beav. (Eng.), 332. ' Van Rensselaer i). Emery, 9 How. Pr. (N. Y.), 135. In the Matter of Day, 34 Wis. 638. To illustrate : A railroad com- pany mortgaged " all the estate and property, real, personal and mixed, and all fixtures, right, privi- leges, franchises, easements, rights under leases, terms and parts of terms, agreements, covenants and contracts of all and every kind, held and owned or occupied by the said party of the first part. * » * Together with all and singular the lands, * * * privileges, fran- chises, rights and interests, real estate, personal property, choses in action, leasehold, and other things, of and belonging to said party of the first part, of every kind, nature and character, etc." After the mak- ing of the mortgage, a party brought suit against the company and recov- ered a judgment, but before an exe- cution was issued thereon, a receiver of all the property of the company covered by the mortgage was ap- pointed. Thereafter execution was issued upon the judgment and levied upon land, belonging to the company and owned by it before and at the date of the mortgage. The receiver then petitioned the court to set aside the levy and to restrain the plaintiff from executing his execution on any of the property in the possession of the receiver. It was held that the mortgage covered the land so levied on, and the prayer of the receiver was properly granted because the remedy of the judgment creditor was to apply for relief in the cause in which the receiver was appointed. Robinson v. Atlantic & Great West- ern R. Co., 66 Pa. St. 160. In Riggs V. Whitney, 15 Abb. Pr. (N. Y.), 388, it was Tield that the land- lord properly applied to the court in the action in which the receiver was appointed to direct the latter to pay the rent. ' Thompson ■». McCleary, 159 Pa. St. 189 ; Matter of Christian Jensen Co., 138 N. Y. 550. SEC. 84.J TO ENFORCE EQUITABLE AND LEGAL EIGHTS. 441 various tribunals on the question, whether the enforcement of a legal lien upon property actually in a receiver's possession, without leave of the court being first obtained, is absolutely void or merely irregular, certain it is that if a party holding such a lien applies to and first obtains leave of the court to enforce it by sale, the enforcement of the lien and the sale of the property thereunder will not be void or irregular.^ The remedy, therefore, of a lienor, who is desirous of enforcing his lien against the property after it has been taken into the custody of the court to abide the final determination of the litigation, is to apply to the court appointing the receiver and, primarily, obtain its leave for that purpose. In this way, he will avoid the liability of being declared in contempt of court, ' Wiswall V. Sampson, 14 Howard (U. S.), 52. In this case the lessors of the plaintiff gave in evidence two judgments against John Tick- nor, one in favor of Fowler & Co., rendered Dec. 28, 1840, the other in favor of Croach & Sneed, ren- dered Dee. 31, 1840, each of them in the Circuit Court of the United States. Executions were issued upon each of the judgments within a year, and returned by the marshal " no property found." An alias Ji, fa. was issued on the judgment in favor of Crouch & Sneed, on Febru- ary 24, 1845, and the lot in question levied on ; an alias Ji. fa. was also issued on the judgment in favor of Fowler & Co., on April 7, 1845, and a, levy made on the same ; and on July 7th, the lot was sold on both executions, and bid off by Dar- gan, one of the lessors of the plain- tiff, and a deed executed to him by the marshal on August 13th of the same year. Dargan quit-claimed the premises to Hall, the other lessor. The plaintiff's title to the premises was claimed under this sale, and the defendant resisting it gave in ■evidence a judgment in his favor :against Ticknor in the Circuit Court of the state, rendered June 14, 1842 ; an execution issued July 1st of the same year, which was returned by the sheriff " no property found ; " also a deed of the lot in question from Ticknor to one Day, bearing date April 28, 1840; and the ex- emplification of a decree and the proceedings in chancery on a bill filed February 7, 1843, by the de- fendant against Ticknor and Day, setting aside the deed to Day as fraudulent and void against credit- ors. The decree was rendered April term, 1845. Also the appointment of a receiver by the court to whom possession of the property was de- livered on June 37th of the same year. The receiver remained in possession till the lot was sold by the master, March 1, 1847, under the decree in chancery and was pur- chased in for the defendant Wis- wall. It was held that the receiver, being in possession of the property at the time the sale under which the plaintiff claimed was made, such sale was void and the purchaser acquired no title to the property. And see Edwards v. Norton, 55 Tex. 405. 442 REMEDIES AGAINST RECEIVERS. [CHAP. X. and relieve himself from the possibility of having his proceed- ings declared void pending the litigation, or at least of having them arrested by an exercise of the acknowledged equitable jurisdiction of the court.^ Sec. 85. By parties having claims against them as such.— The remedy of a person having a demand or claim against the property or fund in the hands of a receiver of a court of equity, is to apply to the court, upon notice to the receiver, for relief against its officer, and if the facts set forth in the petition are not denied by the receiver and the claim is a proper one to be paid, the court will direct the receiver to pay it without a refer- ence or suit.^ If, however, the facts relating to the fund in question, and the claims of the various parties interested there- in, do not sufficiently and so clearly appear as to enable the court intelligently to adjudicate upon the questions involved, it would be unjust to require the receiver to pay the claimant his claim in full when there are other claimants with equities, equal to his who might be prejudiced by such a payment. In such a case the court will not direct the receiver to pay the claim but will permit the claimant to make a further appHca^ tion for relief by way of reference or otherwise, in such a man- ner as wiU enable other parties interested to be heard upon the question of the distribution of the fund, and to have the ' Wiswall V. Sampson, 14 Howard of the receiver, receiving the (U. S.), 52, 66 ; Dagger v. Collins, 69 sheriff's deed therefor. Upon the Ala. 334. In the latter case a cred- petition of the creditor filed in the iter of a devisee, the estate of ■whose administration suit seeking to be testator was in the possession of a subrogated to the rights of the de- receiver appointed in a suit pending visee to the lands, it was held that In a court of equity for the settle- he acquired no title by the sheriff's ment and distribution thereof, ob- sale and the deed thereunder, and tained a judgment prior to the ap- that even if he had acquired title^ poiutment of the receiver, but failed its acquisition would have been in to acquire a lien by placing an exe- disregard of the court's poSBession cution in the hands of the sheriff and custody of the property, and no until after such appointment ; and sanction could be given to such afterwards he purchased at sheriff's irregular proceedings, by putting sale — made under execution issued him in possession of property, the on the judgment, but without leave title to which he had thus acquired, of the court of equity — the devisee's ' People v. Bank of Dansville, 39 interest in certain lands belonging Hun (N. Y.), 187 ; People «. National to the estate and then in possession Trust Co., 83 N. T. 283. SEC. 85.J BT PARTIES HAVING CLAIMS. 443 facts presented to the court in sucli form as may enable it intelligently to decide upon the respective rights of all of the parties interested.' And where the authority of the court or the construction of its order is not in question, hut the com- plaint is made against the misconduct of its officers, acting under color of authority merely, the court may, in its discre- tion, either take to itself the cognizance of the complaint and do justice between its officers and the parties aggrieved, or it may permit the latter to bring a suit at law for the alleged 1 Hubbard v. Guild, 2 Duer (N. T.), 685. Matter of Ensign to com- pel Cuykendall, receiver, to refund moneys, 95 N. Y. 664. In this case the receiver of a manufactur- ing corporation, under an order of the court, made an assessment of the stockholders, and an action was brought by the receiver against the petitioner's testator to recover the same. The action was tried and a verdict rendered therein in favor of the receiver, but, without waiting for the entry of judgment, the tes- tator paid the same with costs. Thereafter, in another of the ac- tions so brought (reported in Cuy- kendall «. Corning, 88 N. Y. 139), the assessment was held to be invalid. Thereupon this applica- tion was made for an order re- quiring the receiver to refund to petitioner the money so paid. The Special Term granted the application, but upon appeal to the General Term this was reversed, without prejudice to any subse- quent proceedings, upon the ground, it seems, that the facts relating to the fund and the claims of the various parties interested therein did not sufficiently appear. This, upon appeal to the Court of Ap- peals, was held correct. But in Ackermann ■». Moore, 81 Ga. 688, a petition was filed against a receiver alleging that one John- son, then deceased, gave to the petitioner's testator a mortgage on land, which was duly recorded, to secure a debt. Johnson died, and during the progress of the adminis- tration suit a receiver was appointed of the assets of his estate, and a spe- cial master having been appointed in that cause, he made a report, wherein he determined the amount, character and lien of the claims of the various creditors against the estate of Johnson, and reported that certain claims had superior dignity to all other claims against the estate. These claims and all other claims having priority to the petitioner's, the court ordered paid out of the fund raised by the re- ceiver from the sale of the real and personal property belonging to the estate, leaving still a surplus in his hands. The petitioner prayed for an order directing the receiver to pay his debt, so secured, it being the next highest lien. Certain cred- itors, who had judgments younger than her mortgage lien, demurred to the petition, and the court sus- tained the demurrer and dismissed the petition. Upon appeal this waa held error, that the fund left unap- propriated to claims of higher dig- nity than the petitioner's should be appropriated to the payment of her claim. 444 REMEDIES AGAINST RECEIVERS. [CHAP. X. injury. And in cases of this description, it has been held that it is more in accordance with the spirit of our institutions to permit the parties complaining to proceed at law, where they may have the benefit of a jury trial, than to attempt to settle their rights by a reference.^ If the appropriate remedy is equitable, the court of equity may be invoked to act in the ordinary mode.^ If the appro- priate remedy is legal, leave will be granted to sue the receiver where the petitioner makes out by his petition and affidavits a prima facie cause of action. The court ought not to under- take in advance, on such a petition, to decide the question against the petitioner. But it is essential that the petition should show on its face that the petitioner has a case; the court should not allow its receiver to be harrassed by a suit where, according to his own showing, the petitioner has no cause of action.^ Permission to sue, however, is not a determination ' Parker i). Browning, 8 Paige (N. T.), 388 ; People v. E. Remington, 19 Abb. N. C. (N. T.), 350. Where a party, without leave, sued a receiver of a railroad ap- pointed by a Federal Court, in a State Court, he was brought before the court appointing the receiver by virtue of an order against him to show cause why he should not be attached for contempt, and an attachment was directed to be issued against him unless he stipu- lated to dismiss the suit in the State Court. Thompson v. Scott, 4 Dill. (U. S. C. C), 508. Where upon a petition filed by the administrator of a deceased person killed by a, train of cars upon a railroad operated by a re- ceiver, to recover damages against the receiver, the court denied the application of the petitioner for a jury trial. Kennedy v. I. C. & L R. Co., 3 Fed. Rep. 97. In Lehigh Coal and Navigation Co. «. Central Railroad of N. J., 38 N. J. Eq. 175, the petitioners claimed to have supplied a former receiver of an insolvent railroad with large quantities of materials for the use of the railroad. They applied for an order directing the succeeding receiver of the railroad to pay for these materials, and also for an order giving them leave to sue him at law for the damages which they alleged they had sus- tained at Ms hands by reason of his non-fuMUment of his predecessor's contracts with the petitioners for other materials, similarly applied. It was held that the court, before granting the petition, would, by a preliminary examination of the transaction, determine whether the matter could not be disposed of by it. ' Vanderbilt «. Central R. B. Co. 43 N. J. Eq. 669, 685. 3 Jordan v. Wells, 8 Woods (U. S. C. C), 537. This was a petition wherein leave was asked by the petitioner to bring suit against the re- ceiver of an iron company appointed in a suit in equity to foreclose a mortgage upon the property of the SEC. 85.] BY PARTIES HAVING CLAIMS. 445 that the eomplamant has a good cause of action against the receiver. The court, in granting leave to sue, is not called upon company. The petition alleged that in order to perform the duties im- posed on him by the order of the court, it became necessary for the receiver to cause to be run a loco- motive engine belonging to the company, and the petitioner was employed by the receiver as firemen and coupler on said engine, and while so in the receiver's employ he was Injured by reason of the negligence of another employee operating the engine at the time as engineer. The averment of the petitioner in reference to the em- ployment of the engineer alleged to be incompetent, was as follows : That " one L. S. Tidwell, a person unskilled in running locomotive engines, and this engine in par- ticular, was put in charge by said receiver, and required to run said engine." It was held that the peti- tioner did not make out a prima facie case, and therefore his petition for leave to sue was denied. In New Jersey the distinction be- tween legal and equitable relief has undergone a thorough consideration and the conclusion has been finally reached that a, court of equity has no jurisdiction of a legal cause of action, sounding merely in tort, against a receiver; but, inasmuch as such an action at law cannot be brought without the permission of the court of equity, such permission cannot be refused, unless the claim preferred be manifestly unfounded and vexatious. Palys ■». Jewett, 32 N. J. Eq. 302. This was a suit against the defendant, as the re- ceiver of a railroad, for damages alleged to have been sustained by the plaintifE by reason of the negli- gence of the employees of the re- ceiver in the management of a train of cars. The trial took place be- fore the vice-chancellor, who found against the plaintifE (Palys v. Brie Bailroad Co. 3 Stewart Eq. 604.) Upon appeal it was held that the chancellor had no jurisdiction to try the suit, and that the plaintifE was entitled, as a matter of right, to a jury trial, but that the Court of Appeals could lawfully exercise its jurisdiction by way of review, and, the decree being reversed, the com- plainaat's damages were ascertained and adjudged to him on the appeal. Chief Justice Bbaslet said : " Such then being the usual principle, the question remains, whether it be- comes modified, or, rather, alto- gether abolished, when a receiver appointed by the court is the wrong, doer. The actionable injury in the present case arose from the neglect of one of the employees of such receiver, and the inquiry, therefore, is whether that quality of the trans- action draws to the court of equity cognizance of the litigation. It is claimed that, under such a form of proceeding, although the action is for a tort to the property and per- son, the chancellor can, in his dis- cretion, try the law and the facts and assess the damages. W e have seen already that, if such a jurisdiction exists in equity, it is to a very re- markable degree inconsistent with the ordinary principles on which a court of this class proceeds, and that in this department it attempts to do what in all other departments it is said to be illy adapted to do. In view of the striking inconsistency, if such a practice exists in this par- ticular class of cases, we would ex- pect to find strong reasons for such 446 REMEDIES AGAINST RECEIVERS. [CHAP. X. to, and does not, pass upon the question of the receiver's liability. In all such cases the leave to bring suit in any form resenres a diversity, as well as repeated pre- cedents testifying to its prevalence ; but, upon examination, I find neither such reasons nor such precedents. It does not seem to me that there is anything in the nature of the affair that has even a tendency to legiti- mate such a course. The claim in such a case is purely a legal one, and without a single feature dis- tinguishing it from the ordinary matters which are tried at common law. The plaintiff must recover, if he recovers at all, by force of legal, and not of equitable, rules. The damages are not susceptible of any exact estimation, their only measure being an experienced judgment. It is universally admitted that, accord- ing to the theory in which our juris- prudence is founded, such questions are not adapted to the judicial meth- ods of a court of equity ; such ques- tions are universally, with this ex- ception, if such exception exists, confided to the courts of common law. Such damages as these have always been assessed by a jury. Why then should there be a devia- tion, in these particular instances, from this clearly marked track 1 I am unable to perceive that it is founded in any circumstance of con- venience, much less in any necessity. The settlement of these claims in the common mode, by a suit at common law, in no wise jars with the due execution of his office by the re- ceiver. Such a suit does not dis- turb, or even affect, the receiver's possession of the property intrusted to him by the court, for, if a judg- ment ensue, it cannot without an application to the chancellor be enforced by levy on such property. And, for the same reason, it does not interfere with the absolute con- trol vested in the court of equity over the property sequestered. It tends to embarasB, therefore, neither the court nor the officer of the court ; all that it does Is to settle the legal right and the amount of the dam- ages in that method, which, in the adjustments of our legal system, is deemed the easier and the better. Nor can it be overlooked that a strong argument ab inconvenienti can be urged in behalf of the party seeking redress against this claim of equitable cognizance. It cer- tainly imposes great burthens upon such a litigant. In the present in- stance the hearing was before the vice-chancellor, and the testimony was therefore taken iima wee; but such a circumstance, if this species of jurisdiction be admitted, is not a necessary incident to the proceed- ing; the entire testimony may be taken in writing in the mode cus- tomary in the practice in chancery ; and to try a question of tort in such a manner, would be, it is conceived, both expensive and unsatisfactory. It is certainly not too much to say that, if an action for negligence, resulting in injury to the person, can be tried in equity as well as it can at law, there is not the least propriety in maintaining the two systems in their distinct forms. In addition to these defects the party injured, in order to reap the benefit of his litigation, would be obliged to sustain his case twice upon the merits, once in the court below and once in this court. If it had ap- peared that a trial in equity of a matter of this kind had possessed the merit of convenience, it would not have gone far in establishing SEC. 85.] BT PARTIES HAVING CLAIMS. 447 the right to the receiver to set up any defense he may have, which may be done by plea, answer or demurrer.* It is not essential to the validity of the order, that it be applied for on notice to the parties in the cause in which the receiver was appointed. It is sufficient if leave be granted by the court having control of the receiver on notice to him, against whom alone the cause of action exists, and against whom the action must be brought.^ And when leave to sue is once obtained it is not necessary to obtain a renewal to sue upon the resignation of the receiver and the appointment of a successor, for not only does the leave to sue apply to the latter, but also against the operated by a receiver and that such death was caused through the neg- ligence of the receiver. The ground upon which the bill was sought to be maintained was predicated upon the fact that after such accident the railroad was sold by decree of court to certain persons who conveyed the railroad and all property connected therewith to the defendant, which took and retained possession of the road and its property under a deed of conveyance, containing the fol- lowing clause : " That said estate and interest are hereby charged with, and shall pass by virtue of these presents, subject to the pay- ment of all liabilities incurred in respect to the said railroad, or its business by the said Jacob D. Cox, as receiver, during the pendency of the legal proceedings above men- tioned." It was held that a court of equity had no jurisdiction of such a bill and therefore it could not be maintained. See, also, Citizens Savings Bank ■». Person, 98 Mich. 173. ' Fleischauer •». DittenhoefEer, 49 N. T. Superior Ct. 311; Davis v. Duncan, 19 Fed. Rep. (U. S. C. C), 478. 'Potter V. Bunnell, 20 Ohio St. 150. a title to such jurisdiction ; but even this imperfect support seems to be wanting." In relation to the remedy to be pursued when a receiver refuses to perform a contract made by a. pre- vious receiver, the chancellor held that since the succeeding receiver could not be proceeded against at law,because he was not legally bound by the contracts of his predecessor, a court of equity would entertain bills in equity in such a case and assess damages, upon the ground not only that the contractor was otherwise remediless, but because the claim is against the trust fund which is under its control. Lehigh Coal and Nav. Co. v. Central B. Co., 38 N. J. Eq. 175 ; Kerr v. Little, 39 N. J. Eq. 83 ; Lehigh Coal and Nav. Co. 1). Central R, Co. 41 N. J. Eq. 167. The Court of Errors and Appeals, however, seemed to doubt, without , determining the question, the cor- rectness of this view. Vanderbilt v. Central R. Co. of N. J. 43 N. J. Eq. 669, 688. In Brown v. Wabash Railway Co., 96 111. 297, a bill in equity was filed, charging in substance that one Roberts, the claimant's intestate, was killed by an accident which occurred on a railroad being then 448 EEMEDIES AGAINST EECEIVEES. [CHAP. X. trust estate.^ But leave to sue, it is clear, does not contemplate such a proceeding as the removal of the receiver.^ The right to sue the receiver can properly be withdrawn by the same tribunal which granted it.^ The court will exercise its discretion and may restrict the bringing of the action to its own jurisdiction or to certain designated tribunals, and deny authority to prosecute its officer in any other tribunal.* The court having control of the main suit, has, of course, direct control of the receiver appointed in the case, of all moneys coming to his hands, and of the distribution of the same, and of the distribution of all funds derived from the sale of the property. A court which merely extends the reeeiver- ' Fordyce v. Dixon, 70 Tex. 694. court 7ield that the order allowing This action was originally brought the suit to be brought was impru- with leave of the United States Cir- dently granted, and directed a with- cuit Court against the receiver of a drawal of the consent to bring it. railroad appointed by it, to recover damages for injuries sustained. The receiver subsequently resigned and a successor was appointed in his stead, and made party defendant in this action. It was held that the action could be continued against the successor upon the leave so granted. " Young V. Montgomery & Bufaula R. Co., 2 Woods (U. S. C. C), 619. ^ Attorney-General i). North Amer- ica Life Ins. Co., 6 Abb. N. C. (N. T.), 393. This was an action brought to obtain a dissolution of the de- fendant, and judgment was entered dissolving the corporation and ap- pointing a receiver under N. Y. Laws of 1853, chap. 463, which pro- vide a complete system for wind- ing up corporations of that charac- ter. A policy-holder, after leave granted, in behalf of himself and all other creditors, brought a suit against the corporation and the re- ceiver, for the purpose of ascertain- ing and declaring the debts of the corporation, and for the distribution of its assets. The receiver made this motion to stay said action, and the * Meredith Village Savings Bank V. Simpson, 32 Kan. 414. In this case a receiver having been ap- pointed of a copartnership in an- other action then pending for a dissolution of the partnership, the plaintiff filed its petition for leave to sue the receiver to recover pos- session of property which it claimed belonged to it and which the re- ceiver wrongfully withheld. The court granted leave to bring the action, but required it to be brought and tried in its own forum, and in no other court. The plaintiff then brought this action against the re- ceiver and the partners, and pre- sented a petition and bond for a removal of the cause to the Circuit Court of the United States, upon the ground that it was a citizen of the State of New Hampshire, and that the defendants were citizens of the State of Kansas. Upon the hearing of this petition the court of its own motion revoked the order granted for leave to sue the receiver, and dismissed the action as to the latter. Upon appeal it was held proper. SEC. 85.J BY PAETIES HAVING CLAIMS. 449 ship in proceedings ancillary to the main suit, will not entertain applications appertaining to the management and disburse- ment of funds in the receiver's hands, but will refer all such questions to the court having original control.' When a statute prescribes a summary mode of closing up the affairs of insolvent corporations without the expense and delay of settling formal suits and ascertaining claims of credi- tors, that mode supersedes all others and must be pursued; and in such cases creditors will not be permitted to bring actions to determine their rights to a distributive share of the trust estate ; they must submit to a reference under the statute ; and if any creditor refuses to present his claim for adjustment, the distribution of the fund should be made without reference to such claims, except in those cases where the receiver is able to ascertain and liquidate the amount of such claim by the books and papers of the company in his possession.^ While it is true that in actions or proceedings to sequestrate the property of a corporation and distribute its assets among creditors, a party in interest may come in even after a decree, and before the fund is disposed of, and set up his claim upon the fund, this rule does not of ' course apply to parties and matters that have been before the court. All parties interested in the trust estate are brought before the court, as far as possible, and anyone interested may come in at any time before the fund is disposed of, giving an excuse, according to the nature of the case, for his delay. But it would be a gross perversion of the rule, to permit a party who has been before the court — who has presented his claims and has had a full opportunity to insist upon ' Central Trust Co. v. East Ten- the dissolution of an insolvent cor- nessee, V. & G. R. Co., 30 Fed. Eep. poration, and the distribution of its 895 ; Jennings v. Philadelphia & assets among its creditors, and a re- Reading R. Co., 23 Fed. Rep. 569. ceiver has been appointed therein, ^ In the Matter of the Receivers the right of any person claiming to of the Globe Ins. Co., 6 Paige be a creditor of the corporation to (N. Y.), 103; Attorney General «. share in the distribution of its effects, North American Life Ins. Co., 6 in the hands of the receiver, is to be Abb. N. C. (N. T.), 293. determined upon application to the Where compulsory proceedings court in such action or proceedings, have been instituted, under the pro- and in the district in which the visions of the Nevir York Revised receiver was appointed. So held Statutes (2 R. S., 462, et seq.), for where, under the said statutory pro-. 450 KEMEDIES AGAINST RECEIVERS. [chap. his rights — to come forward, at his option, after the court has passed upon the subject matter, and present his claim in a new visions, an order was made in said proceedings pending in the first judicial district of New York, re- quiring creditors to exhibit their claims, and become parties to the suit, within six months, or be pre- cluded, and a referee was appointed for the purposes of the order, who made a report, and it was thereupon further ordered that all creditors who had not exhibited their claims and became parties should be pre- cluded from the distribution ; a party having recovered a judgment against the corporation in another district of the state, but having failed to exhibit her claim or be- come a party to the proceedings in the first district, cannot move the court in the district wherein the judgment was recovered so as to compel the receiver to pay it or its proper proportion out of the assets in his hands, but must apply to the court in the proceedings in which the receiver was appointed and in the district wherein they are pend- ing. Rinn i). Astor Fire Ins. Co., 59 N. Y. 143. The Court in this case said that "it is essential to the complete and proper administration of the system established by the statute, that all questions, respect- ing the claims of creditors upon the funds in the hands of the receiver, and its distribution, and the account- ing by the receiver, should be deter- mined upon an application to the court in the action in which the receiver is appointed." So, it has been further 7ield that, at the expiration of the time so fixed, a creditor who had failed to present his claim, is wholly ex- cluded from any share in the assets, and this, although he had delivered an account of his claim in accord- ance with section 81 of the same statute, providing that every cred- itor who shall have neglected to exhibit his demand before the first dividend, and who shall deliver his account to the receivers before such second dividend, shall receive the sum he would have been entitled to on the first dividend before any distribution be made to the other creditors; because, it was deter- mined, the true meaning of this section is that all creditors neglect- ing to present their demands before the first dividend is made and who are not precluded from presenting them by the other provision, may, upon presenting them before a sec- ond dividend is made, share in the distribution upon an equality with those who participated in the first dividend. In the Matter of Harmony Fire and Marine Ins. Co., 45 N. Y. 310. But this statute, it has been fur- ther held, does not limit the power of the court, but the latter has, nevertheless, still a discretionary power in the matter, and may, in order to prevent wrong and injus- tice, extend the time to present claims. Attorney General v. Secur- ity Life Insurance & Ann. Co., 79 N. Y. 367. The court, however, will not re- quire the receiver to pay to the claimant his proportion of a divi- dend declared, when the receiver has reserved no fund applicable specifically to the payment there- of. Smith 11. Manhattan Ins. Co., 4 Hun (N. Y.), 137. And where a party, having a claim in suit against a corporation of which a receiver is appointed pending the SEC. 85.J BY PARTIES HAVING CLAIMS. 451 light, with new liens and new equities. It is a safe and settled rule, applicable to receiverships as well as to other proceedings, that when a party moves a court of justice to decide upon his rights, he shall present them as he insists upon them, and shaU present them, not by bits and parcels, but fully and entirely.^ Such a final decree, however, only estops such parties who have or may have claims upon the fund or estate under distribution ; as to the parties who have no such right it, of course, does not affect or impair their legal remedies.^ The legislature may change the remedy when the substitute remedy is more favorable to the creditor. Such statutes, remedial in their nature, are not inoperative, although of a action, has had notice of the time when claims are to be presented to the receiver, pursuant to the ad- vertisement therefor, and has been served personally with notice to pre- sent his claim, and has presented no claim to the receiver, the court will not, after the receiver, in due course of distribution, has distributed the assets of the corporation, reserving only enough to meet his expenses, make the receiver a party to the action which was pending against the corporation at the time of his appointment. Owen v. Kellogg, 56 Hun (N. T.), 455. ' Minnehan v. Brunswick & Albany E. Co., 52 Ga. 348. The plaintiffs in error in this case made them- selves parties to a creditor's bill filed against a railroad company and a receiver was appointed. Their claim was passed upon by the master appointed in the case, and upon his report a decree was taken fixing the amount, priorities, etc., of all the claims before the court, and direct- ing the sale of the road. In this proceeding they recovered a judg- ment, as general creditors, for $5, - 000. When the proceeds of the sale were brought into court for distribution, it was found that the general creditors would receive nothing. Thereupon the plaintiffs proposed to file an amendment to the bill, setting up a lien for labor performed by them, and materials furnished, in the construction of the road. This the court refused to permit, and upon appeal it was held that they could not do so. ^ Bloomfield E. Co. ■». Grace, 113 Ind. 128. This was an action against a railroad company for the wrongful appropriation of land. The company answered setting up a former adjudication, which, how- ever, failed to show that the claim of the land owner was embraced in the suit in which the notice to ap- pear and present claims was issued ; and which was a suit against an in- solvent construction company, and concerned funds in the hands of the officers of the court, or which might come into their hands. It did not appear that the right of the land owner to recover for injury to his land could have been litigated ; he was not a party to the litigation, made no claim upon any specific fund, and no process was served upon him. Upon demurrer to the answer, it was Tield that it was prop- erly sustained. 452 REMEDIES AGAINST KECEIVEES. [CHAP. X. retrospective nature, provided they do not impair contracts, and only go to confirm rights already existing, and in further- ance of the remedy, by curing defects and adding to the means of enforcing existing obligations.^ To illustrate : If a statute provides a complete system for the settlement of the estates of corporations, and authorizes an equal distribution of the property to creditors, but prohibits the maintenance of any action against the corporation after its effects have been placed in the hands of receivers, and leaves creditors to pursue their remedy under the provisions of the statute, such prohibition is not beyond the legitimate power of the legislature or void upon constitutional grounds. A contrary doctrine would deprive the legislative department of the power to correct its own errors, and to vary the laws to meet the necessities of the people, or the exigencies of the time ; and it would deprive subsequent legis- latures of the right to determine what enactments were required from time to time for the welfare of the people.^ It has been well said that " whether a statute adopts one or another of such methods, it merely recognizes the rights of creditors and stockholders, of which, prior to such statute, only courts of equity took cognizance, and provides a new remedy for their enforcement in a manner perhaps more efficacious than was possible under the ordinary rule of chancery procedure. Such statutes do not impair the obligation of contracts, or disturb vested rights ; and the remedy which the statute pre- scribes for a particular class of cases must be pursued in such cases, as the statutory remedy must be considered as super- seding and substituted for all others directed to the same end."' Sec. 86. By landlord to enforce payment of rent. — At com- mon law a distress for rent must be made upon the demised premises, and the right of the landlord terminates with the removal of the goods from the premises by a receiver; the remedy of distress is lost ; and the landlord can only recover ratably with other creditors for the amount due for rent.^ A ' Searcy v. Stubbs, 12 Qa. 437. filed for the dissolution of a co- " Leathers v. Shipbuilders' Bank, partnership, a receiver was ap- 40 Me. 386. pointed, and it appeared that the ' Nelson v. Hubbard, 96 Ala. 248. partners were merchants doing * In the Matter of Brown, 3 Ed- business upon certain premises in wards (N. Y.), 384. Upon a bill the City of New York. The land- SEC. 86.] TO ENFORCE PAYMENT OF RENT. 453 statute which authorizes the landlord to pursue goods removed from the demised premises, and to seize them within a certain number of days after their removal, is confined to goods which belonged to the tenant at the time of such removal, and if the landlord permits such goods, when sold by a receiver, to be removed from the premises, the right to distress is at an end.^ But where the goods are still upon the demised premises at the time the landlord attempts to exercise his right to distrain, and his only impediment is the possession of the court, by its receiver, the court will, on application of the landlord, order the receiver to pay the rent in arrear, out of the pro- lord of the premises presented this petition, asking that the receiver might pay him rent. This was met by the receiver denying that he had retained possession of the store; and showing that there was no property which he tuck or ever did take; that the only assets he received were in the shape of notes and book accounts. The Court de- nied the petition. ' Gaither«. Stockbridge, 67 Md. It was further claimed In this case, that the landlord was entitled to an equitable application of that pro- vision of the Code of Maryland, art. 53, sec. 18, which provides, that whenever any property is removed from the demised premises within sixty days prior or subsequent to the time when the rent has or will become due, the landlord may fol- low and seize such property under distress for rent due, at any time within sixty days after the time when the rent becomes due ; pro- vided, such property has not been sold to a bona flde purchaser with- out notice, or taken in execution. "But," the Court declared, "this right to pursue property removed only exists for rent actually due, and as against property that be- longed to the tenant at the time of removal from the premises. If the property was removed, as the prop- erty bona fide belonging to another party, clearly, the landlord would have no right to pursue it and seize it for rent subsequently becoming due. Statutes upon this subject, made to protect the landlord, have never been so construed as to allow such privileges. Buckey v. SnoufFer, 10 Md. 149, 156 ; Alex. Brit. Sts. , 745 ; Martin v. Black, 9 Paige, 643 ; Hast- ings?). Belknap, 1 Denio,190; Hadden V. Knickerbocker, 70 111. 677. Nor can any equitable construction of the statute of VIII. Anne, ch. 14, sec. 1, aid the appellant in his contention. That statute has reference to seiz- ure under execution, and, upon due notice given, requires that, before the goods are removed from the demised premises, the party suing out the executions shall pay the arrearage of rent due, not exceeding one year's rent that may be due at the time of the seizure of the goods. Before any quad lien can exist, the rent must be due, and the goods remain subject to distress by the landlord." In Martin «. Black, 9 Paige (N. Y.), 641, which was a suit upon a judgment creditor's bill, a receiver of the defendant's property was appointed in October, 1841, and the defendant afterwards assigned his 464 REMEDIES AGAINST EECEIVERS. [CHAP. X. ceeds of the property, or will allow the landlord to proceed with his distress notwithstanding the receivership.* Sec. 87. For acts done outside of the scope of their authority. — The principle that when property has been put by the decree of a court of chancery into the hands of a receiver, his posses- sion is the possession of the court which ^appointed him, and any rights in the property can only be determined by application to that court, wiU not protect a receiver for any acts com- mitted by him outside of the performance of the proper and legitimate duties of his receivership. The decree of a court of chancery appointing a receiver entitles him to its protection only in the possession of property of which he is authorized or directed by the decree to take possession. When he assumes to take or hold possession of property not embraced in the decree appointing him, and to which the corporation never had any title, he is not acting as the officer or representative of the court of chancery, but is a mere trespasser, and the rightful owner of the property may sue him in any appropriate form of action for damages or to recover possession of the property illegally taken or detained.^ A receiver may fre- property to such receiver ; and at tion was denied and upon appeal to the time of the appointment of the the chancellor, the latter held that receiver, the defendant was the ten- as the property was actually re- aut of certain premises, and on Nov. moved from the premises before the 1, 1841, a quarter's rent became due ; landlord attempted to exercise his and afterwards the receiver took right to distrain, his right of dis- possession of the furniture on the tress was gone ; and that he had no premises and removed it therefrom ; right to follow the goods, as they and soon after such furniture was were not the goods of the tenant at removed, and while it was on the the time of their removal, carts in the streets near the prem- ' Martin v. Black, 9 Paige (N. Y.), ises, the landlord attempted to dis- 641. train the same for such rent, but ' Hills v. Parker, 111 Mass. 508. was prevented from doing so by the This was an action of replevin of a prior possession of the receiver, locomotive engine. Upon the trial He thereupon petitioned the vice- plaintiff introduced evidence tend- chancellor for an order that the re- ing to show that a director of a cer- ceiver deliver the property taken tain railroad, which was then in em- from the demised premises to the barrassed circumstances, bought the oflScer charged with the execution engine from the maker, and such of the distress warrant, or that he director delivered it to defendant pay the rent due out of the pro- Parker, who was superintendent of ceeds of such property. The peti- the road, to be run on the road, Par- SEC. 87.] ACTS DONE OUTSIDE THEIR AUTHORITY. 455 quently, under color of office, get possession of property which does not belong to him, and his official character ought not to be a defense to his tortious action, or deprive parties of their legal rights and remedies.' ker to be personally responsible for it. The defendants introduced evi- dence tending to show that such director sold the engine to the rail- road company ; and that it was used on the road until it was sent for re- pairs to the shops of another railroad company. It appeared that while the engine was still in the repair shops said director sold the engine to plaintiflE. The defendants also In- troduced evidence that on a, bill in equity against the first-named rail- road, receivers were appointed of the property of the company, who took possession of it and also of such en- gine ; that such receivers directed Parker to continue in their employ- ment as superintendent, and that Parker acted for the receivers in sending the engine to the repair shop. Such receivers, it seems, were not made parties to this action, and the plaintiff admitted that he had never applied to the court for leave to bring the action. The de- fendant contended that the posses- sion of the engine by the receivers was the possession of the court, and the plaintiff could not legally inter- fere with that possession except by authority from that court. The trial court ruled that it had the same power to try the case as if no receivers had been appointed, and that the question was whether the plaintiff had proved his title. The jury returned a verdict for the plain- tiff. Upon appeal this ruling was sustained. The Court said : " In the present case, the order of this court sitting in chancery, appoint- ing receivers of the property of the Boston, Hartford & Erie Railroad Company, did not authorize them to take possession of the property of any other person, and therefore afforded them no justification or protection for claiming or assum- ing possession of property in which that corporation never had any in- terest, and did not deprive the law- ful owner of such property of the right to assert his title before a j ury In an action at common law." In re Toung, Bankrupt, 7 Fed. Rep. 855, R. was appointed receiver of the estate of an adjudged bank- rupt, and was directed by the court to take possession and retain the custody of certain property which Q. had purchased at an alleged fraudulent sheriff's sale of the bankrupt's property. R. took pos- session of certain property of G. which never was the property of the bankrupt, and G. brought two suits in the State Court — one in trespass against R. for acts done in the seizure of his property, and still pending ; and the other in replevin against the custodian of the prop- erty for the receiver, to recover possession, in which the custodian appeared and pleaded, and judg- ment was obtained against him. Upon the petition of the receiver for relief against such suits and to punish G. for contempt, it was held that R. , the receiver, was sued in trespass not as receiver, but as an individual, for taking and retain- ing possession of certain goods, not included in the order of the court, and as such was a mere trespasser and not entitled to the protection of the court. ' Gutsch 1). Mcllhargey and one, 456 REMEDIES AGAINST RECEIVERS. [CHAP. X. But where the receiver takes possession of property in ohe- dience to the order of the court appointing him, he acts innocently under the positive order of that tribunal, and ought not to be held responsible for any trespass which he may have committed while so acting. Indeed the comity of courts demand that an application should first be made to the court making the improvident order, to correct the same, in order to avoid an unseemly conflict of jurisdiction, instead of resorting to the sharp process of an action of trespass on the case against the receiver individually. This will give the court, making the improvident order, an opportunity to modify its order with regard to the property so wrongfuUy taken into custody.^ But where the question relates to property, the possession of which by the corporation was not wrongful, but under color of title, and of which a receiver is directed to take possession, in such case no court other than the court appointing the receiver wiU try the question of title to such property without 69 Micli. 377. This was an action of replevin for a house. Defend- ant Bacon, as receiver of an insur- ance company, obtained a judgment against the husband of plaintiff, and delivered the execution to defend- ant Mcllhargey, who levied it upon the house in question belonging to the plaintiff. It was insisted that Bacon could not, as receiver, be liable in replevin, or for tort. It was, however, held that the descrip- tion of his office did not shield him, and as a wrong-doer he was liable personally, and that it would have been as well to have named him without his title, but that was merely descriptive. See, also, Kenney Mich. 617. Staples ti 178. ' Curran v. Craig, (U. S. C. C), 101. plaintiffs conveyed to a copartner- ship the right to construct and continually use two kilns or dry- houses named, of which, it seems, . Ranney, 96 May, 87 Cal. 32 In Fed. this Rep. case the plaintiffs were patentees. The copartnership constructed and used the kilns, and thereafter a State Court of Missouri, in a case pend- ing before it, appointed the defend- ant a receiver of said copartnership, directing him to continue the busi- ness of the firm, and to use all the machinery and appliances pertain- ing to the business of the firm, incltiding the two kilns. The de- fendant operated said kilns only as receiver, pursuant to such order, and no leave of that court was ob- tained to sue him therefor. This was an action on the case for an in- fringement of the patent, to which the defendant interposed a plea to the jurisdiction. Upon a demurrer to that plea the court withheld its judgment on the demurrer until the plaintifls made an application to the State Court for a modifica- tion of its order. And see Win- chester v. Davis Pyrites Co., 67 Fed. Rep. 45. SEC. 87.] ACTS DONE OUTSIDE THEIB AUTHORITY. 457 its leave.^ The possession of such property by the receiver is not wrongful ; he succeeds to the rights of the corporation, and since the latter was not a trespasser, the receiver is not, and it is his duty to retain possession until otherwise ordered by the court which appointed him. He cannot, therefore, as to per- sonal property at least, be made liable to an action of trespass or trover, even though leave to bring suit against him has been previously granted, but the appropriate action against him is an action for the possession of the property. It would seem, however, if the property is real estate, so that the title can be tried in an action of trespass, without changing such title, or rendering the receiver liable for the value, there is no objection to its maintenance. Or, if the receiver has received the rents of real estate, or has sold personal property, by order of the court, the amount in his hands may be claimed in a suit at law.^ ' Fort Wayne, Muncie & Cinn. R. Co. V. Melleti, 92 Ind. 535. This was an action of ejectment to recover 3)osses8ion of certain land, and was brought against a railroad company and its receiver individually. It ap- peared that the plaintiff bought the land while it was in the possession of the railroad company, but this action was not brought until after a Circuit Court of the United States, in a foreclosure action against the company, appointed a receiver who was directed to take into custody the entire property, and, acting under this order, he did take pos- session of the land in question and was in possession when this action was brought. The company claimed title to the land under a deed exe- cuted before the plaintifE bought. It was held that since the company had color of title, and that its rights, whatever they were, were in the cus- tody of the receiver appointed by the United States Circuit Court, no court •other than that court could try the question of title. » Morrill v. Noyes, 56 Me. 458. In this case it appeared that a railroad company issued bonds for the pur- pose of completing and equipping its railroad, and secured them by a mortgage, in trust, of its railroad and franchise, together with all " cars, engines, and furniture, that have been or may be purchased by said company." Two years there- after, the company purchased an en- gine and certain cars, which it sub- sequently mortgaged to the plain- tiffs. Six years thereafter a suit in equity was commenced by the hold- ers of the bonds against the com- pany and others, to compel the exe- cution of the trust, and the defend- ant was appointed a receiver by con- sent, who took all the property of the railroad from the possession of the company. The plaintiffs there- upon demanded the engine and cars of the receiver, and, upon his refusal to deliver the property, they com- menced, after obtaining leave to do so, this action of trover against the defendant. It was held that the action could not be maintained be- cause there had been no conversion by the defendant, and further, that under the trust mortgage a lien was 458 REMEDIES AGAINST RECEIVERS. [CHAP. X> Sec. 88. Upon fraudulent sale of trust property. — A sale of trust property in dispute in a cause pending in a court of equity, wliich sale is made by a receiver by order of the court,, and after full compliance with its directions as to notice, is not open to attack by one who is subsequently summoned into the suit if there has not been fraud or sacrifice of the property, or improvidence. The proceeds of the sale take the place of the property, and all rights in the latter are transferred to the former.^ If a receiver, by authority of the court, agrees with the holder of the debt — which constitutes a para- mount lien on a portion of a railroad — for the purchase of his lien and the payment of his debt out of any money coming into the receiver's hands from the part of the railroad covered by the lien by a sale of it or otherwise, and the receiver sub- sequently sells the road as an entirety, with nothing to show the price paid for the portion covered by the lien, and payment is made in mortgage bonds without any money passing, the, court reserving to itself the power to make further orders respecting interests in or liens on the property; such lien- holder wiU not be compelled to bring a separate suit, asserting his prior lien, but, as he is entitled to the protection of the court, the proper remedy is, not the annulling of the sale, but an order for a re-sale of the entire property in satisfaction of the claim of the lien-holder.^ If the court is deceived by the report of a receiver, and the purchaser participates in creating the deception, the court may, at any time before the rights of innocent purchasers have- intervened, set the whole proceedings, including the deed, aside. created upon the rolling stock to be receiver, directions are given by the subsequently acquired, which at- court, as to the manner of making a. tached as soon as it was afterwards sale of the property of the corpora- purchased and placed upon the rail- tion in his hands, such directions road by the company, and that the cannot be assailed, in a collateral plaintiffs, under their mortgage, action, on the ground that they acquired no title which they could were in effect procured by a judg- maintain against those holding un- ment creditor of the corporation, der the former mortgage. See Kent who then was a justice of the. D. Lake Superior Canal Co., 144 U. court. Libby v. Rosekrans, 55 Barb. S. 75 ; Tapscott v. Lyon, 103 Cal. 297. (N. T.), 302. ' Mellen v. Moline Malleable Iron " Farmers Loan & Trust Co. v.- Works, 131 U. S. 352. Newman, 127 U. S. 649. Where, upon the application of a SEC. 88.] FRAUDULENT SALE OF TRUST PROPERTY. 459 But after the rights of third parties have intervened, its authority in that respect can only be exercised consistently with the protection of those rights. If a receiver omits to perform his whole duty, hy which the parties are injured, or commits any fraud upon the court, and the rights of third parties have so far intervened as to prevent the court from setting the proceedings aside, the injured parties are not then remediless, but may seek their remedy personally against the receiver or on his official bond.^ While the court has authority. ' Koontz V. Northern Bank, 16 Wallace (U. S.), 196. That this remedy is not always one of right may be illustrated by a recent case where, in an action to foreclose a mortgage executed by a telegraph company to secure its bonds, receivers of its property were appointed with power to operate its lines of telegraph and authority to issue receiver's certificates, which was done. Under judgment of fore- closure and sale the property was sold by a referee, and the purchaser assigned his bid to another com- pany which was made a party, and to which company the property was conveyed by the referee. Upon a motion to confirm the report of sale one of the holders of mortgage bonds and receiver's certificates excepted thereto and petitioned to set aside the sale upon the ground that the judgment recited that it appeared that the bonds secured by the mortgage foreclosed amounted to $7,103,000, and it ordered that to be referred to a referee named, " to ascertain and report the principal sums due and unpaid on such bonds as may be ascertained and reported by such referee to be secured by said mortgage and the names of the respective persons holding any," etc., also the names of the respective persona holding any and what title to the coupons issued with any bonds, and the aggregate amount of the sums due and unpaid on all bonds and coupons secured. The judgment further directed that the mortgage premises should be sold by the referee, " unless previous to such sale the said defendant tele- graph companies, or either of them, pay to the plaintiff, or its attorneys, the amount herein found as actually due and payable for principal and interest upon the bonds issued un- der and secured by the said mort- gage to the plaintifE and interest thereon." The referee did not, prior to the sale, report the amount due upon the bonds, and herein it was claimed that the sale was ille- gal. It was held that the court was competent to interpret its own judg- ment, and by its confirmation of the sale it was shown that it understood that the reference, as to the amount of the bonds, was to be executed after the sale. It was further claimed that the referee had no autbority under the judgment to execute a deed to the purchaser, but the court Iield that it was implied from the language of the judgment that he was to give a deed, as it pro- vided that the purchaser should be entitled to possession on the produc- tion of his deed, and that the com- panies and their receiver should join in the deed ; and the court below having sanctioned the giving of the 460 REMEDIES AGAINST EECEIVEES. [CHAP. X. no doubt, to liear a motion for the purpose of granting relief to a party so injured and can vacate a sale made by a receiver, yet if the equitable rights of the parties can be better protected and disposed of in an equitable action brought especially for that purpose, the court will usually remit the party to that remedy. It is quite clear that an injured party can prosecute such remedy in order to vacate an order of a court, obtained for a fraudulent purpose, and a sale made in pursuance of the same.^ deed, and tlius construed its own j udgment, no grounds of complaint remained. The judgment furtter provided that the purchaser should pay a certain amount of the pur- chase price in cash, and that the balance might be paid in receiver's certificates or in bonds, to be re- ceived at a pro rata rate, as pro- vided. Upon the sale, the purchaser paid the cash required and delivered to the referee what was supposed, at the time, to be a sufficient amount of certificates, but which afterwards proved to be insufficient to pay the balance of the purchase money ; he also gave ample security to pay any balance that might be found due. In confirming the referee's report, the court ordered that the referee should inquire and report to the court what receiver's certificates should have been or should be accepted by him in payment of the purchase price, and how much, if anything, was due upon the pur- chase price. The claim that the full purchase price should have been paid before the deed was de- livered was held untenable. It also appeared that prior to the sale there was a reorganization agreenient, to which the appellant was a party, and it complained that the purchase was not made in pursuance of that agreement, and that the purchaser iad refused to carry that agreement into effect. It was held that this furnished no absolute ground for setting aside the sale, and the court below could, in the exercise of its discretion, leave the appellant to pur- sue its remedy by action to enforce any rights it had under the reorgan- ization agreement. Farmers Loan & Trust Co. V. Bankers & Merchants Tel. Co., 119 N. T. 15. ' Hackley v. Draper, 60 N. Y. 88. This was an action to set aside the assignment of a judgment by a re- ceiver of a corporation and a satis- faction thereof executed by the purchaser. It appeared that the plaintiffs and another person were the sole creditors of the corporation of which a receiver was appointed, and that by his instigation and pro- curement an ex parte order was ob- tained permitting the receiver to sell a judgment of $68,000 at public or private sale ; that he sold the judgment for $2,500 ; that he had previously been offered by the judg- ment debtor at one time $35,000, at another $10,000; that the sale was to a third person ; but that the debtor furnished the money and the purchaser subsequently satisfied the judgment of record. It was hM that the plaintiffs were not confined to a motion in the action, wherein the receiver was appointed to set aside the sale, but could maintain this action, and that though it did SEC. 89.] OF THE EIGHT TO SET-OFF. 461 Sec. 89. Of the right to set-off. — A court of equity, in the absence of any statute, proceeds upon the elementary principles of equity jurisdiction, and if the court finds a case of equitable cognizance not within the statute, it will permit an equitable set-off, if, from the nature of the claim, or from the situation of the parties, it is impossible to obtain justice by a cross action. Where there are mutual demands between the parties which cannot be set-off under the statute, but which a court of equity may compensate or apply in satisfaction of each other without interfering with the equitable rights of any person, the fact that one of the parties is insolvent has frequently been held a sufficient ground for the exercise of the equitable jurisdiction of the court of equity.^ not appear that the debtor was a direct participator in the receiver's fraud, yet the evidence was suflB.- cient to authorize a judgment against him setting aside the sale and satisfaction price, and that it was not necessary for the plaintiffs to return the money paid for the assignment, as it was not received by the plaintiffs and was not within their control. This case overrules Libby i>. Rosekrans, 55 Barb. (N. Y.) 202. In Jackson v. Horton, 126 lU.., 566, the receiver of a bank holding the legal title to seventy acres of land, of which sixty acres were subject to sale as assets of the bank, and ten acres were heW in trust for cer- tain persons named, when selected by the receiver, obtained leave of the court appointing him to sell either the whole tract or his in. terest therein as receiver, as he might deem best; but he was not to sell the entire tract except upon the consent of the cestui que trust, and in that event the sale was to be for not leas than $43,000, but if only the receiver's interest was sold, then it was to be for $36,000. The sale was made without the consent or approval of the cestui que trust, for only $36,000. It was held that the ten acres so held in trust could not be regarded in equity as having passed by the receiver's deed, which described the property as ' ' all right, title and interest in and to" the tract, and that the purchaser having had notice of the rights of the cestui que trust, the receiver would not thereafter be required to select the part of the premises held in trust, but a conveyance of a proper proportion would be decreed and a partition ordered between the parties, ' Commonwealth v. Phoenix Bank, 11 Met. (Mass.), 129; McLaren v. Pennington, 1 Paige (N. T.), 102. In Lindsay «. Jackson, 3 Paige (N. Y.), 581, it appeared that in May, 1881, the complainants gave to the defendants two promissory notes for the sum of about $1,500 each, payable in six months, with- out interest. About the same time the defendants became indebted to the complainants, on an acceptance for $4,000, payable on June 13th. A few days before the acceptance be- came due, the defendants became insolvent, and stopped payment. In 462 REMEDIES AGAINST RECEIVERS. [CHAP. X. Receivers take the assets of an insolvent corporation subject to that equity/ even though the corporation holds collateral security for the payment of its debt.^ Where, at the time of the appointment of a receiver, debts exist owing to and owing July, 1831, the complainants filed their bill in this cause to restrain the defendants from negotiating or transferring the notes ; and praying that the amount to become due therein might be set-off, or applied in part satisfaction of the $4,000 due on the acceptance. An injunction having been granted, upon a motion for a dissolution of the same, it was held that it would be inequitable and unjust to permit the defendants to dispose of the notes, leaving the complainant's debt unpaid, and, therefore, the motion was denied. Where in an action by the re- ceiver of a national bank against the maker and indorser of promis- sory notes, the indorser set up as a counter-claim a. claim for services rendered by him upon the employ- ment of plaintiff as receiver for the benefit of the estate, and upon the trial evidence was given in support of the counter-claim, but upon motion was stricken out, it was Tield that this was error and the counter- claim should have been allowed. Davis V. Stover, 58 N. T. 473. And see s. c. 16 Abb. N. S. (N. Y), 225. ' Colt •!). Brown, 12 Gray (Mass.), 233. This was an action by the receivers of a bank upon a bill of exchange and a promissory note, and it appeared that some months be- fore the receivers were appointed an injunction was issued against the bank restraining it from disposing of its assets, and the bill and note sued upon did not become due until after the receivers were appointed. When they did become due, the de- fendant offered in payment bills and a protested check of the bank, ' of which, however, the defendant at the time the injunction was granted, held only a small part. It was Md that the defendant was only entitled to set-off the amount of the bank's paper, which he held at the time the injunction was granted, and that to allow any further set-ofi would efiect a preference in favor of debt- ors to the bank by enabling them to pay in a depreciated medium. In Chase v. Petroleum Bank, 66 Pa. St. 169, it appeared that the de- fendant, having balances in a bank, requested it to pay a debt for him, agreeing that if it would do so, his balance should be applied to the repayment. The bank paid the debt and the defendant gave his note for the amount ; it being agreed that the balances should be adjusted in a short time. Before they were ad- justed the bank failed and passed into the hands of a receiver, who brought this suit upon the note, and it was held that there had been an application of the balances to the note, and that therefore the bal- ances were to be deducted. ° Commonwealth v. Shoe & Leather Dealers Ins. Co., 112 Mass. 131. In this case, upon application of the insurance commissioner to the court under Mass. Gen. Sts. chap. 58, § 6, receivers had been appointed of sev- eral insurance companies. Several creditors of the companies, at the time when the receivers were so appointed, had a valid claim against the companies for the amount of a loss by fire under a policy of insur- ance issued to them by the com- panies and were also debtors to the companies upon promissory notes, SEC. 89.] OF THE EIGHT TO SET-OFF. 463 by the corporation, and both due, it is a natural equity that one debt should compensate the other, and that the balance alone should be paid by the party who owes the larger debt.' and to secure which the companies held collateral security. Such cred- itors presented this petition to the court, claiming that the companies being insolvent, they were entitled to have the amount due from them to the companies applied towards the payment of the loss under the policies, and to prove against the assets of the companies for the bal- ance. The statutes under which the receivers were appointed contained no directions as to proof of debts or the allowance of set-ofls, but the statutes concerning insolvent debt- ors and corporations provided that if it should appear that there had been mutual credits given by the insolvent to any person, or mutual debts between them, the account be- tween them should be stated, and one off-set against the other, and the balance allowed or proved on either side. Gen. Sts. chap. 118, sections 35, 26, 113, 114. It was held that under those latter statutes, without considering the question whether a court of equity would have allowed a set-off, the petition- ers were entitled to the relief asked. ' Holbrook v. Eeceivers of America Fire Ins. Co., 6 Paige (N. Y.), 320 ; In the Matter of Van Allen, 37 Barb. (N. Y.), 335. The right of a debtor to a bank to offset any demand he held against the bank at the time it stopped pay- ment, is not altered by the appoint- ment of a receiver, and if the latter is compelled to resort to an indorser, where the real debtor is unable to pay, such indorser can offset the bills of the bank which he held at the time it stopped payment, unless he is indemnified by the real debtor. but where the bills of the bank are obtained by one of its debtors after it stops payment, they cannot be set- off by such debtor against the debt he owes the bank. In the Matter of the Receiver of the Middle District Bank, 1 Paige (N. Y.), 585. So one who rendered legal services to a corporation upon an employ- ment by its officers during the pend- ing of an action for the appointment of a receiver for its property, and before the property passed under the control of the receiver, was held to be entitled to set-off the value of such services against an account due by him to the corporation, and which also accrued prior to the receiver- ship, but not against a further ac- count which accrued during the administration of the receiver. Cook D. Cole, 55 la. 70. When stockholders of a corpora- tion vote for a receiver to close up its affairs, and one of them is a debtor to the corporation, and after the receiver's appointment makes an assignment for the benefit of creditors, the assignee of such in- solvent stockholder cannot compel the receiver, who has paid all the debts of the corporation and has a surplus for distribution among the stockholders, to pay such insolvent stockholder's distributive share of the surplus without a set-off first being made for the sum due the corporation from such stockholder. Merrill v. Cape Ann Granite Co., 161 Mass. 313. Where parties are indebted to a corporation on account, and hold its contract to deliver a certain amount, in value, of goods ; after the insol- vency of the corporation they have 464 REMEDIES AGAINST EECEIVEKS. [CHAP. X. It is merely a rule of convenience which limits the legal offset to liquidated debts, or those which are capable of liquidation by computation only. It would, therefore, in an ordinary case, be not only inequitable but unconscionable for an officer of a court of equity, succeeding to the rights and duties of an insolvent corporation, to refuse to liquidate an honest debt due to one of the latter's creditors — as to which there is in fact no doubt or dispute — for the sole purpose of depriving such creditor of the benefit of his legal right of set-off, thus permitting the receiver to collect a liquidated debt due to the corporation from such creditor, for the purpose of paying other creditors with the money thus collected.^ This may be illus- a right to set-off their demand against the amount due to the corporation. Laybourn v. Seymour, 53 Minn. 105. In Commonwealth i). Phoenix Bank, 11 Met. (Mass.), 129, the bank commissioners instituted a process and an injunction was issued re- straining the defendant bank from further proceeding with its business and appointing receivers of its as- sets. It appeared that the Common- wealth was indebted to the bank at that time for money borrowed under authority of law, in the sum of $6,000 ; on a call by the receivers for this amount the Commonwealth claimed the right to offset a tax due a few days after the injunction was issued, being $1,500 for one- half of one per cent, on the capital. It was held that the tax was a debt due by contract, and as such came within the principle of set-ofF. ' In Matter of Van Allen, 37 Barb. (N. T.), 235. This was an applica- tion by a depositor of a bank, who had a deposit in the bank to an amount exceeding a note of his held by the bank at the time of its in- solvency, and about to mature, to direct the receiver of the bank to apply the note, at maturity, upon the account or debt due to the petitioner. The petition showed that the petitioner had been in the habit, for several years, of doing his banking business with the bank; that there were mutual credits be- tween the bank and the petitioner ; and that it was customary for the bank to charge the petitioner's notes, when they matured, to his account at the bank. The court granted the application. In Scammon v. Kimball, 92 U. S. 363, the complainant, who was a private banker in Chicago, held several policies of insurance issued to him by an insurance company, of which he was a director. The com- pany was duly adjudicated a bank- rupt, and the defendant appointed its assignee. At the time of such adjudication, it had money de- posited with him on call, drawing interest, and held its notes for un- paid subscriptions to its capital stock. The questions arising in the case and determined were, whether the amount due from the company on said policies of insurance on ac- count of losses he had sustained by fire could be set-ofE against said notes and the money deposited. The complainant's right to set-ofl his claim against the company, so SEC. 89.J OF THE RIGHT TO SET-OFF. 465 trated in cases of insolvent insurance compa les where, for the purpose of depriving the assured of his legal right of offsetting the amount of his loss against the amount due from him to the company, a receiver refuses to adjust the amount due him upon the policy ; in such case the court wiU upon a summary application direct the receiver to allow the same.^ This, however, will not be done in cases of mutual insurance companies, so as to permit a member to set-off against his indebtedness, for premiums due upon policies, a loss sustained by him, adjusted and payable by the company. It is different where the company is a mutual one, and the insured a member or corporator — an insurer as well as a party insured — and the far as the notes were concerned, was abandoned In view of the decision in Sawyer v. Hoag, 17 Wall. (TJ. S.), 610 ; and as to the other right to set- off the losses sustained by him upon the policies as against the money deposited with him, it was Tield that he was entitled to that right. After reviewing the comparative relation between a bank and » depositor, Mr. Justice Cliffobd, writing the opinion for the court, said : " Viewed in the light of these suggestions, it is clear that the amount deposited by the company with the complain- ant, and which he still owes to the company, or to the respondent as assignee, was and is held by him as a private banker, and not as treasurer of the company ; and that any losses sustained by the com- plainant, at the time and in the manner alleged, for which the bank- rupt corporation were and are liable as insurers, may be set-ofE against that claim of the bankrupt corpora- tion." And see Davis v. Industrial Mfg. Co., 114 N. C. 321. ' Holbrook «. Receivers of the American Fire Ins. Co., 6 Paige (N. T.),220. In this case a party who had obtained a loan from an insur- ance company upon bond and mort- gage, and who had also insured his property with the same company, which property was destroyed by the great fire in New York, by which Are the company was rendered in- solvent, and receivers of its effects were appointed ; and such receivers, for the purpose of depriving the assured of his legal right to set-off the amount of his loss against the amount due from him to the com- pany on the bond and mortgage, refused to adjust the amount due him upon the policy. Upon appli- cation by the assured to the court to compel the receivers to allow a set-oil, it was held that it was the duty of the receivers to allow it, and the court directed them to allow the same. Where a receiver of a life insur- ance company holds premium notes given by policy-holders in part pay- ment of premiums, the amounts due upon such notes should be offset against the value of the policies, and the dividend should be de- clared upon the balance; because a policy-holder who has given such a note is a creditor only for the bal- ance, after deducting such note from the amount due him for the value of his policy. People v. Security Life Ins. & Ann. Co., 78 N. T., 115, 127. REMEDIES AGAINST EECEIVEES. [CHAP. X. association has no dealings in regard to insurance except with its own members. In a company of mutual insurers, each suf- ferer is bound to make compensation as well as to receive it. He occupies the double relation of debtor and creditor, and it would be inequitable to allow him, when the funds of the com- pany are not adequate to pay all losses, to set-off his entire demand, and in this way to secure more than his share of, and to diminish, a common fund to which all the creditors, pro rata, are entitled. The members of the association virtually agree to insure each other, and provide a common fund to indemnify in case of loss. As all have contributed to this fund they have a community of interest in it ; and each member having his proportionate share of the losses, is entitled to his proportion- ate share of the profits, if they are realized. Thus it will be seen that the insured have entered voluntarily into engage- ments, modifying or entirely changing, as between themselves, the effect or application of the general rules of law or equity in regard to set-off. To allow the assured in such case to set- off his notes against losses which he may have sustained, would be to suffer him to withdraw so much of the capital and apply it to his personal benefit. This he has no better right to do than any other member has to subtract the portion which he may have contributed, whether in cash or time obligations.^ But ordinarily an unliquidated demand will not be offset against a liquidated debt due to the corporation where such demand grows out of the breach of a contract independent of ' Lawrence «. Nelson, 31 N. Y. 158; premiums, and the persons insured Hillier -a. Allegany Co. Mut. Ins. Co. , not being declared to be members 3 Pa. St. 470. But this does not ap- or incorporators, it was held that ply to all mutual insurance com- the maker of such a note upon the panies, but only to those where the insolvency of the company, passing insured are declared to be members to a receiver, had the same right of or incorporators of the company. set-off against such note in the Thus in a case where the company hands of the receiver which he was organized under the New York would have in the hands of the Laws of 1843, chap. 92, although a company itself, and that the fact mutual company and the insured that the note had not become pay- iad given a promissory note for able at the time of the appoint- the premium upon the policy taken ment of the receiver did not afEect out by them, yet there being no the rule. Berry «. Brett, 6 Bosworth prohibition in the statute, express (N. Y.), 637. or implied, against giving credit for SEC. 89.] or THE RIGHT TO SET-OFF. 467 -the debt due the corporation.' In other cases, to entitle a party ■ to such equitable relief in a case not provided for by statute, he must either have an equity arising out of the contract of the parties, or his natural equity to have one claim compensate or discharge another must be superior to any equitable claim which can be urged in favor of those for whose benefit his claim to an equitable offset is resisted by the receiver. If, however, relief would change the contract of the parties to the prejudice of other creditors, it should not be granted ; where the debt from the corporation to the creditor is not due at the time of a- receiver's appointment, and the debt from the credi- tor is due, the receiver takes the assets subject to the right of set-off which the creditor had, and, since none existed then, it •cannot arise after his appointment ; for an allowance to a party by way of set-off is always founded on an existing demand in presenti, and not one that may be claimed infuturo? ' Olyplant «. St. Louis Ore and Steel Co., 39 Fed Rep. (U. S. C. C), 308. This was an intervening peti- tion by a rolling mill company which had entered into a contract with an ore and steel company, but before the contract was completed the lat- ter company became insolvent and a receiver was appointed In an action of attachment against the latter com- pany, the former company was gar- nisheed upon a debt owing to the latter company, and in such garnish- ment suit the former company filed a plea of set-off upon a claim for un- liquidated damages growing out of the non-fulfillment of the contract stated, which was disallowed. It then filed this petition in equity, praying that the damages resulting from the breach of the contract and set-ofi' against the judgment entered against the petitioner as garnishee. This also was denied. " Cook «. Cole, 55 la. 70 ; Bradley «. Angel, 3 N. Y. 475; Oatman «. Batavian Bank, 77 Wis. 501. The maker of a note given to a "bank, when sued by n receiver of its property and effects, cannot en- force as a counter-claim or ofiset against the note, a demand for rent against the bank which did not be- come due until after the receiver was appointed. United States Trust Co. V. Harris, 3 Bosworth (N. T.), 76. So in an action by an assignee, the defendant cannot offset a note made by the assignor which fell due after the assignment by the latter. Mar- tin ®. Kunzmuller, 87 N. T. 396. The burden is upon the creditor to show that hia demand is one in presenti, and before the rights of all the creditors became fixed. Thus in a case brought by the receiver of a bank against the maker and in- dorser of a promissory note, where the cause was submitted to the court upon an agreed state of facts, by which two of the defend- ants claimed the right to set-off against the note a certificate of deposit issued by the bank before the bill was filed to wind up the bank as an insolvent corporation, to another and distinct person, and which certificate the two defendants 468 REMEDIES AGAINST RECEIVERS. [CHAP. X. Nor would an assignment of his demand by a creditor of the corporation, after the appointment of a receiver, so as to vest the held as indorsers, tlie indorsement of the certificate to them was with- out date, neither did it appear in the case when the transfer was made. The court held that it fail- ing to appear that the defendants held the certificate before the filing of the bill against the bank, they were not entitled to the set-ofE. Smith 1!. Moseby, 9 Heisk. (Tenn.), 501. In Newcomb v. Almy, 96 N. T. 308, at the time of the appoint- ment of plaintiff as receiver of a life insurance company, that com- pany held a note which was past due, also a claim for money loaned also due, against the defendant who held two indorsement policies not yet due issued by the company, by the terms of each of which it agreed to pay the sum insured to his wife in case of his death prior to a date specified, and if he was living at that date to pay the sum to him. This action was brought to recover on said note and loan, and at the time it was brought one of the policies had matured. The defendant claiming an ofEset for the reserve value of the two policies, it was held that he was not entitled to the ofEset. The Court, per Eabl, J., said : " At the time of the appointment of the plaintiff as receiver, these poli- cies had not become due, and it was not, therefore, known to whom they would be payable. The time had not come when, by the termination of the policies, either of them was payable, either to Almy or his wife. If he died before the times men- tioned in the policies, then the sums became payable to his wife; if he survived those periods, they became payable to him. Hence, both he and his wife were interested in the policies. He had no right without her consent to destroy or discharge the policies, and she had no right to do so without his consent. The policies did not belong exclusively to either. It is true that they had a reserve value at the time when plaintiff was appointed- receiver, and for that value they were en- titled to their pro rata share from the assets of the company. But to whom was that value payable ? It did not all belong to Almy at that time, neither did it all belong to his wife. It could not then be known to whom it would ultimately be pay- able. Neither one could at that time demand payment of that value, or receipt for, or discharge it. Either one could claim that the money should be paid into court, and in- vested under its direction to await the event upon which it would be determined to whom it was payable. Under such circumstances it is im- possible to say that at the time of the appointment of the plaintiff as receiver the money was due to Almy, in such a sense that he could avail himself of it as an offset." In Can v. Hamilton, 129 U. S. 253, a life insurance company be- came insolvent before the time fixed for the termination of an endowment policy, payable to the holder in case of survival until that time, or to his children in case of his death before it, it was held the action being brought be- fore the policy matured that the holder could offset the amount due on a mortgage debt to the company from the value of the policy. This case was almost parallel with New- SEC. 89.] OF THE EIGHT TO SET-OFF. 469 title to such demand in the same person or persons who are indebted to the corporation, and having that object directly in view, in order to accomplish a set-off, have that effect. The rights of the receiver become fixed at the time of his appoint- ment; the rights of creditors of the corporation represented by him then attach ; and it would not be equitable to countenance any subsequent arrangement to give any one of them an undue preference over the others. Parties must stand or fall by the condition of things in existence at the time of the appointment of the receiver, unless special equities exist.' There is, however, some discord in decided cases as to the time after which the assignment of a demand against an insolvent corporation, can not be used as a set-off against the claim of the corporation. In those states where statutes are in force for the purpose of winding up insolvent corporations for the benefit of all creditors alike, and prohibiting a corporation after its insolvency from making a preference to any creditor, parties dealing with it must be })resumed to know the limits of its powers, and what the corporation cannot do directly cannot be done indirectly by another dealing with the corporation, for comb V. Almy, 96 N. Y. 308, in which if the true character of tlje interests the claim of ofiset was disallowed, in question had been brought to and the U. S. Supreme Court re- the attention of that learned court, ferring to the latter case, said : it would have come to a different "The court assumed that the in- conclusion from that which was terests of the insured and his wife reached." were so involved together that they ' In the matter of Van Allen, 37 could not be separated ; and that it Barb. (N. T.), 225. 231 ; Colt «. did not yet appear who would be Brown, 13 Gray (Mass.), 233 ; Mc- entitled to the insurance — not avert- Laren v. Pennington, 1 Paige (N. T.), ing to the fact that the interests 103; Van Dyck v. McQuade, 85 N. of all the parties became fixed by Y. 616. the insolvency of the company, and In Lanier v. Gayoso Savings Inst, must be computed as expectancies 9 Heisk. (Tenn.), 506, a bank failed reduced to present values. It is and the next day the president filed true, the court does, in the next his bill to have the business of the sentence, concede that the policy bank settled under a proceeding in had a reserve value, but asks, 'to chancery. A few days thereafter whom was that value payable?' a receiver was appointed of the The plain answer was at hand, assets and property of the bank, that the reserve value of each per- and at the time of its failure there sou's interest was payable to him was a balance due the bank from or her. We cannot but think that one Stovall; there being also a 470 REMEDIES AGAINST RECEIVERS. [CHAP. X, the objects of such statutes are manifest and cannot be frus- trated. The date of insolvency, it is well settled, fixes the time after which claims purchased against the insolvent corporation have not the equitable right of set-off against the claims for which the the purchaser is liable to the insolvent corporation. And this without regard to the time of the receiver's appointment. For to permit a set-off in such cases would present an easy way of defeating the object of such statutes.' Aside from such statutory provisions, a court of equity, as we have seen, does not allow set-offs upon equitable grounds in cases where the relief would change the contract of the parties to the prejudice of other creditors. Following this just rule it would seem both equitable and reasonable to hold that a debtor of an insolvent corporation cannot secure a preference over creditors of the corporation by conniving, after its insolvency, with parties who may happen to have claims against the corporation, and by procuring an assign- ment of their claims with the avowed purpose and object of off-setting the same against the claims of the corporation. To permit this to be done would not only be inequitable and prejudice other creditors of the corporation, but woidd defeat the ultimate purpose of every court of equity which is to dis- tribute the assets of an insolvent corporation among its cred- itors equally and ratably. We have been unable to find any case in which the scheme above alluded to has been sanctioned.^ Creditors, whose debts to the corporation are not due until after a receiver's appointment, can elect to exercise their equit- able right of set-off, by giving notice of such election and claim large balance due from the bank to Matter of Eeceiver of Middle Dis- Stovall & Flippin, a firm, of wMcli trict Bank, 1 Paige (N. T.), 585 ; firm Stovall was a member. Flip- Colt «. Brown, 13 Gray (Mass.), 233 ; pin assigned his interest in the Van Wagoner v. Paterson Gaslight claim due from the bank to the Co., 3 Zab. (N. J.), 283 ; Stone v. firm to Stovall on the same day the Dodge, 96 Mich. 514. receiver was appointed. It was held ^ Lanier v. Qayoso Savings Inst., that the assignment by Flippin hav- 9 Heisk. (Tenn.), 506 ; Smith v. ing been made after the filing of the Moseby, 9 Heisk, (Tenn.), 501; bill, a set-off could not be allowed. Stone V: Dodge, 96 Mich., 514; ■ Niagara Bank ■». Roosevelt, 9 Scott ■». Armstrong, 146 U. S. at p. Cowen (N. Y.), 409; McLaren «. 511 ; Lees r. Hayden, 78 Hun (N. T.), Pennington, 1 Paige (N. T.), 113; 370. SEC. 89.] OF THE RIGHT TO SET-OFF. 471 of right to the corporation before the appointment of the receiver, and when they do so — although the debts do not fall due until after the receiver's appointment — this right of set-off becomes a right established and recognized by law, and an equity of which creditors cannot be deprived, except by the transfer of- the demand under circumstances giving the holder a title to it, discharged from all the equities of such creditors ; or, in other words, by the transfer of it, before due, to a honafide purchaser for value, whose equities, by reason of the purchase, would be superior to those of such creditor. A receiver does not occupy that position. He is not a purchaser for value, but takes the assets of the corporation subject to aU equities.^ And it is well settled that, in a suit by a receiver of an insolvent bank upon a note, mortgage or other obligation owing the bank, the defendant will be allowed to set-off his deposit or a certificate of deposit held by him at the time of the suspension of the bank.^ The debtor of an insolvent cor- poration loses none of his rights by the act of insolvency ; he has the same equitable right of set-off against the receiver that he had against the corporation, and therefore equity, even with- out notice of such election, would compel the receiver upon the application of a creditor whose debt to the corporation is not due, to apply the same in partial or total satisfaction, as the case may be, of his claim against the corporation. The principles of • Smith V. Fox, 48 N. Y. 674 ; ^ Miller v. Receiver of Franklin Davis v. Industrial Mfg. Co., 114 N. Bank, 1 Paige (N. T.), 444; Niagara C. 321. Bank «. Roosevelt, 9 Cowen (N. Y.) The amount of a partnership 409 ; New Amsterdam Savings Bank deposit with an insolvent banker is v. Tartar, 4 Abb. N. C. (N. T.), 215 ; a proper subject of set-ofE in an People «. Saint Nicholas Bank, 76 action brought by the assignee in Hun (N. T.), 522 ; Van Wagoner v. trust for creditors of such banker, Paterson Gaslight Co., 3 Zab. (N. J.), on a note held by the banker made 283 ; Jordan ®. Sharlock, 84 Pa. St. by one of the partners and indorsed 366 ; Farmers Deposit Bank v. Penn by the other for partnership pur- Bank, 123 Pa. St., 283; Smith v. poses, although such note was not Moseby, 9 Heisk. (Tenn.), 501 ; due at the time of the assignment, Clarke ®. Hawkins, 5 R. I. 219 ; when before the assignment such Stone v. Dodge, 96 Mich. 514 ; Com- partners gave notice of their elec- monwealth ®. Phoenix Bank, 11 tion to exercise their equitable Met. (Mass.), 129; Tardley v. right of set-ofE. Smith v. Felton, Clothier, 51 Fed. Rep. 506 ; Davis «. 43 N. Y. 419. Industrial Mfg. Co., 114 N. C. 321. 472 REMEDIES AGAINST EECEIVERS. [CHAP. X. equity and the law unite in binding the debtor to a fuMlhnent of his obligation. If the latter holds a demand against his creditor not due, he has no right to retain it, as an investment. By compelling a set-off, under such circumstances, with the consent of the person entitled to the credit, and where third persons are not injured, equity follows the law. It creates no new obligation, and deprives the insolvent corporation of no right or privilege, which it could justly exercise. And while it is true that the corporation before its insolvency could success- fully transfer the demand to a third person for value, and the receiver might do the same, and thus deprive the creditors of their set-off, yet it does not follow that the set-off is not available against the receiver while the demand remains in his hands. Indeed, if the receiver refused to make the set-off, the creditor would be entitled to begin an action for the purpose of compelling such application, and to procure an order in the meantime restraining the receiver from disposing of the claim.^ ' In the Matter of Van Allen, 37 Barb. (N. Y.), 325, 239 ; Bradley «. Angel, N. T. 475, 478; Smith v. Fox, 48 N. Y. 674 ; Berry «. Brett, 6 Bosworth (N. Y.), 637; Jones v. Punlng, 85 Wis. 264. In the Mat- ter of the Receiver of the Middle District Bank, 1 Paige (N. Y.), 585, the Chancellor said : "In the case of Miller i). The Receivers of the Franklin Bank, this court decided that any equitable set-off which the debtor had at the time the bank stopped payment, was not altered by the appointment of a, receiver. It makes no difference whether the debt of the bank was then payable, or has since become due." In a suit by assignees of a bank under a voluntary assignment for the benefit of creditors, upon a note to the bank which did not fall due until after the assignment, the creditor may set-oflF a debt due to him by the bank at the time of the assignment. Jordan v. Sharlock, 84 Pa. 366. In Van Wagoner v. Paterson Gas- light Co., 3 Zabriskie (N. J.), 288, the plaintiff, receiver of a bank, brought this action at law upon a draft or bill of exchange and the defendant sought to set-ofE its de- posit in the bank at the time the bank stopped payment, also bUIs of the bank which it had at that time. It was held that it was entitled to the set-ofE. The Chief Justice said : "I am of opinion, both upon prin- ciple and upon authority, that the debtor of an insolvent corporation loses none of his rights by the act of insolvency; that he has the same equitable right of set-ofi against the receiver that he had against the corporation at the time of its in- solvency ; and consequently that a debtor of the bank, whether his indebtedness has actually accrued or not at the time of the insolvency, may in equity set-off against his debt either a deposit in the bank or bills of the bank bona fide received SEC. 89.] OF THE EIGHT TO SET-OFF. 473 This equitable right to a set-off enures also to the benefit of a surety who is liable as such to the corporation upon an obli- gation of his principal, if the latter be insolvent. In such a case equity justly compels the application of the principal's property to the payment of his own debt, for the relief of his surety, who has a right to have the amount of his principal's liquidated claim against the corporation set off against his liability.' An action was recently sustained in a case which partook of the nature of an action for a specific performance of contract. The plaintiff in the case entered into an oral contract with a national bank for the sale by the bank to him of a piece of land for a certain sum. Two months thereafter he took pos- session and made valuable improvements upon the land with the knowledge and consent of the bank, which authorized its cashier to execute a conveyance to the plaintiff under the contract. The cashier neglected to execute the conveyance, although repeatedly requested so to do by the plaintiff, who was willing and ready at all times to fulfill the contract on his part. The bank failed and a receiver was appointed of its assets. At the time of the failure there was a balance in the bank to the plaintiff's credit as depositor upon an open account, and he also held, as assignee, a certificate of deposit, issued by the bank and payable on demand, and he had a small account against the bank for money paid and for services and materials rendered and furnished at its request. It was understood between the plaintiff and the bank that the former was accum- ulating his deposit and that he purchased the certificates with the view of applying them towards the payment for the land — it being agreed between the plaintiff and the cashier that the account should be adjusted on the final settlement for the pur- hj him before the failure of the the hands of the receiver of the bank." bank subsequently appointed. The ' Armstrong v. Warner, 49 Ohio maker who became insolvent had, St. 376. In this case a draft ac- at the time of the bank's failure, on <;epted for the maker's accommo- deposit an amount to his credit, and 4ation was discounted at a bank this, it was held, should be set-ofE and the amount carried to the against the acceptor's liability on jnaker's account. On its maturity the draft. And see Davis v. Indus- it was protested and passed into trial Mfg. Co., 114 N. C. 321. 474 REMEDIES AGAINST KECEIVERS. [CHAP. X. cLase price of the land. After the failure of the bank the plaintiff requested the receiver to make such conveyance, and offered to perform the agreement on his part, with the proviso- that his claims against the bank should be allowed and credited on the purchase price of the land. He then brought an action against the receiver to obtain specific performance of the con- tract and to have the several claims held by him against the bank applied as a credit on the purchase price of the land. The receiver resisted the claim to credit in behalf of the general creditors. The judgment of the court decreed specific per- formance, and the plaintiff's claims were directed to be credited on the purchase price of the property.^ Where the debts are not due to and from the same persons in the same capacity, the right to set-off does not exist.^ There- fore, where on one side, the debt due to the corporation is due from a firm or from several persons jointly, and the credit, belongs to an individual, or vice versa, equity does not require or justify an application of the rule of set-off. This principle does not, however, prevent the application of the doctrine of set-off, where the credit equitably and in reality belongs to the same persons from whom the debt is owing, or where it is established, or is obvious from the dealings of the parties that their contract or intention was to apply the one in extinguish- ment of the other. In short, special circumstances may, in this as in other cases, exist to take the case out of the operation of the general rule.' The case of a party having an equit- ' Haghhill «. Hayes, 136 N. T. 163. held that he was, in equity, entitled ' Farmers Loan & Trust Co. «. to offset sucli judgment against Northern Pac. R. Co., 58 Fed. Rep. the demand which his creditors had 257. transferred to such third person. = In the Matter of Van Allen, 37 Barber v. Spencer, 11 Paige (N. Y.), Barb. (N. Y.), 225, 230 ; Newcomb «. 517. Almy, 96 N. Y. 308 ; Dale v. Cook, 4 Where a husband had received Johns. Ch. (N. Y.), 11. a legacy due to his wife and had Where a complainant purchased given security to refund in case of a judgment against his creditors a deficiency of assets, the executor, who were insolvent, and actually it was held, could not, in a suit by paid for it, before the transfer of the husband and wife against him their demand against him to a third to recover the rents and profits of person, but the written assignment her real estate, show such a de- of the judgment to him was not ficiency and set-off the same against executed till after that time, it was the claim for such rents and profits,. SEC. 89.] OF THE EIGHT TO SET-OFF. 475 able interest in the relation of principal in the debt against the receiver is a familiar exception ; and in such case the principal may set-off such debt, in whole or part, as the case may be, in satisfaction of the demand against him, provided the agent has no lien or other equitable claims on the debt to defeat this right. It may be illustrated by the case of a person who, in the capacity of agent for the Commonwealth, deposits money in a bank which is entered to his credit in the books, in his capacity as agent ; such money being either advanced from the treasury of the Commonwealth, for the purpose of making repairs to a bridge, or money received for toUs from the same and due to the Commonwealth. The whole of the money coming into the hands of the agent is thus the money of the because the demands were not dae in the same right. MoUan x>. GriiEthi 3 Paige (N. Y.), 402. Where the receiver of an insol- vent debtor who made a voluntary assignment which was afterwards set aside and the receiver appointed, held among his assets notes of one B., who, after the assignment, but before the receiver was appointed, became the owner and holder of a promissory note of the insolvent debtor, upon which he had obtained judgment against the receiver, and in an action by the latter against B. upon his notes, the latter claimed this judgment as a set-ofO, it was held that the judgment of B. against the receiver only determined the legal validity of his claim, but it must take its chances of payment with other valid debts against the estate of the insolvent, and that to allow it as a set-off would be to give him a preference over other cred- itors to which he was not entitled. Clark V. Brock way , 3 Keyes (N.T.), 18. And see Balch ■». WUson, 25 Minn. 299. In a case where private bank- ers failed, having on deposit $250, which was part of a loan by them to a church, and part to the credit of a man who was treasurer of the church, it was held that the $250 should be set-off against the amount of the loan, and that the church pay the difference only. Third Swedish M. E. Church v. Wetherell, 48 111. App. 414. When the drawer of a draft accepted by another for the former's accommodation, sends a check for the amount of the draft at its maturity to the drawee, who deposits it in his bank to his credit and receives from the bank not cash, but a draft for a part of the amount of the check, and the bank fails on the same day and its draft dishon- ored, the drawer is entitled to offset the amount of the bank's draft as against his check deposited by the drawee with the bank; payment upon the check having been stopped. Armstrong v. Warner, 49 Ohio St. 376. Trust moneys which a partner deposits in a bank to the credit of his firm without the bank's knowl- edge, cannot be set-off against his debts and those of the firm's due to the bank upon the latter's insol- vency and the appointment of a receiver. Knight «. Fisher, 58 Fed. Rep. 991; affirmed, 61 Fed. Bep. 491. 476 EEMEDIES AGAINST EECEIVEKS. [CHAP. X. Commonwealtli, or money received to the use of the Common- wealth, and for which he is accountable. Thus, it wiU be seen that the Commonwealth stands always in the relation of prin- cipal, and its right to offset any money deposited by such agent against the demand due from it to the bank, is brought within the principle of equity, that in aU final adjustments between debtor and creditor the actual balance, after setting off aU demands against each other, is the true debt.' In the case of Savings Banks which are regarded as incor- porated agencies for receiving and loaning the money of their depositors, it is obvious that in some respects the rules which apply to other corporations in winding them up do not apply to them. The fact that a cestui que trust has himself borrowed from the trust money, which in fact is the common property of himself and his feUow-depositors, and continues to owe it at the time of the making of the decree of insolvency, does not give him any advantage over the other depositors. The debt he in form owes the institution, belongs in fact to all the depositors, but the depositors do not owe him anything more on his deposit than his just proportion of the value of the assets that the ' Commonwealth ■». Plicenix; Bank, that all contracts on account of the 11 Met. (Mass.), 129. The further prison should be made by the war- claim was made in this case that the den ; that the warden and his suc- money deposited by the warden of cesser might sue and be sued there- a state prison be also set-ofE against on to final judgment and execution; the demand due from the Common- that no suit should abate by reason wealth to the bank. By the Revised of the ofiBce of warden becoming Statutes, the state prison and its vacant; but that any successor of officers were constituted a separate the warden, pending such suit, and distinct establishment, having might take upon himself the prose- power and functions and being cution or defense thereof ; and that, charged with duties and responsi- upon motion of the adverse party bilities of a peculiar nature. It and notice, he should be required was provided that the warden to do so. Under these provisions, should have charge and custody it was Jield that in no sense could of all the real and personal estate, the money thus received and held stock, tools and property pertaining by the warden, in his official capac- to the prison ; that he should be ity, be regarded as the money of treasurer of the prison ; that he the Commonwealth ; or money in should receive and pay out all which the latter had any equitable moneys granted by the legislature interest, and therefore the set-ofl for the support thereof, and should could not be allowed, keep and render regular accounts; SEC. 90.] CEEDITOES HOLDING COLLATERAL SECURITY. 477 institution owns. It is clear, therefore, that the borrower in such case must, in equity, be held to be bound to pay his debt, and take his dividend of his deposit and its accretions.' Sec. 90. By creditors holding collateral security.— The debt of a creditor, who takes collateral security from a cor- poration for its payment does not become satisfied or extin- guished to the extent of the value of the security taken. Neither does the creditor relinquish his right to obtain satis- faction of his debt, when it becomes due, out of the remaining property of the corporation. He may still pursue any of the methods for collecting it which the law recognizes and allows, and may proceed to judgment and fuU satisfaction against the corporation's property, while he holds the security. The cor- poration has no control over such security nor over its application, save the right to redeem it by paying the whole indebtedness. ' Osborne v. Byrne, 43 Conn. 155. The receiver of a savinga bank in this case applied to the court for in- structions, alleging that a large por- tion of the assets of the bank con- sisted of loans made on security by the bank to different individuals and corporations, and that in many cases persons who were indebted to the bank were also depositors of money in the bank, and claimed the right to set-off the amount of their deposits against the claims of the bank upon them. The court held that the set-offs could not be allowed except in one case in which a de- positor made a deposit in the bank, not for the ordinary purposes of a deposit, but for the purpose and with the intention of applying the same in payment of her indebted- ness to the bank to that amount, and the court held that if the oflBcers of the bank knew for what purpose the deposit was made, although the amount had never been in fact ap- plied in cancellation of so much of her indebtedness to the bank, she should be allowed to set-off the amount. The same instructions were given to receivers in Stockton v. Mechan- ics and Laborers Savings Bank, 32 N. J. Eq. 163. In Vanatta v. New Jersey Mutual Life Ins. Co., 31 N. J. Eq. 15, a party borrowed money on the secur- ity of his bond and mortgage from the defendant — a mutual life insur- ance company — the loan being made upon the condition that he should take out a life policy in the com- pany, which he did. Upon the com- pany becoming insolvent and pass- ing into the hands of a receiver, he claimed the right to offset against the amount of that claim against him, the money paid by him by way of premiums upon the policy ; there being no agreement between him and the company that those pre- miums should be applied to the payment of the bond and mortgage, it was held that he was not entitled to the set-off. 478 KEMEDIES AGAINST EECEIVEKS. [CHAP. X. Such being the well-established legal rights of a creditor during the solvency of a corporation, there is no just reason why he should be compelled to relinquish or be deprived of any of these rights when the corporation becomes insolvent, and the court takes possession of its property through a receiver and undertakes a just and equitable distribution of its assets. The receiver stands merely as a representative of the corporar tion, except when the latter or its officers have committed or permitted acts to be done in fraud of the rights of creditors. He has no greater rights in the property of the corporation than the corporation itself had. If a creditor were deprived of his right to have his debt satisfied out of the assets of the corporation in the hands of a receiver to the extent of the value of the security taken, it would violate the terms of the contract under which the creditor parted with valu- able rights or property, and, upon the faith of the security taken, gave credit to the corporation; and would be contra- vening the well-settled principle, applicable to the law of receiverships, which aims to preserve and protect the legal and equitable rights of creditors in the property of the corporation. It accords with sound reason and authority that a creditor who has received collateral security for his debt sufficient to satisfy a portion thereof only, may prove against the corporation's assets in the hands of a receiver the whole of his demand and be allowed a dividend thereon, and cannot be compelled to deduct from such debt the value of such security, and only be allowed a dividend upon the balance remaining. If the creditor is forced by the exigencies of a market to convert his securities into money before opportunity of proving his debt has occurred, the money wiU be considered as stiU held as a collateral to the debt, and not be deemed a payment thereon.^ ' People i>. Remington & Sons, 54 no warrant for any such reference. Hun (N. T.), 505 ; affirmed 131 N. T. The rules in bankruptcy cases pro- S28, " Some confusion of thought," ceeded from the express provisions says Judge Gkay, writing the of the statutes, and they are not at opinion for the Court of Appeals in all controlling upon a court admin- this case, " seems to be worked istering, in equity, upon the estates by the reference of the decision of of insolvent debtors. The bank- the question to the rules of law ruptcy act requires the creditor to governing the administration of give up his security, in order to estates in bankruptcy ; but there is be entitled to prove his whole debt. SEC. 90.] CREDITORS HOLDING COLLATERAL SECURITY. 479 In Massachusetts, North Carolina, New Jersey and Wash- ington the contrary doctrine is maintained, following the rule or, if he retains it, he can only prove the balance of the debt, after deducting the value of the security held. The jurisdiction in bankruptcy is peculiar and special, and a particular mode of adminis- tration is prescribed by the act. To administer in cases of insolvency coming within the jurisdiction of courts of equity, by analogy with the modes of bankruptcy courts, is not required, and such precedents are not to be deemed as affecting any change in the rules established by courts of equity for the mar- shaling and distribution of assets. Suggestion is also made of a prin- ciple of equity as controlling upon the question. It is, that where the creditor has two funds of his debtor, to which he can resort for payment, and another creditor has a lien on one fund only, equity will compel a resort by the first creditor to that fund to which the lien of the other does not extend. But this is not exactly the case, nor is the principle if it were, decisive. The author, whose statement of the principle is quoted from, has limited its appli- cation to such cases, where to com- pel the first creditor to resort to the one fund will not operate to his prejudice, or trench up his rights. {Story's Eq. Jur. § 633.) Judge Stoby assigns as a reason for the application of the principle, that by so compelling the creditor to satisfy his claim out of one of the funds, no injustice is done to him in point of security or payment. The learned author's reason negatives the propo- sition that a secured creditor shall lose or forego any advantage which he may have by reason of his security, and through which the fullest satisfaction of his debt can be obtained. In Evertson v. Booth (19 Johns. 485), Spencbr, C. J., held with reference to the equitable rule invoked by the appellants here, that it is not to be enforced, if it will, ' in the least impair the prior creditor's right to raise his debt out of both funds.' And he emphati- cally remarked, 'I know of no principle of equity which can take from him any part of his security until he is completely satisfied.' Where could any such principle have its origin? The agreement between the debtor and the creditor was that the debt should be paid. That debt is a definite quantity and nothing less than the full amount can be said to be the debt. It is not altered or affected in its amount because the creditor may hold some collateral security. That is not a factor of the debt, but merely an incident to the debt. The very force and meaning of a collateral security are in the idea of a guar- anty of the performance of the principal agreement, which was to pay the debt. The property, which a creditor holds as collateral to the indebtedness of his debtor, secures him to that extent, in case his debt is not paid in full by the debtor, or by his estate. As between the creditor and his debtor, the latter could not compel the former to re- sort first to his collaterals before asserting his claim to a personal suit. The debtor has no control over the application of the collat- erals. It is a general rule of equity that the creditor is not bound to ap- ply his collateral securities before enforcing his direct remedies against the debtor. (Story's Eq. Jur. § 640; 480 KEMEDIES AGAINST KECEIVERS. [CHAP. X. in bankruptcy, upon the theory that by taking security the creditor relies upon the general credit of the debtor, only t» the extent of the balance remaining after applying the security to the satisfaction of the debt.' In Iowa, the court followed Lewis V. United States, 93 U. S. 618.) Then, on what principle can we hold that, because the debtor became in- solvent, the contract with his debtor is changed, and the creditor cannot, under those circumstances, enforce his direct claim against the debtor until he has realized on his securi- ties? Is the rule capable of such inversion V I cannot see any reason in the proposition. I do not see why, in the absence of intervention by positive or statutory law, the en- gagements of the parties should be varied. If in bankruptcy another method was prescribed by the statute for the proof and payment of debts, it was a matter purely within the discretion of the federal legislature. Its constitutional right to establish uniform laws on the subject of bankruptcies through the United States, obviously, included the power to prescribe the mode of marshalling the insolvent's assets for distribution among creditors, and, being the law of the country, it becomes a part of every contract. But this furnishes no reason why the established rules of courts of equity should be changed in the administration of the estates of insolvents." The law applicable to the distri- bution of estates of insolvent debt- ors is equally applicable to receiver- ships and the text is sustained by the following authorities : Jervis ■». Smith, 7 Abb. N. S. (N. Y.), 317, B. c. 1 Sheldon, 189 ; Lewis, Trustee ®. United States, 93 U. S. 618; Putman v. Russell, 17 Vt. 54 ; West v. Bank of Rutland, 19 Vt. 403 ; Moses V. Kanlet, 3 N. H. 488; Findlay v. Hosmer, 3 Conn. 350 Patten's Appeal, 45 Penn. St. 151 GrseflE's Appeal, 79 Pa. St. 146 ; Mat- ter of Bates, 118 111. 534 ; Logan v. Anderson, 18 B. Monroe (Ky.), 114 ; Citizens Bank of Paris v. Patterson, 78 Ky. 391 ; Van Mater v. Ely, 12 N. J. Eq. 371 ; Brown v. Bank, 79 N. C. 344 ; Kellogg v. Miller, 23 Or. 406; Bank ®. Haug, 83 Mich. 607. In Nebraska the creditor will be required to deliver the securities to the receiver as a condition precedent to being allowed to make proof of his claim. The receiver collecting the securities and paying the pro- ceeds to the creditor on his claim. The amount collected being de- ducted from the original amount of the claim and proof made for the balance. State v. Nebraska Savings Bank, 40 Neb. 843. As applied to receivers of national banks it has been held that a creditor is entitled to dividends upon his whole claim, without any deduction on account of collaterals held by him, be they collected or not. Chemical Nat. Bank v. Armstrong, 59 Fed. Kep. 373 ; reversing 50 Fed. Rep. 798. ' Amory v. Francis, 16 Mass. 308 : Farnum v. Boutelle, 18 Met. 150; Merchants Nat. Bank «. Eastern B. Co., 134 Mass., 518; State Bank v. Receivers of Bank of New Bruns- wick, 3 Green's Ch. (N. J.), 366. In re Frasch, 5 Wash. 344; Wheat «. Dingle, 33 S. C. 473. In Corrigan s. Trenton Delaware Falls Co., 3 Halst. (N. J.), 489 ; and Fish and Green v. Potts, 4 Id. 377 ; a corporation, to secure the payment of a debt to a bank, executed to the latter an SEC. 90.j CREDITORS HOLDING COLLATERAL SECURITY. 481 the general bankrupt law as being a just and reasonable rule without giving the subject much, consideration.^ In the English cases which deny the right of the creditor to prove his whole demand without deducting the security, the rule is said to be founded on the asserted principle that when one creditor has two funds to which he may resort, and another has only one, the first creditor cannot resort.^ It cannot, how- ever, be said that this is the established rule in England, since a number of cases have questioned and refused to follow it.^ The theory upon which the decisions of the courts first above mentioned is based, seems to us to wholly disregard the real nature of the contract between the debtor and his creditor. By taking security for his debt, it would hardly be seriously claimed that the creditor must be understood as relinquishing thereby his claim for the satisfaction of his demand out of the general estate of his debtor when sol- vent. Can it then be justly said when that debtor becomes insolvent — this being an act of the one party who has prac- tically lost control of the security without the concurrence of the other — that it is equitable to compel the latter, who is innocent, to relinquish his claim or to compel him first to resort to the security which his superior diligence has enabled him to acquire ? To compel him to do the latter would be in assignment (so called by the parties) receive the rents which ceased on of three perpetual leases of water the appointment of receivers ; that power made by the company to cer- it created no incumbrance on the tain individuals at certain stipulated property of the company in the rents to be paid by the lessees to the hands of the receivers, and that company. The company afterwards the rents accruing and due after became insolvent and receivers were the appointment of the receivers, appointed ; and by virtue of a decree belonged to the receivers, for the of the court and an act of the legis- benefit of the creditors of the lature, the receivers sold the prop- company, erty and chartered rights and privi- ' Wurtz v. Hart, 13 la. 515. leges of the company free and clear ' Greenwood «. Taylor, 1 Euss. & of all incumbrance. It was held that My. 185 ; Brocklehurst v. Jessup, 7 the rent accruing on the leases sub- Simons, 438. sequent to the sale by the receivers ^ Mason v. Bogg, 3 Myl. & Craig, belonged to the purchaser at the 443 ; Kellock's case, 8 Ch. App. 769 ; receivers' sale; that the so-called Bonser ■». Cox, 6 Beav. 84; Tuckley assignment of leases by the com- D. Thompson, 1 Johns. & Hem. Ch., pauy, the lessors, was a mere author- 126. ity from the company to the bank to 482 REMEDIES AGAINST RECEIVERS. [CHAP. X. effect punishing him for acquiring a lien upon specific property of his debtor by contract, and of which no rule of law or equity would deprive him had he acquired the lien through legal remedies. It certainly would seem clear that nothing less than the positive or statute law of the land at the time the contract was entered into, and which thereby became a part of it, should deprive him of his right. In Khode Island it was first held that it accorded with the well-established rule of equity, when one creditor had a lien upon two funds, and another a lien upon only one of them, that the former should be compelled to exhaust the fund upon which he had an exclusive lien, and that he would be permitted to resort to the other for the deficiency only.^ But subsequently that conclusion was directly overruled as being manifestly unjust, and against the decided weight of authority, and as having been made hastily and without due consideration, and the court established, as it said, the correct rule, viz., to allow all the creditors to present their claims in full and have divi- dends accordingly, upon the ground that the creditors are severally creditors to the full amount of their claims, and are therefore entitled to dividends to the fuU amount, the security being regarded as something collateral, which does not reduce the debt, but only secures the creditor 'pro tanto in case the debtor or his estate cannot pay the debt in fuU.^ The rule which allows a creditor to prove his whole demand cannot, of course, be so applied as to increase the amount of the indebtedness of the insolvent corporation by reason of the number of its promises to pay the same debt, in whatever form it may have made them. A contrary rule would enable the corporation to encumber its assets by a new method, greatly to the prejudice of aU other creditors.^ ' Kuowles' Petition, 13 R. I. 90. the following manner : Upon a day ' Allen to. Danielson, 15 K. I. 480. certain, the bank held as, collateral ' People t). Eemington & Sons, 54 security for certain papers, coupon Hun (N. Y.), 480, affirmed lai N. Y. iondg of the corporation to a large 675. In this case a bank held as amount which were secured by mort- collateral security coupon notes bo gage to trustees upon some of the called, made by the corporation property of the corporation. At the which became insolvent and passed request of the bank, the corporation into the hands of a receiver These executed and delivered to it an in- coupon notes came to the bank in strument in writing certifying " that SEC. 90.] CBEDITOES HOLDING COLLATERAL SECURITY. 483 The security cannot be taken away from the creditor hy the receiver or the court. It is his of right, and the proceeds derived from a sale of the security belong to him so far as will make him whole.^ *ny collaterals yoa now have in your possession are considered by us as a collateral security for any paper made by us or any drafts drawn by up upon our customers, or any in- dorsements made by us on paper discounted by you. In other words, it is intended that you hold all col- laterals as a security, not only for the old loan but for any other loan you may have made, or may here- after make to us.'' The bank con- tinued to hold these collaterals until a time when the corporation, finding itself embarrassed by the lien of the mortgage, proposed to the bond- holders, including the bank, to can- cel and retire the bonds and the mortgage and to take and accept in lieu thereof notes of the corporation for a like amount, having interest coupons attached. This proposition was accepted, and an agreement signed by the bondholders also pro- vided that the stockholders of the corporation should assign $900,000 or the stock, the whole being $1,000,000, to certain persons in trust to hold as collateral security for the payment of the coupon notes. At the time the bank sur- rendered its bonds and received its coupon notes for the same amount, the corporation also delivered to it an instrument in writing similar in character to the one set forth. At the time the corporation became in- solvent it was indebted to the bank to an amount nearly equal to the amount of the coupon notes held by the latter which claimed the right to provb the amount of such coupon notes in addition to the indebted- Jiess. This the Court held, could not be done, because, it said : " This would, in efiect, prove the actual debt twice. The coupon notes car- ried with them no lien on the prop- erty of the corporation. There was an arrangement by which certain stock of the corporation was to be held as collateral, and which, per- haps, by the opportunity which it gave to control the management of the corporate business, furnished a consideration or object for the ex- change of mortgage bonds for coupon notes. Whatever benefit there was in this might be realized by the holder of such notes as col- lateral. He would, however, have no claim on the property of the corporation beyond the amount of his actual debt. The coupon notes were only personal obligations. The bank had certain obligations against the insolvent corporation, partly as maker and partly as in- dorser, which it has proved for the full amount of its debt. It has another form of obligation against the same corporation for the same debt. This does not increase, as against other creditors, the amount of indebtedness. Being once proved, the right of the claimant in that re- gard is exhausted." ' Munhall «. Boedecker, 44 111. App. 131. A shareholder of a loan association in this case paid in ad- vance $1,000 on his shares, and the association deposited with a deposit company, for his security, notes and trust deeds given to it by borrowers from it, which were changed from time to time by the association. When the receiver was appointed a note and trust deed for $1,000 484 REMEDIES AGAINST EECEIVERS. [CHAP. X. Sec. 91. When they refuse to prosecute corporate officers for neglect of duty. — When a receiver of a corporation neglects to prosecute an officer or officers of the corporation for damages sustained by it through the fraudulent transactions or neglect of duty of such officers, the remedy of a party interested is to request the receiver to bring such an action, and, if the receiver refuses so to do, the party may then bring the action in his own name against such officers for the benefit of himself and aU others interested therein, but must make the receiver a party defendant and prove the refusal of the receiver to bring the action.' And it has been held that if a receiver for an unreas- onable length of time refuses to institute proceedings for the purpose of setting aside a transfer and sale of its property made by the corporation itself through a resolution of its board of directors, for the purpose of defrauding creditors, a party inter- ested may commence a proceeding, making the receiver a party, to set aside the alleged fraudulent sale, in the court having control and direction of the receiver, without a previous request upon the latter. In such an action the court can make the proper judgment as effectively and justly as if it had been instituted by the receiver. The proceeding is in substance and effect an application to the court to direct the receiver to do his were so on deposit, and under an that the complaint was properly order of tlie court they were de- dismissed. "The defendants in- livered to the receiver and he col- sist," the Court said, " that as the lected the money, which the court complaint did not allege that the awarded to the shareholder. receiver had been requested to ' Fisher i). Anderson, 37 Hun. (N. bring the action and had refused T.), 176. This action was brought to do so, and that she did not offer by the plaintiff to recover a sum of to prove that fact in the opening of money alleged to be due her as the her case to the court, therefore that widow of a member of » mutual no cause of action was stated against benefit association. The action was them in the complaint, or offered to brought against the trustees and be proved upon the trial. This posi- a receiver thereof ; the complaint tion we regard as well taken. The alleging, in substance, that the de- receiver represents the corporation, fendant trustees had been guilty of and also the creditors, and the funds neglect of their duties as trustees, and causes of action which became and had converted and applied to vested in him, on his appointment, their own use moneys collected are citstodia legis, and should not be under an assessment for and be- diverted and taken from his hands longing to the plaintiff, without or placed beyond the control of the right or authority. It was held court, whose duty it is to see that SEC. 91.J WHEN THET REFUSE TO PROSECUTE, ETC. 485 duty.' If the receiver is one of tlie parties charged with mis- conduct and against whom a remedy is sought, he is certainly not a proper person to whom to intrust the conduct of the action, even did he consent to institute it ; and it necessarily follows, therefore, that parties interested should be permitted to sue in their own names without demand upon and refusal by the receiver to sue. Any other alternative would result in wrongs complained of going unredressed, and substantial rights becoming lost through a mere matter of form.^ all the funds of tke corporation are justly and equitably distributed among its creditors and members. If the plaintifEs are allowed to re- cover in this action, the sum so re- covered would necessarily be placed beyond the control and order of the court. We think that the complaint should have alleged that the plain- tiff requested the receiver to prose- cute the defendants, or that she had applied to the court for leave to sue the defendants and that the same had been granted or refused." ' Monitor Furnace Co. ». Peters, 40 Ohio St. 575. This was an action brought by a judgment creditbr of a dissolved corporation of which a receiver had been appointed, to set aside a transfer and sale of the property of the corporation made by it and alleged to be in fraud of the rights of creditors. The receiver and all parties in interest were made parties defendant and were brought into court. More than two years elapsed without any steps being taken by the receiver, looking towards the setting aside of this sale. No demand was made upon the receiver to institute a suit. Upon demurrer to the answer set- ting up that fact, it was held that the- demurrer was properly sustained. See, also, Ackerman v. Halsey, 37 N. J. 356. But see Swope v. Villard, 61 Fed. Rep. 417. ' BrinckerhofE v. Bostwick, 88 N. Y. 53. Hightower «. Thornton, 8 Ga. 486, was an action brought by a judg- ment creditor of a bank against its stockholders, the bill alleging that the bank was insol vent and that the directors, being stockholders, fraud- ulently refused to call in any further payments on the stock subscribed but only partly paid in, and prayed that the stockholders should be de- creed to pay into court such sums as should be sufficient to discharge the demands of complainant. It was held that the action could be main- tained. The Court, in the course of an elaborate opinion, said : " We entertain no doubt that this pro- ceeding could be maintained by a creditor directly in his own name, that the right exists independent of any statutory enactments. But the legislature having ratified the ap- pointment of the receiver in this case, on whom, as standing in the place of the directors, pro hao vice, this duty would legitimately de- volve of calling in the unpaid stock to satisfy the outstanding debts of the company, we think the suit should be prosecuted in his name, unless some sufficient excuse is rendered why it is not ; as that he has fraudulently combined with the Btockholders, as the directors were charged with having done in the 486 REMEDIES AGAINST RECEIVERS. [CHAP. X. Sec. 92. In the Federal courts upon appeal. — Where, after a decree wHcli disposes of the principal subject of a litigation and settles the rights of the parties, there may subsequently arise important matters requiring the judicial action of the court in relation to the same property and to some of the same rights litigated in the main suit, rendering necessary the making by the court of substantive and important orders and decrees in which the most material rights of the parties may be passed upon by the court, and which, where they partake of the nature of final decisions of those rights, may be appealed from to the United States Supreme Court — the question in such cases is not whether the order complained of is of a character decisive of the questions that the parties are entitled to have reviewed in the appellate court, but whether the order or decree is of that final nature which alone can be brought to the Supreme Court on appeal. For example, where the court orders a speedy sale of all the trust property as being for the best interest of all concerned, this is a final decree from which an appeal can be taken to the Supreme Court ;^ or where the court directs its receiver to borrow money and issue certificates therefor, such certificates to be a first lien upon the trust prop- erty, even though made after final decree of foreclosure, and after appeal therefrom to the Supreme Court and the filing of a supersedeas bond, this is a final decree and an appeal may be taken therefrom.^ A decree in a suit for the foreclosure of a case cited from Connecticut, and as such certificates would not neces- they are alleged to have done here sarily be held to have such priority; during the continuance of the char- hut that, issued under this order, ter, respecting the five per cent, in- and containing on their face the stallment ; or that he has failed or provision authorized by it, they refused to take the proper steps to would constitute a first lien upon have this and the other demands the property of the railway com- due by the company extinguished pany to be sold under the final de- out of the assets of the company." cree, is, we think, very clear. Such ' First National Bank of Cleve- order standing unrepealed, ,we da land 11. Shedd, 121 U. S. 74. not think that the court in a subse- ' Farmers' Loan & Trust Co., 129 quent stage of the same litigation, U. S. 206. " It is one of the argu- in the same case and in regard to ments used before us," the Court the same subject matter, could be said in this case, " that upon a final permitted to say that the holders sale, and an order by the court for of these certificates must establish the distribution of its proceeds, their rights to priority of payment ; SEC. 93.J UPON THEIR DISCHARGE, ETC. 487 railroad, fixing the compensation to be paid to the receivers who were also trustees upder the mortgage, from the funds realized from the sale, is a final decree as to that matter, and the Supreme Court has jurisdiction on appeal by a holder of bonds secured by the mortgage.' If the Circuit Court refuses to allow the appeal, the proper remedy is by writ of mandamus from the Supreme Court, directing the judge of the Circuit Court to allow the appeal.^ Sec 93. Upon their discharge and sale of the property for debts and liabilities arising during the receivership, — A court of equity having jurisdiction of the parties and property is not bound to confirm a sale and thereby wholly relinquish control of the property without making provision for pending claims against the property incurred by the receiver. It has power, upon surrendering the trust property to the purchaser, to retain jurisdiction of the original cause in which the receiver was appointed, and it has authority to enforce against such property the debts and liabilities incurred by the receiver in its man- agement.' This is usually done in the foreclosure of railway but we are of opinion that such, hold- and if that decree is affirmed, it in era, under the decree of this court effect modifies it, although this that they should ' have priority, Court may say that it should stand standing unreversed, would be en- and be enforced." titled to such first lien. These ' Williams v. Morgan, 111 XJ. S. views we do not propose to elabo- 684. rate, further than to say that if this ^ Farmers' Loan & Trust Co., 129 order does not give to the lender of U. S. 306. the money such prior lien upon the ^ Ryan v. Hayes, 63 Texas, 43 ; proceeds of the property of the com- Giles v. Stanton, 86 Tex. 680. pany it is because the court had no In Farmers' Loan & Trust Co. v. authority to make it, and as it would Central R. of Iowa, 17 Fed. Rep. be a fraud upon such lender, justice (U. S. C. C), 758, the trustee under could only be done by enforcing it. a mortgage upon the property and If this view of the subject be cor- franchises of a railroad company rect, of which we entertain no instituted proceedings of foreclos- doubt, the order is a final one. It is ure and prosecuted the same to a a decree fixing upon the property, final decree and sale. In the decree on which the trust company now confirming the sale and directing has a first lien, another lien of the delivery of the road by the $130,000, and making it paramount receiver to the purchaser it was to that. It changes the relation of also provided " that the lawful that company to this property, dis- debts contracted by the receiver places its rights as settled by a during the litigation, and the costs decree now pending in this court, and expenses of such litigation, do 488 KEMEDIES AGAINST RECEIVERS. [chap. mortgages in order to protect those parties who are not strictly represented in the proceedings, yet wj;io have claims against the receiver ; and a purchaser of such property, under such a con- ditional sale, will not be permitted, after accepting the prop- erty, to question the validity of the order.^ This liability follows the property in the hands of a subsequent purchaser, constitute and are hereby made a first and paramount lien upon all said property, money, credit and all additions thereto, to all other liens, and to the title acquired by the purchaser at the foreclosure sale, * * * and all claims pending in this court, debts and liabilities, including the claims of attorneys and others, heretofore referred to special master Rogers, and reported on by him, and still pending on ex- ceptions, shall be presented to the said Central Iowa Railway Company for adjustment and settlement, and the said Central Iowa Railway Com- pany are ordered and directed to pay the said debts, costs and expenses, and the creditors entitled thereto are hereby required to accept pay- ment thereof. * * * And for the purpose of enforcing the pay- ment thereof, if need be, this court will and does retain jurisdiction of said cause for the purpose of enforc- ing said payment, and the lien here- in provided for, without other action or independent proceeding." Two employees of the receiver while the foreclosure proceedings were pend- ing had pending claims for damages resulting from personal injuries caused by the alleged negligence of the receiver, and filed this peti- tion of intervention in the original foreclosure proceeding, asking that their j udgments be made liens upon the railway. The purchaser (Central Iowa Ry. Co.) insisted that since the original decree of foreclosure made no provision for these claims, that it was not within the power of the court to embody the above-quoted order in the decree confirming the sale and ordering a delivery of the property to the purchaser. This, however, was held untenable and a decree rendered for the complain- ants. ' Sloan «. Central Iowa Railway Co. , 63 la. 738. This case arose out of the same receivership existing in the preceding case annotated, and was brought by an employee of the receiver against the purchaser to recover damages against the latter for injuries sustained while in the employ of the receiver. While the road was still in the receiver's hands the plaintiff petitioned the proper court and was granted leave to sue both the receiver and the purchaser, but subsequently so much of the latter order was rescinded as per- mitted him to bring an action against the receiver. (See Farmers' Loan & Trust Co. B. Central R. of Iowa, 1 Fed. Rep. 537.) The defendant pleaded that it was not a party to the action in which the order was made, and that it could not be made liable for the debts of the receiver, and that the claim of the plaintiff was not one of the debts or liabili- ties that the defendant was required to pay. It was held that the defend- ant was liable to the plaintiff. The Court said : " We have determined that the receiver, or rather the prop- erty in his charge, was liable for the payment of the plaintiff's claim. The appellant, therefore, received SEC. 93.] UPON THEIR DISCHARGE, ETC. 489 and may be enforced in an action against the purchaser and holder as a lien and charge upon the property so sold.' the property charged with this lia- bility. II it had been made a condi- tion in the order that appellant, be- fore the property was transferred or conveyed to it, should execute a writ- ten obligation binding itself to pay this claim, and it had done so, its lia- bility we think would not be doubted_ There would have been a sufficient consideration for the premises. What was done in legal effect amounts to the same thing. The jurisdiction of the court must be conceded. It had possession of the road through its receiver, and, dur- ing the time it was operated by the receiver for the court, a supposed liability to the plaintiff accrued. The Court, in substance, said to the appellant : ' We will discharge the receiver and place the road, and all property and rights connected there- with, in your possession, and vest you with the legal title thereto, provided you will assume and pay all liabilities incurred during the time the road has been operated by the receiver.' The appellant ac- cepted the road upon the conditions annexed. There was an offer and an acceptance. Ordinarily this is sufficient to constitute a, contract. Whether there was a valid contract or not is not material, because the appellant cannot retain the property and repudiate the conditions. If the appellant was entitled abso- lutely to the property, it should not have accepted, but contested by appeal or otherwise the legality of the conditions. It is true, the appellant was not a party to the action of foreclosure, but it became a party to the order when it ac- cepted the property. Whether the order was valid or not, we have no occasion to determine in this col- lateral proceeding, because its val- idity is not assailed, and possibly could not be successfully, for the reason that appellant's possession, if not its title, is based thereon." ' Schmid v. N. T., L. E. & W. R. Co., 32 Hun (N. Y.), 335. In this case it appeared that the plaintiff recovered a judgment against the receiver operating a railroad, for the negligent killing of her intestate ; the action in which such judgment was recovered was commenced after the railroad was sold upon foreclos- ure sale, but the judgment therein was recovered before the receiver was discharged, which was done without notice to the plaintiff. The road was sold to trustees pursuant to a plan of reorganization, and the referee's deed was made "ex- pressly subject to all lawful indebt- edness of said Hugh J. Jewett as such receiver made or incurred by him during his said receivership, which indebtedness is hereby de- clared to be a lien upon said prem- ises prior to said mortgages, and the said grantees in and by the terms of said deed assume the indebtedness of said receiver." A few days after the sale the trustees conveyed the road so conveyed to them, to the de- fendant in this action, the deed be- ing made subject "to all liabilities before the execution thereof in- curred by the said Hugh J. Jewett as such receiver," the defendant also covenanting to fulfill and perform and assume each and every of the liabilities above referred to, and to pay off and discharge on the " indebt- edness or liabilities incurred or to be incurred by the said receiver, and agreed that it will assume and 490 REMEDIES AGAINST RECEIVERS. [CHAP. X. It is not incumbent upon the court to retain jurisdiction of the original cause in order to enforce these liabilities. If the purchaser takes possession of the property under an order that he shall pay, satisfy and discharge all debts and liabilities of the receivership of every kind remaining unpaid, he assumes to pay the same, and in the absence of a restraining order of the court having jurisdiction of the original cause, such liabil- ity of the purchaser may be enforced directly by action in any court having jurisdiction of the parties and of the subject matter.^ If the court retains jurisdiction of the original cause after the sale of a railroad and the discharge of its receiver, for the (unless founded on willful miscon- duct or fraud in his trust) except such as shall be commenced before the expiration of sixty days from the time of the discharge of such receiver ; but it is further provided that after the expiration of said sixty days, the corporation that shall own or operate said railroad shall be liable in any action that may be commenced against such company, and founded on any act or omission of such receiver (for which he may not as aforesaid be sued), and to the same extent as said re- ceiver, but for this act, would be or remain liable, or to the same extent that said corporation would be, had it done or omitted the acts com- plained of against such receiver ;" it was held proper to allow the plain, tifi to amend the summons and com- plaint by striking out the name of the receiver and substituting that of the company operating the road, although issues had been joined in the action. Abbott . Pahquioque in motion the statute of limitation Bank, 14 Wall. (U. S.), 383 ; Green against a certificate of deposit issued V. Walkill National Bank, 7 Hun by the bank. Riddle ■». First Nat. (N. T.), 68 ; Turner v. First National Bank of Butler, Pa., 37 Fed. Rep. Bank of Keokuk, 26 la. 563. 503. 500 REMEDIES AGAINST RECEIVERS. [CHAP. X. not by an action against the receiver or the Comptroller of the Currency, but against the bank itself.^ But where the assets of a bank are not sufficient to pay its creditors in full, they are all entitled to be treated alike, and dividends are to be paid to them ratably, that is to say, ' Chemical National Bank ■». Bailey, 13 BlatcM. (U. S. D. C.),480. The claims in question in this case were all due and payable, when the comp- troller took control of the affairs of the bank, except one claim which was for u balance due on deposits made in the ordinary way with the bank, and it did not appear that any demand was made for the amount until a long time after the receiver had taken possession. Judge Wal- lace said that while " ordinarily, an action cannot be maintained by a depositor against a bank, until a formal demand has been made; and, of course, no interest can be recov- ered except that arising after the demand, the bringing of an action does not amount to a demand in such cases. (Payne v. Gardiner, 39 N. T. 146.) But if the bank, by word or conduct, denies the deposi- tor's right to a balance, it becomes presently liable to an action, with- out formal demand, and interest would be recoverable as damages. All the facts are set forth in the complaint, which justiiied and led to the action of the comptroller. The bank, by its default, initiated proceedings which resulted in a transfer of the moneys of its de- positors to a receiver, and thus put it out of its own power to pay its depositors when called upon to do BO. A demand, under such circum- stances, would have been an idle ceremony. The bank cannot be permitted to say that the deposi- tor should have made a demand, when, if made, it would have been nugatory and useless. It has been held, that, in cases of insolvency, where a debt is payable on demand, and no special demand is shown, interest is to be computed from the first publication of the pro- ceedings in insolvency. (Brown v. Lamb, 6 Mete. 303.) Reason and analogy favor the application of the rule to the present case." In National Bank of the Com- monwealth V. Mechanics' National Bank, 94 U. S. 437, the plaintiff in error on Nov. 33, 1873, refused to pay its circulating notes on demand, and became in default. The Comp- troller of the Currency thereupon appointed a receiver. On Sept. 34, 1873, the defendant in error and its assignors had funds on deposit and demanded payment thereof, but nothing was paid. Installments on account of the principal debts were subsequently paid from time to time to each of the parties. On Nov. 30, 1874, the last installment was paid in each case, and the principal debts were thereby extinguished. At each payment, interest from Sept, 34, 1873, on the amount so paid, was demanded and refused. The other parties assigned to the defendant in error their claims for such interest, and it thereupon instituted this suit to recover the same, demanding the payment of the interest, with in- terest upon the aggregate amount from Sept. 34, 1873. Upon demurrer thereto, it was held judgment for the defendant in error was properly rendered for the amount demanded. SEC. 94.J OF NATIONAL BANKS. 501 proportionally. If interest is added on one claim during the period of administration before the percentage of dividend is calculated, it should be upon all, otherwise the distribution would be according to different rules, and not ratably, as the law requires. To illustrate : Where at the time of the failure of a bank it owed a large amount of debts, one of which the Comptroller disallowed, and the claimant thereupon brought suit to have his claim adjudicated, and recovered a judgment against the bank for the amount of his claim with interest added to the date of the judgment, and, between the time of the failure of the bank and the judgment, the Comptroller had paid to the other creditors under the requirements of section 6236 of the Revised Statutes, ratable dividends, amounting in the aggregate to sixty-five per cent, on the amounts due them respectively, as of the date when the bank failed, and as soon as the claim of such claimant was adjudicated, the Comptroller calculated the amount due him on his adjudicated claim as of the date of the failure of the bank, and paid him sixty-five per cent, on that amount ; it was determined that the action of the Comptroller was proper, and that the claimant was not entitled to receive a dividend upon the face of his judgment, but that it was proper to ascertain from the judgment how much was due on his claim at the date of the failure of the bank and make the distribution accordingly.^ The receiver is not accountable in equity to the owner of real estate for rents thereof received by him as such receiver, and paid by him into the Treasury of the United States, subject to the disposition of the Comptroller of the Currency.^ In the National Banking Act, everything essential to the formation of the banks, the issue, security and redemption of their notes, the winding up of the institutions, and the distri- bution of their effects, is fully provided for, as in a separate ' White V. Knox, 111 U. S. 784. can Exchange Bank, 133 TJ. S. 433, And see Riddle ■». First Nat. Bank, 470. This rule of allowing inter- 72 Fed. Rep. 503. When, however, est on contested claims has been the payment of a dividend is de- followed in New York in other Jerred by reason of an unsuccessful than National Bank Receiverships, voontest of a claim, the creditor so People «. E. Remington & Sons, 59 delayed will be allowed interest on Hun, 307, affirmed 126 N. Y. 679. the dividend. Armstrong v. Ameri- ' Hitz v. Jenks, 123 U. S. 297. 502 REMEDIES AGAINST RECEIVERS. [CHAP. X. code, not to be limited or enlarged by other statutory provisions with respect to the settlement of demands against insolvents or their estates. The provisions contained in the act must be deemed, therefore, to withdraw National Banks which have failed, from the class of insolvent persons out of whose estates demands of the United States are to be paid in preference to the claims of other creditors,^ and the provision in the Revised Statutes, giving priority to the demands of the United States against insolvents, cannot be applied to demands against banking institutions. The provisions of that section and of the National Banking Act being, as applied to demands against National Banks, inconsistent and repugnant, the former law must yield to the latter, and is, to the extent of the repugnancy, superseded by it.^ So the forfeiture of the bonds deposited as security for the circulating notes of a National Bank, which the Comptroller of the Currency is authorized upon the failure of a bank to declare, is not a confiscation of the bonds to the government. It amounts only to an appropriation of them, against any other claim, to the specific purpose for which they had been deposited, authorizing their cancellation at market value when not above par, or their sale, so far as necessary to redeem the circulation or reimburse the United States for money advanced for that purpose. When that purpose is accomplished, the bank has the right to any surplus of their ' United States Eevised Statutes, law, as to cases in wMch an act of § 3466, providing that • " Whenever bankruptcy is committed." any person indebted to the United '■' Cook County National Bank v. States is insolvent, or whenever United States, 107 V. 3. 405. This the estate of any deceased debtor, in was a bill filed by the United States the hands of the executors or ad- to obtain a decree adjudging to it a ministrators, is insufficient to pay priority in the payment of its claim all the debts due from the deceased, of postal funds and money order the debts due to the United States funds deposited with the defendant shall be first satisfied ; and the by a deputy postmaster ; the bank priority hereby established shall having become insolvent and a r^- extend as well to cases in which a ceiver having been appointed by the debtor, not having sufficient prop- comptroller. The demurrer inter- erty to pay all his debts, makes a posed to the bill having been over- voluntary assignment thereof, or in ruled, it was held on appeal error, which the estate and effects of an that the United States was not absconding, concealed, or absent entitled to priority, debtor are attached by process of SEC. 94.J OF NATIONAL BANKS. 503 proceeds, equally as though that right had been in express terms declared, and the United States cannot set-off its demands for a balance due on deposit in the bank against such proceeds.^ The receiver of a National Bank, by his appointment, how- ever, acquires no right to the property in the custody of the bank which the latter does not own, as against the real owner ; and section 5242 of the United States Eevised Statutes was plainly not intended to protect the receiver's custody as against such owner. It aims to protect the property of the bank in his hands and not to give him arbitrary control of what the bank did not own. It is immaterial that there may be a dispute about the title, and that the receiver claims to be the owner. He might make such claim in any case. The owner of such property has the right to institute against the receiver, in order to recover possession of the property, such provisional remedies as the local laws may provide. Thereby the authority of the Federal courts over the assets and the right of the receiver to hold them is not questioned or invaded. No prop- erty over which such jurisdiction is obtained is interfered with. What is sought to be recovered is property over which no such jurisdiction has been obtained and as to which no right has been conferred upon the receiver.^ ' Cook County National Bank d. be relieved from its trust character United States, 107 U. S. 405. " The before it can be treated in any other surplus," Baid the Court, "oonsti- character." tuted the assets of the bank, and ' Corn Exchange Bank of Chicago part of the fund appropriated by «. Blye, 101 N. T. 303. This action the statute for its creditors. It was brought against defendant as was charged with this liability, and receiver of a national bank, to re- was held subject to it after the pur- cover possession of certain securi- poses of the original trust were ac- ties, which the complaint alleged complished, although remaining in were pledged to the plaintiff as the treasury. It was then" subject security for a draft, which draft to a new trust. A trustee cannot was forwarded for collection to the set-off against the fund held by him bank, accompanied by the securities in that character his individual de- with instructions to hold them until mand against the grantor of the payment of the draft. The corn- trust. Courts of equity and courts plaint also alleged that the draft of law will not allow such an appli- was not paid, that the bank sus- cation of the fund so long as they pended, defendant was appointed are affected by any trust. It would receiver of its assets, the securities open the door to all sorts of chi- were delivered over to him, and he canery and fraud. The fund must refused to deliver up the same on. 504 REMEDIES AGAINST RECEIVERS. [CHAP. X. The rule that one who has been induced to part with his property by the fraud of another, under guise of a contract, may, upon discovery of the fraud, rescind the contract, and reclaim the property, unless it has come to the possession of a honafide holder, does not at aU depend upon the character of the wrong-doer, whether a corporation or a natural person. It applies equally to National Banks, and when, therefore, a bank receives a deposit from a depositor at a time when the former was known to be by its officers irretrievably insolvent, the depositor may, upon discovery of the fraud, rescind the contract, and, if he can trace and identify the property in the hands of the receiver, reclaim his property thus obtained by fraud. This right of a depositor to reclaim his property is not precluded by the National Banking Act, since he does not seek to enforce any right as a creditor of the bank, but merely reclaims his own property obtained by fraud.^ The right to a restoration in such cases may be defeated by the acts or acquiescence of the defrauded party, or because the property has lost its identity demand. A requisition was applied lor and issued directing tlie sheriff to take into his possession the securi- ties. Upon motion of the receiver to set aside the requisition, it was lield upon appeal that the issuing of the requisition was not inhibited and therefore the motion was properly denied. And see Potter v. Beal, 49 Fed. Kep. 793. ' Cragie v. Hadley, 99 N. Y. 131. The plaintiffs in tliis action depos- ited in the usual course of business certain drafts with a national bank, which were credited to them on the books of the bank and in their pass- book ; the bank was at that time insolvent and its drafts had gone to protest the day before; of this its president, to whom was intrusted its entire control and management, had full knowledge, and presum- ably its other officers and agents. The bank kept open until the usual hour of closing on the day of the deposit, but did not open its doors thereafter, and went into the hands of a receiver. This action was brought to recover the proceeds of the drafts which had been sent for collection to the bank's agent, the latter not having returned the pro- ceeds to the bank. It was held that the plaintiff was entitled to recover. To the same effect is St. Louis and San Francisco E. Co. i>. John- ston, 133 U. S. 566, where the com- plainant, a customary depositor of a national bank, deposited with it a sight draft on a railway company at a time when the bank was hopelessly insolvent and had been insolvent for a year and closed its doors the next day, and passed into the hands of a receiver ; the bank having sent the draft to its agent for collection, the collection, however, not being made until the day after the bank closed its doors. It was held that these facts brought the complain- ant's case within the principle stated SEC. 94.] OF NATIONAL BANKS. 505 and cannot be traced, or other persons have innocently acquired interests in ignorance of the fraud. It is, therefore, incumbent on a party to trace the property charged with a trust or otherwise misappropriated by the bank into the hands of the receiver before such party can charge him with the duty of recognizing the complainant's equitable title. AU the moneys and assets of the bank, when they are received by the receiver, come to him as a trust fund for all the creditors of the bank, without preference, by force of the provisions of the statute under which he is appointed ; and it would be a violation of law upon his part to set aside any portion of those assets for a complainant, unless the latter's portion is capable of identifica- tion, or of being definitely traced and distinguished from the funds of the general body of creditors. The rule is that a cestui que trust, under such circumstances, must be able to point out his fund, or the proceeds which are specifically derived from it, and trace it through its transformations so as to show that it is not a fund or product to which all other creditors have an equal right to resort. The right to foUow the property ceases when the means of identification fail, which of course is the case when the subject matter is turned into money and mixed and intermingled with the bank's own funds so that the identity is destroyed before the title of the receiver accrues.^ But in the text and that it was enti- was so helpless that it was its duty tied to the proceeds of the draft. to make it." " The fraudulent intention," Chief ' Illinois Trust and Savings Bank Justice Fuller said "flowed from v. First Nat. Bank of BufEalo, 15 the guilty knowledge, and the bank Fed. Eep. (U. S. C. C), 858. The must be held to the consequences complainant in this case sent a draft of a representation which it knows to a national bank for collection, to be contrary to the fact, and upon charged with a trust to pay the pro- which the complainant innocently ceeds thereof when collected to acted. Granted that the mere complainant. The bank at that omission to disclose the insolvency, time was insolvent, which fact the if there had been ground for the officers knew, and that it would be supposition that the bank might obliged to suspend within a day or continue in business, would not be two. Instead of remitting the pro- snfflcient, there is nothing for such ceeds of the draft, it kept and min- a matter to rest on here. As a mat- gled them with its own funds. This ter of pleading, the averment was took place before the bank closed its that the bank wrongfully neglected doors, which, however, it was com- to make the disclosure ; as a matter pelled to do soon after, and a re- of fact, the condition of the bank ceiver was appointed. It was held 506 REMEDIES AGAINST RECEIVERS. [CHAP. X. the rule is equally well settled that the right to follow and recover trust or quasi trust funds does not cease until the means of ascertainment fail; and when, therefore, a National Bank is simply constituted the agent of one of its customers for the collection of commercial paper owned by the latter, the title of such paper so delivered for collection, it is clear, does not pass to the bank but remains in the customer, and the proceeds of the paper after collection is impressed with a trust which the customer may foUow and reclaim, and which the receiver of the bank is bound to recognize, so long as such proceeds have not become indistinguishably mixed with the general assets or fund of the bank before the receiver took possession.^ This remedy that while the conversion by the aminatlon of the law and cites bank of the proceeds of the draft was fraudulent, yet, since such pro- ceeds could not be traced, the com- plainant was not entitled to them from the receiver. So in Philadelphia National Bank V. Dowd, 38 Fed. Rep. (U. S. C. C), 172, the plaintiff sent to defendant's bank paper indorsed " For collec- tion and immediate return " to plain- tiff, and the paper was collected, but the proceeds mingled with other money of the bank, instead of for- warded to plaintiff. The bill al- leged that defendant's bank, at all times subsequent to the collection and at the time of defendant's ap- pointment as receiver, had on hand cash to a greater amount than that due plaintiff, and asked to have the amount so due paid in full on the ground that the bank was a mere trustee in the transaction, and the funds in the hands of the receiver were impressed with the trust. It was held that while the mingling of the proceeds of plaintiff's paper with the funds of the bank was a breach of trust, nevertheless, since the proceeds could not be traced, the plaintiff was not entitled to ihe relief asked. Judge Setmotte, in this case, makes an exhaustive ex- authorities relating to the rights of a cestui que trust to seek and reclaim property misapplied by a trustee. • First Nat'l Bank of Montgomery V. Armstrong, 36 Fed. Rep. (U. S. C. C), 59. In this case a draft sent to a national bank indorsed : " Pay to Ammi Baldwin, cashier, or order, for collection for account of the First National Bank of Montgomery, Ala- bama," was paid by the drawee by check, which the bank collected through the clearing house. A memorandum was placed with the bank's cash, to indicate that the pro- ceeds of the draft was the property of the sender, and that the bank's cash was that much less. The bank was closed the next morning, and the receiver credited such proceeds to the sender of the draft on the books of the bank. It was held that the fund was not so mingled that it could not be traced and identified, and that the sender could recover the same. Where a bank sends to a national bank a sight draft, drawn on a third party, indorsed " Pay " the latter bank, or order, " for collection for " the first bank, such indorsement destroys the negotiability of the SEC. 94.J OF NATIONAL BANKS. 507 of the customer does not cease when the receiver receives the proceeds of the paper after the failure of the bank and mixes it with its general funds, for then the proceeds are impressed with a trust, of which the receiver is bound to take notice, and of which he cannot by his own act destroy the identification.' draft except for purposes of col- lection, and gives notice to all parties through whose hands it passes that it is the property of the first bank. And the fact that it was the practice of the national bank, in its dealings with the first bank, to credit the latter on the day of receipt for all drafts, checks, etc., sent for collection, that were pay- able at sight or on demand, did not change the title of the draft, and especially when the account was not drawn against nor advances made on the faith of it ; but the proceeds of the draft in the hands of the agent of the national bank was the property of the sender and could be recovered by it as against the receiver of the national bank. Fifth National Bank v. Armstrong, 40 Fed. Rep. (U. S. C. C), 46. A national bank, which had agreed to " make collections " for another bank, crediting sight items at par subject to payment, and remitting weekly in New York Exchange, was held to be merely the agent of the latter to collect for it commercial paper, and to acquire no title to the proceeds of a check sent to it for collection under the agreement, and by it forwarded to a sub-agent for that purpose, to which payment was made after it had suspended pay- ment and ceased to do business and was in the hands of n receiver. Manufacturers' Bank ■». Continental Bank, 148 Mass. 553. And if a bank in one city, as the agent to transmit, sends the draft or note of a third party to a bank in another city for collection, the col- lecting bank cannot, on failure of its correspondent, without having made advances or given new credits on the faith of the draft or note, credit the proceeds of the draft or note to its account ; but is liable to the owner of the draft or note there- for. Hackett v. Reynolds, Lamber- ton&Co., 114 Pa. St. 338. ' Commercial National Bank v. Armstrong, 39 Fed. Rep. 684. It was held in this case that the rela- tion between an insolvent national bank and complainant as to paper sent by the latter was that of prin- cipal and agent ; and it appeared that subsequent to the suspension of the national bank, the receiver of the same received from corre- spondents a large part of the pro- ceeds of complainant's paper; it was held that as to that part the complainant had clearly traced it into the hands of the receiver and was entitled to recover from him. Upon appeal to the Supreme Court this case was affirmed. Commercial Nat. Bank V.Armstrong, 148 U.S. 150. Where checks and drafts sent from one bank to a national bank were indorsed "for collection" and credited subject to payment, accord- ing to the dealings between the banks, and part of them were paid to the receiver of the latter bank after its failure, and the balance were credited to it by the payees; it was held that the amount paid the receiver should be accounted for as a trust fund, but the balance as a general debt. First National Bank of Wellston v. Armstrong, 42 Fed. Rep. (U. S. C. C), 193. 508 EEMEDIES AGAINST EECEIVERS. [CHAP. X. The provision of the National Banking Act making share- holders, of every association organized thereunder, individually liable for all contracts, debts and engagements of the associa- tion, to the extent of the amount of their stock therein, was intended to make the holders of the stock responsible for a trust fund, equal, if necessary, to the amount of the capital stock of the bank, and to be devoted to the payment of all the creditors alike. The liability to be enforced against a share- holder is not a debt due to the bank, but is a sum of money equal to the par value of his stock, payable by him to the receiver upon an assessment authorized and made by the Comptroller of the Currency. This liability cannot be canceled or diminished by offsetting a shareholder's individual claim, which is not entitled to a preference, against the bank. The effect of allowing such a set-off would be not only to give a shareholder a preference over other creditors, but also to diminish the trust fund, which it is clearly the object of the law to create for the benefit of all creditors of the bank equally.^ This doctrine is weU established in equity, and does not depend upon any provision of the National Banking Act. To what extent the right to set-off is permitted by the act has been a mooted question. It has been held that the act, parti- cularly section 5242, prohibits the equitable right of set-off in cases where the claim in favor of the bank does not mature until after the insolvency of the bank.^ We are unable to see anything either in the letter or spirit of this act that requires such a conclusion. Its mani- fest intent and purpose is to prevent the creation of a prefer- ence after a bank's insolvency or contemplated insolvency. This, however, is very far from prohibiting the allowance of an otherwise valid set-off against the claim in favor of the bank, whether it has matured or not. The allowance of such a set-off is not the creation of a preference, but simply an ascertainment of the just amount due. If it was intended by Congress that the insolvency of a bank should deprive ' Hobart 13. Gould, 8 Fed. Rep. (U. 63 ; Stephens v. Sohuohmann, 33 S. D. C), 57. Mo. App. 333. ^ Armstrong v. Scott, 36 Fed. Rep. SEC. 94.] or NATIONAL BANKS. 609 a debtor of his equitable right of set-off in this respect, unmistakable language could easily have been employed for that purpose. The omission to do so is a clear indication that it was not intended to prohibit the allowance of any valid set-off, legal or equitable, which a debtor of a bank may have against any obligation owing to it by him at the time of its insolvency.' And so it has been definitely held by the Supreme Court of the United States.^ But it is obvious that if the bank, before its failure, disposes for value of an obligation unmatured, the debtor is not entitled to set off his claim against the bank against such unmatured obligation, which has ceased to be the property of the bank, and in which its receiver has no interest.' If, however, the relation of a shareholder is not simply that of a creditor of the bank, but that of a cestui que trust, and he holds a claim of such a nature against the bank that he would be entitled to receive and demand payment thereof in full from the receiver before distribution among the general credit- ors could be made, he may avail himself of the right to set-off the claim against the amount due from him as a shareholder upon an assessment. Thereby the trust fund, which it was the object of the law to create, is not diminished or impaired further than if the shareholder paid to the receiver the amount of his assessment, and the receiver paid to the shareholder the amount the latter was entitled to in preference to the general creditors.^ 'Armstrong d. Warner, 49 Ohio notes, as against a j udgment recov- St. 376, annotated ; Snyder's Sons ered by the receiver of such insolv- Co. V. Armstrong, 37 Fed. Rep. 18. ent corporation against the bank for A depositor in an insolvent national a penalty provided for taking inter- bank, who had indorsed notes which est in excess of the legal rate. Bar- were subsequently discounted by hour ®. Bank, 50 Ohio St. 90. the same bank, is entitled to set-oflF ' Scott ®. Armstrong, 146 U. S. his deposit against the amount of 499, reversing s. c. 86 Fed. Kep. 63. the notes, in a, suit brought by the And see Hughitt v. Hayes, 136 N. receiver of the bank to recover on Y. 163. the notes, even though the notes ^Balbach v. Frelinghuysen , 15 matured after the insolvency of the Fed. Rep. 675. bank. Yardley i). Clothier, 49 Fed. * Welles®. Stout, 38 Fed. Rep. (U. Rep. 337 ; affirmed 51 Fed. Rep. S. C. C), 807. This was an action 506. The receiver may set-off a by the receiver of a national bank to j udgment recovered against an in- recover from a shareholder an assess- solvent corporation upon promissory ment on his share ; the defendant 510 REMEDIES AGAINST EECEIVEKS. [CHAP. X. Every National Banking Association is a creature of the act, dependent upon it for all its powers, and controlled by all the restrictions which the act imposes ; and creditors dealing with the bank can obtain only such rights as it is authorized to give. The purpose of the act is to secure aU the assets of the bank existing at the time of its act of insolvency for ratable distri- bution among creditors ; thereafter one creditor cannot secure a preference over another, and, therefore, a debtor of the bank cannot offset against his indebtedness to the bank a deposit assigned to him by another depositor after the bank ceases to do business by reason of its insolvency.^ alleged as a counter-claim that the Comptroller of the Currency had directed the bank to restore the value of certain securities held by it which had been reported worthless by an examiner ; that certain of the stockholders, including defendant, had raised a fund, which was placed in the hands of trustees, to apply so much as might be from time to time required by the comptroller to retire such securities ; that the fund was deposited with the bank, with full notice of the purpose to which it was to be applied; that a portion had been used to retire the securities designated, and that when the bank failed the balance of the fund came into the hands of the receiver, and was claimed by him as a part of the ordinary assets of the bank ; that certain portions of this balance be- longed to defendant, which amount he asked to set-off against plaintiff's demand. The plaintiff having de- murred thereto, it was held that the claim was of such a nature that the holder would be entitled to recover the full amount from the receiver, and therefore it could be pleaded as a set-off, and the demurrer was overruled. ' Venango National Bk. e. Taylor, 66 Pa. St. 14. A national bank in this case having become insolvent closed its doors, and one Eyud had to his credit for deposits made in the bank a large sum which he, on the day following that when the bank closed its doors, assigned to the defendant, who was a debtor to the bank on a bond for a large amount. A receiver was subse- quently appointed of the bank, and this action was brought, the de- fendant claiming the right to offset the claim so assigned to him against the indebtedness due the bank. It was held that he was not entitled to the offset, because it would give him a preference over other creditors. In an action by a receiver of a national bank to recover upon a bill of exchange, the property of the bank, the defendant cannot set-oS under a statute which only permits a set-off to be " pleaded in an action founded on contract, and must be a cause of action arising upon con- tract or ascertained by the decision of the court," the penalty to which a national bank is subjected, for receiving usurious interest, under § 5198 of the TJ. S. Revised Statutes. Hade v. McVay, Allison & Co., 31 Ohio St. 231. A shareholder of a national bank who is liable for its debts to the extent of the amount of his stock, and who is also a creditor of the SEC. 94.J or NATIONAL BANKS. 511 Section 6242 of the National Banking Act, and also section 5236 ^ have received a most strict construction in the Court of Appeals of New York. The question presented was whether a a savings bank, created under the laws of that state, was entitled to be preferred in payment under the State Banking Law,^ for its deposits made with a National Bank prior to the appointment of a receiver for the latter by the Comptroller of the Currency by reason of its insolvency, and the conclusion was reached that it was entitled to be preferred in payment. The Court was of the opinion that state legislation, in regu- lation of the general conduct of the business of a national bank with its depositors, is not an interference with any exercise of the national legislative power, and that if, in the course of the business of a national bank, through force of state laws, rights are accorded to, or liens acquired by, depositors or creditors, they are not within the purview of sections 5236 or 5242. This question is a most important one, and will not be finally set at rest until passed upon by the Supreme Court of the United States. Very strong reasons may be urged against the bank on a deposit account, cannot defeat a set-off of the former against a dividend declared upon the latter, by assigning his claim to a third party after the bank's insolvency and before the Comptroller of the Currency directs the receiver to enforce the liability of stockholders. King V. Armstrong, 50 Ohio St. 223. ' § 5236. " From time to time, after full provision has been made for refunding to the United States any deficiency in redeeming the notes of such association, the comp- troller shall make a ratable dividend of the money so paid over to him by such receiver on all such claims as may have been proved to his satis- faction or adjudicated in a court of competent jurisdiction, and, as the proceeds of the assets of such asso- ciation are paid over to him, shall make further dividends on all claims previously proved or adjudi- cated; and the remainder of the proceeds, if any, shall be paid over to the shareholders of such associa- tion, or their legal representatives, in proportion to the stock by them respectively held. " «N. r. Laws of 1892, chap. 689, § 130. ■■ All the property of any bank or trust company which shall become insolvent, shall, after pro- viding for the payment of its circu- lating notes, if it has any, be. applied by the trustees, assignees or re- ceiver thereof, in the first place, to the payment in full of any sum or sums of money deposited therewith by any savings bank, but not to an amount exceeding that authorized to be BO deposited by the provisions of this chapter, and subject to any other preference provided for in the charter of any such trust company." ^ Elmira Savings Bank «. Davis, 142 N. Y. 590, affirming 73 Hun, 357. 512 EEMEDIES AGAINST EECEIVEES. [CHAP. X. soundness of the conclusion reached by the New York Court of Appeals. For it must be conceded that state legislation of this kind does interfere with the distribution of the assets of an insolvent national bank as contemplated by the National Bank- ing Law. If the provisions of this law as to national banks constitutes a complete system not only for their establishment and government, but also for their winding up, it may be said that state legislation of the nature referred to, in attempting to prescribe certain rights or preferences in favor of a certain class of depositors, and not accorded to all depositors of national banks, tends to impair their utility and efficiency, and therefore comes into conflict with the operation of the law governing and winding up institutions which are the object of its creation. Again, the right of a state legislature to enact laws which shall permeate and form a part of certain contracts, wholly legal, made by national banks created by national law, and having the right to do business in the several states, may be questioned, when the law of their creation has not expressly authorized it, but has expressly provided for the manner of distributing their assets upon insolvency, and, it may be said, impliedly inhibited the distribution of those assets in any other manner. And if the right of preference be sustained, upon the grounds of a contractual obligation, entered into by the bank by force of the state law, why cannot any other depositor of a national bank also secure a preference by exacting a contract from the bank to that end and purpose, at the time of making the deposit? That a preference can be secured in this latter way, and thereby the provision of the national law thwarted, is hardly possible. This class of deposits become the property and assets of the bank in which they are made, and the dis- tribution of those assets cannot be so lightly diverted from the direction contemplated by the national law. SEC. 95.] GENERAL CHARACTEK. 613 CHAPTER XI. Receivers' Certificates. Sbc. 95. General character; not commercial paper. 96. When the court will order them issued. 97. Parties affected by the court's order making them a prior lien on the property. Sec. 95. General character; not negotiable paper. — The most that can be affirmed of receivers' certificates, issued under the authority of a court, is, that they are evidence in the hands of the holder that he is entitled to receive from the fund, under the control of the court that authorized its officers to issue them, the amount specified, if the fund is sufficient to pay in fuU all holders of such certificates, or if it is not suffi- cient, then only a pro rata share with other holders. Nearly every quality essential to the negotiablity of commercial paper is wanting in such certificates. They bind no one personally, nor can any action be maintained on them against any one. Not having the qualities of negotiable paper they are not assign- able so as to bar the equities existing against the payees to whom they are issued.' An assignment of such a certificate ' The Central National Bank of cessor was appointed in his stead ; Boston «. Hazard, 30 Fed. Hep. that the indebtedness incurred by (U.S. CO.), 484 ; Stanton ■». Ala- the first receiver amounted to a bama & Chattanooga R. Co. 3 Woods large sum which the second receiver (U. S. C. C), 506 ; Union Trust v. was unable to meet from the current Illinois Midland R. Co. 117 U. S. earnings of the road, and the court 434, 456, 460. then ordered that he issue certifi- In Turner v. Peoria & Springfield cates of indebtedness for any out- E. Co. 95 111. 184, it appeared that standing valid indebtedness of the under a bill filed by a bondholder, late receiver ; the form of the cir- a railroad was placed in the hands tificate the receiver was authorized of a receiver who took possession of to issue was prescribed and was to all the property of the company and be made payable to the party to operated the road until a certain whom it was to be delivered, or his time when he resigned, and a sue- order, and a copy of the order of 514 KECEIVEES CERTIFICATES. [chap. Xli does not create tlie liability incident to an indorsement or an assignment of negotiable commercial paper; neither is the assignment an implied warranty that the certificate is collect- able and wiU be paid, nor does it make the indorser liable as a guarantor.^ Those who take certificates must be deemed to have taken them subject to the rights of parties who have prior liens upon the property, and who have not, but should have been, brought before the court. The receiver and those lending money to him on them take the risk of the final action of the court in regard to the loan.^ Power conferred upon receivers to issue certificates does not authorize the issue of a bond or other negotiable instrument the court authorizing the issuing of concern to all parties interested in such certificates was required to be printed on the back thereof. The petitioners who were the holders of a certificate issued by the second re- ceiver, payable on or before a day certain, presented this petition to the court to direct the receiver to pay them the amount thereof out of funds in his hands properly applic- able thereto. It appeared that such certificate was made payable to one Smith or bearer, who transferred it for value to petitioners. The cer- tificate was not issued to Smith on account of any indebtedness incur- red by the former receiver, nor did the receivership receive any benefit from him or any one else for the transfer of the certificate. It was 7ield that the petitioners were not entitled to the relief. " The con- clusion," said Mr. Justice ScOTT, " reached rests upon legal principles that have long been settled, but the rule deducible therefrom has the strongest equitable consideration for its support.- It usually appears on the face of such instruments by what authority they were issued, and for what specific purpose. Holders, therefore, will always be chargeable with notice of these facts. Consideration of the highest the trust property make it impera- tive to the court that charges the fund, through its appointed officer should have the most vigilant care, that the property is not improvi- dently wasted. All persons dealing in such securities must know that payment can only be coerced by ap- plication to the court having control of the trust property for an order upon its acting officer. Such cer- tificates have not been current in commercial transactions as bills of exchange and other negotiable paper, nor are they likely to become so. It is known they are issued only for the benefit of the trust property, and usually the specific purpose is mentioned on the face, or, as in this case, on the back of the certificate. The design is only to charge the trust property, and that only so far as it is equitable to do so. While courts will be zealous to protect the rights of parties who may have furnished money for the preservation of the trust property, equal care will be observed to see that the property is not wasted by improvident acts of receivers." 1 MoCurdy «. Bowes, 88 Ind. 583, 5 Union Trust Co. v. Illinois Mid- land R. Co. 117 U. S. 454, 456, 460. SEC. 95.] GENERAL CHARACTER. 515 which shall be good in the hands of a bona fide holder for value, no matter what vice or infirmity may attend its original creation. The paper issued must be governed by, and the holder is chargeable with, notice of the authority under which it is issued, and not by the form the receiver may choose to give it.^ When, therefore, a receiver is expressly authorized to issue certificates for money borrowed, material furnished, labor performed, or on account of contracts made by him for, or on account of the construction or completion of a railroad, his power as an ofiicer of the court is limited to that specific pur- pose, and if he issues certificates as payment for material not furnished or labor not performed, his action is nugatory and the certificates so issued are invalid, notwithstanding they may be the property of an innocent holder for value.^ While it is true that receivers have no right to hypothecate certificates or to agree to pay more for money borrowed there- on than that allowed by the court, yet such hypothecation wiU ' Stanton v. Ala. & Cliattanooga E. Co. 3 Woods (U. S. C. C), 506. = Bank of Montreal «. C. C. & W. E. Co. 48 la. 518. It appeared in this case that a receiver of a rail- road company was directed to con- struct and complete a line of road, and for such purpose was expressly authorized to issue certificates " for money borrowed, material fur- nished, labor performed or on ac- count of contracts made by him for or on account of the construction or completion of said road or any part thereof which should be a first lien upon the road. The plaintiff, claim- ing to be the owner of certain of the certificates issued under said order, filed its petition of intervention asking the establishment of its lien, and that the property be sold to satisfy the same ; another owner of some of the certificates having pre- viously filed its petition of inter- vention, filed an answer alleging that the certificates owned by the plaintifi' were not issued by the re- ceiver in payment of any money borrowed, nor in payment of any indebtedness due the payees men- tioned in the certificates or any other person. To this answer the plaintiff filed a demurrer, and it was Tield that the demurrer was properly overruled. Where a receiver was authorized to issue certificates to pay taxes, wages and freights due and to be- come due, and the game were to be a prior lien upon the property, it was held that certificates given to secure a debt to a merchant in- curred by giving orders upon him to employees in payment of wages, were not entitled to the lien upon the property, but were simply evi- dence of indebtedness, having no higher character than the debts of which they were the representa- tives. Fidelity Ins. & Safe Deposit Co. B. Shenandoah Iron Co. 42 Fed. Eep. 373. And see Seventh Nat. Bank v. Shenandoah Iron Co. 35 Fed. Sep. 436. 516 KECEIVEKS CERTIFICATES. [chap. XX. not make the certificates wholly void ; neither are the lenders of money on their bond to look after the application of the money loaned to the receivers, and see to it that the receivers faithfully apply the money as directed by the court, but they are good for the amount of money actually paid for or advanced on them to the receiver in accordance with the terms of the order of the court directing their issue.^ But where the order of the court authorizes the receiver to sell the certificates at not more than a certain discount, and the certificates are sold within that limit, the holders of the same are not only entitled to the money they actually paid, but they are entitled to be paid for the certificates according to their tenor as authorized, for it must be presumed that the parties taking the certificates re- lied on the promise to pay their face, and would not otherwise have trusted the receiver or the fund.^ A receiver can only issue such certificates as he is authorized by the court to do. If he goes beyond that, and issues certifi- cates bearing false and fraudulent representations upon their face, and places them upon the market for sale, he will be held month with a pledge of certificates often exceeding double and some- times treble the amount loaned with authority to sell the certifi- cates at public or private sale. It was held that the claimants should only be allowed the amount of money actually advanced by them, upon their delivery of the notes or other evidences of indebtedness held by them, and also all the re- maining certificates which had been given to them in pledge after re- taining as many of them at ninety cents as would extinguish the amount found due them. ' Union Trust Co. «. Illinois Mid- land R. Co. 117 U. S. 434. In Meyer v. Johnston, 53 Ala. 237 351, it was lield that the chancellor had no power to disregard the law against usury, by authorizing a re- ceiver to borrow money upon in- terest-bearing certificates at less than their face value. ' Union Trust Co. i>. Illinois Mid- land Co. 117 U. S. 434, 461 ; Swann B.Clark, 110 U.S. 602. In Stanton «. Alabama & Chat- tanooga R. Co. 3 Woods (U. S. C. C), 506, the receivers were authorized to issue certificates for the money which they may thus raise by loan, and the loans shall be made on such terms as the receiver may deem ex- pedient, provided that the said cir- tificates shall not be disposed of for less than ninety cents on the dollar ; and, provided also, that the interest shall not be allowed at a greater rate than eight per cent " ; the cir- tificates to be made a first lien upon the property, and to be paid out of its proceeds. It appeared that money was advanced in New York to the receivers for which they executed their notes, dating them at Boston to avoid the usury laws, and stipu- lating to pay, exclusive of eight per cent, interest, 3J^ per cent, per SEC. 95.] GENERAL CHARACTER. 517 personally liable to any hona fide holder of such certificates, although the receiver had no purpose to defraud or deceive such holder when he executed the certificates.^ The certificates must ' Bank of Montreal v. Thayer, 3 MoCrary (U. S. C. C), 1 ; s. c. 7 Fed. Eep. 623. In this case the certifi- cates upon their face stated that they -were issued by the receiver in pursuance of an order made by the court, and that they were each of the series of receiver's certificates authorized to be issued by such or- der, and constituted a first lien upon a line of railroad operated by the receiver as such, its appurten- ances, franchises and incomes, and that they were issued for iron rails furnished for constructing said road. The bill alleged that these repre- sentations were false and fraudu- lently made by the receiver. Upon •demurrer thereto, McCr art. Circuit Judge, said : " The petition does not state that the false and fraudu- lent representatiouK were made with the intent to defraud any particular individual, but it does state in sub- stance that they were contained in certain written instruments, payable to the Joliet Iron and Steel Company or bearer, and that relying upon the statements and representations con- tained in said instruments, the plaintiff purchased them from the payee, in good faith, in the usual course of business, before they were due, and without knowledge or no- tice that said representations were false, and paid their full face value. Is this suflBcient? To state the question as concisely as possible, it is this: Assuming that the repre- sentations contained in the certifi- cates were false and fraudulent, that is, made with intent to deceive, are we to assume that they were made with intent to deceive whoever should purchase the paper ? In the very nature of the case the defend- ant must have intended that his representations would or might be acted upon by any person or persons purchasing the certiffcates in the open market. He was placing paper upon the market where it was like- ly to be bought and sold. The cer- tificates were so drawn as to facili- tate their negotiation ; they were to pass from hand to hand without indorsement ; they were to be pay- able to bearer. Why is it not a sound rule of law and of morals that makes the signer of such paper liable in damages to any one who may be deceived and injured by having relied upon statements of fact fraudulently inserted therein ? To say that it is necessary to show that defendant had a particular in- dividual in view as the person to be defrauded, would be in effect to re- lease him from liability for his representations; for a person who places such a paper upon the market cannot know into whose hands it will pass, and therefore cailnot have in view the person or persons who may be injured. The matters of fact stated in the certificate gave them currency ; if true, they made them amply secure, and very desir- able as investments. The control, ling question is, who had the right to act upon such representations, since the law will presume that they were addressed to all persons hav- ing such right ? Is there anything on the face of the paper to indicate that the representations were ad- dressed to and intended for a partic- ular individual, and to no others? I think, on the contrary, the repre- sentations were manifestly intended 618 KECEIVEKS CEKTIFICATES. [chap. XI. be disposed of in a manner and for a purpose authorized by the order of the court under which they are issued, otherwise they are generally held invalid and of no effect as against the trust estate in the hands of the court. To illustrate : Where re- ceivers of a railroad were authorized to issue certificates to a certain amount, which were made a first lien upon the road, in order to raise funds to repair the road, and the receivers issued some of these certificates to a person for an entirely different purpose, and did not receive any money or loan for the same, such certificates were held to be invalid and of no effect in the hands of a honajide holder for value.' And again, where a receiver was authorized and empowered to make, sell and issue his certificates for the purpose of paying off and reducing his to be considered and acted upon by purchasers of the paper in the mar- ket. * * * There is sufficient priv- ity between the defendant and any purchaser of the certificates to sup- port the action. Nor is it any an- swer to say that the Joliet Iron and Steel Company, the payee of the certificates, must have participated in the fraud. The action is based upon the defendant's written repre- sentations contained in the body of the certificates, and upon these alone. If we were at liberty to as- sume that similar false representa- tions must have been made by the Iron and Steel Company to the plaintiff, this would not release the defendant from liability, nor would it be necessary to join the Iron and Steel Company as a party defendant. The liability of the defendant de- pends upon the question whether he committed any fraud by his own misconduct and representations, and it is not to be defeated by showing that others have or have not com- mitted like frauds. If, for example, the paper in question had passed through the hands of a number of persons after it left those of the de- fendant, each in turn making the same false and fraudulent repre- sentations as to its validity, would it be insisted that the last purchaser would be obliged to join all the previous holders in one suit ? How could he know who had held and transferred by delivery the paper, except in the case of the person from whom he obtained it? He might sue that person, but in order to recover it would be necessary for him to allege and prove that he re- lied upon Ms representations and not upon those embodied in the in- strument. If he relied upon the latter and acted in good faith upon them, his right of action would be against the maker of the paper — the party who, by signing it and placing it upon the market, certified to the truth of the statements it contained, and gave it currency." The learned judge then proceeds to discuss the question of warranty, and holds that the action could not have been maintained as upon a warranty, for the reason that such an action is maintainable only by a person to whom such warranty is addressed. ' Stanton v. Alabama & Chattanoo- ga R. Co., 31 Fed. Rep. (U. S. C. C), 485.. SEC. 95.J GENERAL CHARACTEK. 519 indebtedness as receiver, but instead of negotiating the sale himself as it was his duty to do — since it was a trust personal to himself — he delivered one of the certificates to a person named as payee therein for the purpose of negotiation and sale, and gave him private instructions not to sell it for less than par without previously adArising him, but the payee indorsed the certificate and disposed of it without advising the receiver of it and the receiver never received any money on account of it ; it was determined that the certificate was void in the hands of a hona fide holder for value, who was not entitled to receive any- thing for it out of the trust estate.^ So in another case a receiver, after selling notes to the amount authorized by the order of the court, without authority issued further notes above the amount authorized, and sold them at par to hona fide purchasers, who believed them to be the genuine notes of the receiver as authorized by the court. The purchasers sought then to share pro rata with the holders of the valid notes in the assets of the company, and they endeavored to sustain their claim not only upon the ground that they had advanced the money to the receiver upon the strength of notes purporting to be issued by him as such receiver, but also for the reason that the receiver had sold some of the valid notes issued for less than their face value, and to the extent at least of the difference between the face value of the valid notes so sold, and the amount actually received by the trust estate for them, they, the purchasers, were entitled to share in the assets of the corporation. The court, however, refused to deviate from the rules governing the validity of receiver's certificates, and said that the only remedy open to the purchasers was against the receiver personally.^ ' Union Trust Co. v. Chicago & in payment of interest coupons due Lake Huron R. Co., 7 Fed. Hep. upon tlie mortgage bonds of the (U. S. C. C), 513. road, it was held that while the ! Wesson u. Chapman, 77 Hun certificates issued without author- (N. Y.), 144. In another case the ity were void, the purchasers of receiver of a railroad was author- them should be subrogated to the ized to issue certificates to a cer- rights of the holders of such con- tain amount. The receiver issued pons as were paid from such fund, certificates in excess of the amount Newbold v. Peoria & Springfield K. ordered, the money arising from the Co., 5 Bradw. (111.), 367. sale of such overissue being used 620 receivers' certificates. [chap. XI, Sec. 96. When the Court will order them issued, — The inherent power of a court of equity, having the management and control of property, to authorize its receiver to raise money necessary for the preservation and management of the property, and to make the same chargeable as a lien thereon for its repayment, has heretofore been stated ( see sec. 33, page 120 ). For the purpose of raising money for such uses the court usually directs its receiver to issue and negotiate for sale certificates of indebtedness which may or may not be, according to the terms of the order directing their issue and the security there- for, a lien upon the property. This power of the court should be exercised with great cau- tion, and only in cases where it is absolutely necessary for the preservation and proper management of the trust property; for instance, where the receiver has no funds to complete an unfinished portion of a work of public utility, such as a railroad or canal, in order to prevent a valuable land grant in favor of the corporation from lapsing, the court will direct its receiver to issue his certificates of indebtedness and complete the work.' 1 Jerome ■». McCarter, 94 U. S. 734. In Kennedy v. St. Paul & Pacific R. Co., 3 Dillon (U. S. C. C), 448, a rail- road company was authorized to con- struct and build a railroad, congress and the legislature of a state endow- ing it with a land grant] of ten sec- tions to the mile, title to which was to vest as often as twenty miles should be completed and equipped ; the grant to lapse in the event the road was not completed on a day certain. Before the road was com- pleted the company became insol- vent and this action was brought by holders of its mortgage bonds who sued for themselves and all other bondholders, and asked for the appointment of a receiver with authority to him to borrow money sufficient to complete the road in order to secure the land before the lapsing of the grant. It appeared that the average value of the lands to be secured by the construction of the road was $6 per acre, and with- out the lands the security for the bonds of the bondholders would be greatly inadequate. The court ap- pointed a receiver and directed him to borrow a sum of money not ex- ceeding $5,000,000, as should be necessary to complete and equip the road, and to issue therefor his certificates which were to be a prior lien upon the road and property of the company. The order directing their issue appears in the case re- ported, and the certificates were to be in the following form : " St. Paul, Minnesota, .... 1873. Five years after date, unless sooner paid, for value received, I promise to pay to . . . . , or his assigns, the sum of dollars in gold, with in- terest thereon at the rate of ten per centum per annum, payable in gold semi-annually on the first day of July and January of each year at the city of New Tork. This obll- SEC. 96.J WHEN COURT WILL ORDER THEM ISSUED. 521 Since property which is brought within the cognizance of a court of equity for administration is trust property, it must be preserved for those entitled to it, by the hands of the court, through its officers. The character of the property gives char- acter to the particular species of preservation which it requires. A railroad, and its appurtenances, is a peculiar species of property. The corporation owning it owes the duty to the public, which has given it its franchise and enabled it to con- struct its road, of operating the road for the benefit of the public. While that may not be what may be called an absolute duty, enforceable under all circumstances, it is stiU a duty to be- regarded and enforced by the courts when, through their officers, they take possession of railroads. Not only will the structures of a railroad deteriorate, decay and perish if not cared for and kept up, but its business and good-wiU wiU pass away if it is not run and kept in good order. Therefore, it seems, necessarily, to result from the nature of such property, and the capacity and duty of courts of equity to adapt their decrees to all varieties of circumstances which arise, and to adjust them to the rights of all parties in interest, that if a railroad and its appurtenances are in the hands of a receiver to be preserved and operated, the court having charge thereof gation is issued under and by virtue and the earnings of said railroad, of certain provisions of an order after deducting the operating ex- of the Circuit Court of the United penses and the expenses of receiver- States for the District of Minne- ship, are pledged for the payment 8ota, dated the . . . day of . . . of the principal and interest of this 1873, a copy of which is indorsed obligation, according to the tenor hereon, and is part of the loan thereof. Failure to pay interest for hereby authorized 'to be made by six months will make principal due me as receiver of the St. Paul & at option of holder Receiver." Pacific RaUroad Company, amount- Interest coupons being also annexed, ing, in all, to the sum of $5,000,000. The completion of an elevated rail- The said loan, or so much thereof road in a city will not be enjoined at as may be required to complete the the suit of a property holder along construction of the St. Paul & Pacific its route on the ground of the inva- Railroad, and shall be borrowed by lidity of the receiver's certificates me for that purpose under the au- authorized to be issued to raise funds thority aforesaid, is made and con- for such construction, as that ques- Btituted, as provided in the order of tion only concerns those who prepare the court, a first lien upon all the to make advances thereon, or are in- property of every nature and descrip- terested in the property. Moran ». tion of the said railroad company ; Lydecker, 11 Abb. N. C. (N. T.), 298. 522 EECEIVEES CEKTIFICATES. [chap. XI. must possess the power, after notice to and hearing of the parties interested, to allow the issue even of negotiable certificates of indebtedness creating a first lien, when this is necessary to raise money for the economical management and conservation of the property, while in the possession of the court. The income derived from the operation of the road should, of course, be first applied to that purpose, but if this income is inadequate, and it be necessary for the conservation of the road and its appurte- nances that money be used, the expenses thus incurred must then fall on the corpus of the property.' If the railroad is in a decayed and dilapidated condition and in such need of repairs that it cannot be operated with safety to the traveling public unless repairs be made, and the receiver has no funds to make the repairs, the duty of the court under such. circumstances, it is plain, would be to direct the receiver to make the necessary repairs, and provide him means by the issuing of certificates of ' Meyer v. Johnston, 53 Ala. 237. " The certificates," said the Court in this case, "are not debts of the com- pany, but of the receivers backed by the pledged faith of the court, that the property on the proceeds of which they are charged, is in its possession, subject to be, and that it will be disposed of by it for the payment of them. This results from the fact that they are a substitute for common methods by which money is raised for the use of » receiver for a particular cause, a, mode of appropriating, in advance, a portion of the value of the prop- erty, in order to enable the court to save a greater valuation thereof from destruction. Hence no chan- cellor should permit them to be issued without the utmost circum- spection ; and as they are used for urgent present needs, and are to be redeemed when the litigation is ended, they should not be issued in excess of the need, or — although made negotiable that they may be more valuable — be sent out of the country for circulation like mort- gage bonds abroad. Such a limited scope is all that it is necessary for the certificates to have.'' Where the court took possession of the Wabash system of railroads, and a. subdivision of it not only earned no surplus but failed to pay operating expenses, the operation of the subdivision was continued, but the extent of that operation was reduced, and the deficiency in the operating expenses was paid by the issue of receiver's certificates. Cen- tral Trust Co. V. Wabash, St. Louis & Pacific E. Co., 23 Fed. Rep. (U. S. C. C), 863. In Union Trust Co. v. Illinois Midland Co., 117 U. S. 434, the re- ceiver was authorized to issue cer- tificates to pay for necessary repairs, tax liens, for betterments, and to replace earnings diverted from pay- ing for operating expenses and ordinary repairs, to pay for better- ments, while debts to a larger amount had been incurred for the operating expenses and ordinary repairs. This was upheld. SEC. 96.] WHEN COURT WILL ORDER THEM ISSUED. 523 indebtedness, to be a first lien upon the property, sufficient to make the repairs and place the road in proper condition for operation.' And not only would it be proper to issue certificates for the purposes mentioned, but the court may very properly direct the receiver to finish and complete an inconsiderable portion of the road which has not been completed, and which is necessary and will be beneficial to the proper management and operation of the whole road, and to issue certificates of indebt- edness in order to defray the expenses therefor.^ It is clear that a railroad cannot be successfully operated without rolling stock ; when, therefore, the road in the hands of a receiver is in need of rolling stock, machinery and other things necessary for operating it, "the court may properly authorize the receiver, if he has no funds . in his hands for that purpose, to issue his certificates of indebtedness therefor, and makes them a prior lien upon the road.^ It is, however, no part of the duty of a court of equity to build railroads, neither does the assent of all the parties interested in the property make it such. And when it is apparent that the only thing to be done for the interest of the bondholders, whose rights are vested and may be fully protected by the court, is to sell the road, and distribute the proceeds, the court should not authorize certificates to be issued, and to be made a ' Stanton v. Alabama & Chatta- need of repairs that it could not be nooga R. Co., 2 Woods (U. S. C. C), operated in safety to the traveling 506. The receivers in this case public unless repairs were made, were, by the order of their appoint- and the receiver had no funds ; the ment, authorized to borrow money, court authorized him to make the not exceeding $1,200,000, and to repairs and issue certificates of in- issue certificates therefor which debtedness which were made a prior were to be a first lien upon the lien upon the road and its income, property, in order to put the railroad ^ Wallace v. Loomis, 97 U. S. 146 ; and other property in repair, and to Smith v. McCullough, 104 tJ. S. 25. complete any incompleted portions In Miltenberger v. Logansport Ry. thereof; to procure rolling stock, Co., 106 V. S. 286, the receiver was machinery and other necessary directed to build six miles of road things for operating the road. This and a bridge, being part of the main order was sustained. Wallace v. line, and issue his certificates there- Loomis, 97 U. S. 146. for as a lien prior to the lien of the In Hoover «. Montclair & Green- mortgages. This was upheld, wood Lake Ey. Co., 29 N. J. Bq. 4, » Wallace v. Loomis, 97 U. S, 146; it appeared that a railroad in the Miltenberger u. Logansport Ry. Co., hands of a receiver was in such 106 U. S. 286. 524 receivers' certificates. [chap. XI. lien upon the railroad superior to the mortgages, for the com- pletion of the road, the making of repairs, and for the purchase of equipments, the result of which might be to cause those things to be done at the expense and to the detriment of the bond and lien-holders.' The property should pass, with as little 1 Credit Co. v. Arkansas R. Co., 15 Fed. Rep. (U. S. C. C), 46. In this case B, receiver was appointed of a narrow gauge railroad, of 48 miles in length, which had been completed in an imperfect manner. The com- pany had neither resources nor cred- it, and the earnings of the road were barely sufficient to keep it running, without making needed repairs and improvements. The court, upon the application of the receiver, author- ized him to issue his certificates to the amount of $75,000, to make necessary repairs and improvements in the road, the latter's condition being such as to make it danger- ous to life and property to run cars over it ; ties were rotten, iron worn out, rolling stock in bad condition, bridges insecure, culverts washed out, and the road-bed in many places too low, resulting in overflows of the tract and stoppages of trains. The order, granting the receiver authority to issue his certificates, was subsequently rescinded upon the ground that the property was in such dilapidated condition as to make it improper for the court to spend any money on it. In Investment Co. v. Ohio & N. R. R. Co., 36 Fed. Rep. (U. S. C. C.),48, within two years after the organiza- tion of a railroad company whose road was 106 miles in length, it be- came insolvent and a receiver was appointed. The road reached 3 miles from one and 5J^ miles from the other, its terminal points. It owned no equipment, locomotives or cars, but was operated by leased rolling stock, at charges for rentals too onerous for the company to bear, or the receiver to pay. Its earn- ings were not sufficient to pay its operating expenses. The receiver petitioned the court for authority to issue his certificates for $111,904, to be used in completing the road and . widening its gauge; $35,000, for purchasing and laying track over another portion already graded and bridges at an expense of $49,000 ; $47,243.18 to pay claims for material furnished which were not a lien on the road ; $20,000 to reimburse bond- holders for advances to meet arrear- ages of wages and avert a strike ; $100,000 to purchase leased rolling stock ; $4,000 to relay a line of track on a connecting road, and thus can- cel a debt of $8,000 due that road, and secure enough additional busi- ness to pay the cost in three months; and $29,000 to make final payments on a valuable tract of real estate. A large majority of the holders of the mortgage bonds consented there- to. The petition was denied as to the item of $35,000, $20,000 and $47,343.18, but the court directed certificates to be issued for the re- maining items, if desired by the con- senting bondholders, which should, however, not afEect the lien of the non-consenting bond and lien hold- ers, reserving the right to the con- senting bondholders to have the same made a. charge on the non- consenting bondholders. And see Street d. Maryland Cent. R. Co., 59 Fed. Rep. 25. SEC. 97.] PKIOE LIEN ON THE PROPEKTT. 525 delay as is reasonably practicable, into the possession and con- trol of owners who will best be able to determine how it should be managed, and what measures relating to it are most likely to promote their interest. And while the court will — usually to the extent that the earnings of the road are required to keep it up in stock and equipments, and to preserve the property, — grant the receiver authority so to apply such earnings, it will not permit the receiver to raise money for the same by the issuing of certificates, in order that the net earnings of the road may be applied to the payment of bondholders of the company, in discharge of interest due upon their bonds.^ Sec. 97. Parties affected by the Court's order making them a prior lien on the property.— All persons who deal with a rail- road corporation as creditors or holders of its obligations, must necessarily be held to do so in the view that, if it falls into insolvency and its affairs come into a court of equity for adjust- ment, involving the transfer of its franchises and property, by a sale, into other hands, that — to have the purposes of its crea- tion stiU carried out — the court while in charge of the property has the power, and under some circumstances it may be its duty, to make such repairs as are necessary to keep the road and its structures in a safe and proper condition to serve the public. Its power to do this does not depend on consent, nor on prior notice. Consent is desirable, but is seldom practicable, where the debts exceed the value of the property. Though prior notice to persons interested, by notifying them as parties — first ' Taylor v. Philadelphia & Bead- made, was that such earnings ing R. Co., 9 Fed. Eep. (U. S. C. C), might be applied to payment of 1. This was an application on the the bonded creditors of the com- part of the receiver of a railroad, pany, in discharge of interest. The to borrow money upon the rolling court denied the application, stock manufactured at the com- It has been held that the court pany's shops and elsewhere, and has no power to displace the liens in process of manufacture for the of mortgages executed by private receiver. In terms, it was for the corporations, in issuing certificates creation of a car trust, but in eflect in order to continue the business of it was for authority to make a loan, such corporations. Farmers Loan It appeared that the net earnings of & Trust Co. v. Grape Creek Coal the road were sufficient to make the Co., 50 Fed. Rep. 481. Direct to the purchase required, but the ground contrary is Ellis v. Water Co., 86 upon which the application was Tex. 113. 526 RECEIVERS CERTIFICATES. [chap. XI. requiring them to be made parties if they are not — is generally the better way, yet many circumstances may be judicially equivalent to prior notice.'' Thus notice to trustees of a trust mortgage is sufficient to bind the bondholders, since the trustees represent the bondholders under the mortgage, and the latter must be regarded as bound by the acts of the former, at least so far as concerns the power of the court to act, in making the order, and so far as the interest of third persons acting upon the faith of it, might be affected.^ And though a mort- ' Union Trust Co. v. Illinois Mid- land R. Co., 117 U. S. 434. In this case a receiver was appointed of a railroad in an action brought by a number of its bondholders and judg- ment creditors, and before any of the Paris & Decatur bondholders, so called, or their trustees, were made parties, the receiver appointed in the action was authorized to issue six certificates of indebtedness, and after their trustee was made a party to the suit, he was authorized to issue further certificates, and, it seems, without notice to the trustee. It was held that certificates for neces- sary repairs should be allowed pri- ority; also certificates issued to pay tax liens ; also certificates issued to replace earnings diverted from pay- ing for operating expenses and ordi- nary repairs, to pay for replacing worn-out parts of the road ; and for this purpose it was not necessary to have the consent of such bond- holders to create a prior lien to the bonds on the corpus of the property, in view of the neglect of their trustee to interpose all the while the road was openly in the charge of the receiver, and being run, with the interest on the bonds in arrear. In Jerome ■». McCarter, 94 U. S. 734, a receiver was authorized with- out objection to issue certificates to the amount of $500,000 to be secured by a prior mortgage upon a canal in order to complete it. The company having gone into bankruptcy, its assignees were made parties defend- ant, and objected to the giving of such mortgage priority over others. It was Tield that, inasmuch as those creditors whose liens were made subject to such certificates did not object, the assignees could not be heard to do so, but as against them the certificates were charges upon the property and entitled to priority. ' Shaw v. Railroad Company, 100 U. S. 605. Chief Justice Waite, in this case, said : " To allow a small minority of bondholders, represent- ing a comparatively insignificant amount of the mortgage debt, in the absence of any pretense even of fraud or unfairness, to defeat the wishes of such an overwhelming majority of those associated with them in the benefits of their com- mon security, would be to ignore entirely the relation which bond- holders, secured by a railroad mort- gage, bear to each other. Railroad mortgages are a peculiar class of securities. If there are differences of opinion among the bondholders as to what their interests require, it is not improper that he should be governed by the voice of the major- ity, acting in good faith and with- out collusion, if what they ask is not inconsistent with the provisions of his trust." SEC. 97.] PKIOE LIEN ON THE PROPERTY. 527 gagee has not had notice of the application, he cannot stand by and see the court and the receiver create indebtedness and prior liens upon the property, and content himself with merely pro- testing generally and disclaiming all interest under the receiv- ership ; he must act promptly, and in good faith intervene and present his objections to the court in season, or he cannot afterward be heard. The court wiU not visit upon innocent parties, dealing with a receiver within the authority of its orders, consequences which result from the inequitable negligence and supineness of a party to the suit, or of those represented by him.^ The application of this principle was made in a case where a bill was filed by a second mortgagee against the mort- gagor and a first mortgagee and judgment creditors of the In Wallace ■». Loomls, 97 U. S. 146 on tlie filing of a bill by tbe trustees of the first mortgage o."^ a railroad to foreclose it, the court appointed re- ceivers " with power to put the road and property in repair, to complete any incompleted portions thereof, and to procure rolling stock, and to manage and operate the road to the best advantage ; " and with power, also, for these purposes to raise money by loan to a certain amount, by issuing certificates ' 'which should be a first lien on the property." The final decree declared that the mon- eys raised by loan or advanced by the receivers and expended on the road pursuant to the order, were a lien paramount to the first mort- gage, and should be paid out of the proceeds of sale before the first mortgage bonds were paid. A. holder of second mortgage bonds objected to such priority. The trustees of such second mortgage were parties to the action and had due notice of the application for a receiver, but made no objection. It was held that the bondholders of said second mortgage, being repre- sented by their trustees, were bound by the orders made and could not object to giving the certificates priority. See, also, Kent v. Lake Superior Canal Co., 144 U. S. 75. ' Central Trust Co. ®. Seasongood, 130 TT. S. 483. This was an action brought to foreclose a mortgage upon the property of a railroad company, and the question upon appeal arose upon an order direct- ing the receiver appointed in the case to issue to certain parties cer- tificates of indebtedness which were made a lien upon the property prior to the mortgage being foreclosed. The claims for which the certifi- cates were issued arose out of some land which such claimants sold to the predecessor of the railroad com- pany and being part of its right of way, and adjudicated by the judg- ment of a state court before the commencement of this suit in an action wherein the trustee of the mortgage sought to be foreclosed — the appellant here — was made a party defendant. The order direct- ing the issuing of the certificates was the result of an arrangement between the parties. It was held that the appellant was estopped from attacking the validity of the certificates. 528 RECEIVERS CERTIFICATES. [chap. XI. mortgagor, to foreclose a mortgage on a railroad. After the first mortgagee had appeared and answered in the action, an order was made, but not on prior notice to it, authorizing the receiver to issue certificates to pay for roUing stock he had bought under orders of the court, and to pay debts incurred for building five miles of road and a bridge under such orders. In Humphreys v. Allen, 101 111. 490, the holders of a large number of the first and second mortgage bonds of a railroad company, filed a bill for foreclosure and a receiver was appointed who was authorized by the court to issue the certificates hereinafter mentioned before the trustees, under the mortgages, in- tervened and were made parties to the action. Justice Dickbt, deliv- ering the opinion for the court, said : " Whatever may be said as to the limitations which the law places upon the exercise of the power of the chancellor to make certificates issued by a receiver for moneys bor- rowed by him, a lien upon the prop- erty, superior to the vested lien of the mortgagees, in this case we think that appellants are not in a position to raise that question. The bonds which they held they bought from Mr. Constable on the 10th of May, 1879. At that time all of these cer- tificates had been issued and dis- posed of by the receiver, and were held by the parties who had paid for them In cash, or had received them in substitution of securities which they held for pre-existing debts. Whether the subject mat- ter to which these certificates were applied comes within the scope of the powers of the court in the preservation of the property for the benefit of all concerned, was a question which might have been raised, and ought properly to have been raised, before the certificates were issued and sold. Mr. Con- stable, the owner of these bonds, knew, as a director in the railroad company, and by proceedings which occurred in the directors' meeting, that the road and other property of the company had been placed in the hands of a receiver. He knew that the order for the issue of certifi- cates, to be made a first lien upon the property of the company, had been entered of record, and that such certificates were about to be issued and put upon the market. The proceeds of a part of these cer- tificates were to be applied in releas. ing from a chattel mortgage prop- erty upon which the bondholders claim to have a lien, and in which he had an interest as a stockholder. It was incumbent upon him, if he intended to insist that these certifi- cates should not be a paramount lien upon the property of the com- pany, that he should have inter- vened and raised his objections. On the contrary, with a full knowl- edge of all the facts, he lay by and permitted others in good faith to invest their money in these certifi- cates, and the money to be applied for his benefit in discharging the liabilities of the company for ser- vices and supplies, and for a debt by which the rolling stock of the company in which he was interested was tied up. In a court of equity, he could not be heard afterwards to claim that the holders of these certificates should not have this priority." SEC. 97.] PRIOR LIEN ON THE PROPERTY. 529 the certificates to be payable out of income, and, if not so paid, to be provided for by the court in its final order. The claims thus arising were afterwards allowed to be paid out of the proceeds of the sale, before the mortgage bonds, and the United States Supreme Court upheld such priority.^ And in another case, wherein a receiver was appointed, upon a bill filed by a judgment creditor of an insolvent raUroad company, and on whose petition the court ordered him to issue receiver's certificates to various parties who were sub-contract- ors in building the road, and had, as a pledge for their claims, stock representing sixty-seven miles of the road. This road was a link necessary in the continuous lines of the whole road. At the time the order was made directing the issuance of the certificates, trustees representing the mortgage bondholders had notice and consented to their being issued and made a first and prior lien upon the whole road; the lien of the mort- gages upon the sixty-seven miles of road being only an equita- ble one, and not superior to the equity of claims of such sub- contractors. Subsequently, on a bill filed by one of such trustees, the whole road was sold under foreclosure, and the judg- ment directed payment, out of the proceeds of sale, of the court's and the receiver's indebtedness, with leave to the purchaser to appeal from any order or final decree directing the payment of claims as prior to the mortgage bonds. The bondholders purchased the road and reorganized the company. They then objected to the priority of the certificates, claiming that the sub-contractors had no lien siiperior to the mortgage bonds and that the railroad company owed no debt to any sub-contractor. The court, however, maintained the priority of the certificates, and this was sustained upon appeal.^ The principle applicable to the continued validity of liens upon property sold by a receiver under the direction of the court is somewhat modified and controlled by a decree of sale which does not reserve to the purchaser, although not a party to the proceeding, the right to appear and contest any alleged liens ' Miltenberger «. Logansport Rail- Co., 86 Va. 754; Mercantile Trust way Company, 106 U. S. 286, 308. Co. i). Kanawha & O. R. Co., 58 Fed. 2 Kneeland v. Luce, 141 U. S. 491. Rep. 6, reverBing s. c. 50 Fed. Rep. See, also, Karn, et al. v. Rome Iron 874. 530 EECEIVEKS' CEKTinCATES. [CHAP. XI. tten under examination in such proceeding, but which requires the purchaser, without qualification, to take the property, upon confirmation of the sale, subject to the liens established, or which may be established. Under such a sale the purchaser takes the property subject to the lien of certificates which may have been established, and whose validity he cannot attack even upon the ground of concealment and fraud subsequently discovered.' And when certificates issued by a receiver under the direction of the court are declared by the decree of sale to be a first lien upon the property and franchise of a railroad, to the amount of principal and interest unpaid thereon, and subject to which the property and franchises are sold, the pur- chaser and every person claiming under him are estopped from contesting the validity of the certificates, or questioning the amount for which the certificates are declared to be a lien upon the property purchased, because the purchaser is a privy to that decree and equally with the parties to the suit is con- cluded by it.^ In a case wherein the receiver of a railroad was authorized to issue his certificates and notes, the orders, pursuant to which ' Bwann v. Wright's Executors, property and franchises, to the 110 U.S. 590; Central Trust Co. «. amount of principal and interest SheflSeld & B. Coal, Iron & R. Co., 44 unpaid thereon, and subject to the Fed. Rep. 526. payment of which the sale was Hypothecated certificates are not, made. The present bill was filed however, a lien upon the property by the complainant, who was the to the extent of their face, but only owner of a large number of these to the extent of the money actually certificates, to have such certificates advanced. Swannu. Clark, 110 U. S. adjudged a lien upon the property 603. sold and to enforce the lien by a ' Central Trust Co. v. Sheflield, sale. The defendants, purchasers etc., Co., 44 Fed. Rep. 536; Alabama at the sale, insisted that the com- Iron & R. Co. v. Anniston Loan & plainant could enforce the certifi- Trust Co., 57 Fed. Rep. 35; Gordon cates only for the amount paid for ■». Newman, 63 Fed. Rep. 686; them by the person to whom they Central National Bank v. Hazard, were originally transferred by the 30 Fed. Rep. (U. S. C. C), 484. By receiver. This, it was held, could the final decree adjudging the sale not be done, but it was open to the of a railroad in this case, it was defendants to establish that the adjudged that receiver's certificates principal and interest unpaid upon theretofore issued under an order of them was less than the face of the the court and aggregating a certain certificates, amount, were a first lien upon the SEC. 97.] PRIOR LIEN ON THE PROPERTY. 531 they were issued, gave them priority over the mortgage indebt- edness, but did not contain the provision, which the certificates and notes bore, that in case of a sale of the property and fran- chises of the railroad company by judicial proceedings or other- wise, if a sum sufficient to pay the full amount of the certifi- cates and notes then outstanding, should not be realized, that the purchasers should assume them. Upon a sale under the mort- gage, the property was sold subject to them. And in an action brought subsequently, for the purpose of foreclosing the prior lien, acquired under the order directing the issuance of the certificates and notes, a sale was had, which did not bring an amount sufiicient to pay the certificates and notes in full. It was then claimed that the judgment, under which the latter sale was held, did not afford to the holders of the certificates and notes the benefit to which they were entitled, and a modification of the judgment was sought, so that the purchasers would take the property subject to, or assume them in case there was a deficiency of proceeds to pay them. This modification of the judgment was refused. The court held that the object of the action was to vest a title in the purchasers free from the lien of the certificates, and that the judgment could not be modified as it was sought to be.' While the court, under some circumstances, and for some purposes, and in advance of the prior lien-holders being made parties, may have jurisdiction to charge the property with the amount of receiver's certificates issued by its authority, it can- not, without giving such parties their day in court, deprive them of their priority of lien. When such lien-holders are brought before the court, they become entitled, upon the plain- est principles of justice and equity, to contest the necessity, validity, effect and amount of all such certificates, as fuUy as if such questions were then, for the first time, presented for determination. If it appears that they ought not to have been made a charge upon the property, superior to the lien of such prior- lien-holders, then the contract right of the prior lien-holders wiU be protected. On the other hand, if it appears that the court did what ought to have been done, even had such lien-holders been before it when the certificates were ' Wesson d. Chapman, 76 Hun (N. Y.), 593. 532 RECEIVERS CERTIFICATES. [chap. XI. authorized to be issued, the property will not he relieved from the charge made upon it, in good faith, for its protection and preservation. These rules or principles necessarily follow from the fact that those who take receiver's certificates must be deemed to have taken them subject to the rights of parties who have prior liens upon the property, and who were not, but ought to have been, brought before the eourt.^ ' Union Trust Co. v. Illinois Mid- land R. Co., 117 U. S. 434, 460; Snow V. Winslow, 54 la. 200; Mercantile Trust Co. V. Kanawha & O. R. Co. , 58 Fed. Rep. 6; reversing 50 Fed. Rep. 874 ; Laughlin v. United States Rolling Stock Co. 64 Fed. Rep. 25. In Stevens v. Union Trust Com- pany, 57 Hun (N. T.), 498, the de- fendant, the Union Trust Company, as trustee for the holders of the mortgage bonds of n railroad, ob- tained as plaintiff in three actions against the proper defendants, one in the Supreme Court of New York, and the other two in the Court of Chancery of Vermont, judgments of foreclosure and sale. Upon the referee's sale the property was bid off for $135,000; and as the purchasers claimed to be acting for the bondholders, they paid nothing upon their bid, except the costs. On the request of the purchasers, the referee executed and delivered a deed of the property to nominal parties, who subsequently, at the request of purchasers, executed and delivered to the latter their bond for $5,000,000, and also their mortgage upon the road to secure its payment ; and also, at the request of the pur- chasers, conveyed the road to an- other corporation for a nominal consideration and subject to the $5,000, 000 mortgage. The last pur- chaser, in pursuance of an agree- ment with the purchasers upon the foreclosure sale, issued two mort- gages upon its own property, in- cluding the property of the road so purchased, for $15,000,000, to trus- tees for bondholders in that amount. $6,000,000, in amount of these bonds were issued and sold in France to iana fide purchasers, and out of the proceeds $807,077.05 was paid the purchasers upon the foreclosure sale, who paid no part of this sum to any of the bond- holders other than themselves who were represented by the Union Trust Company, as trustee in the foreclosure actions. The road was then leased to another railroad company, which subsequently aban- doned it. Thereafter in an action brought by one Sackett, a bond- holder under the mortgages which had been so foreclosed by the Union Trust Company, in behalf of him- self and all others similarly situ- ated, who held any of such bonds and were entitled to avail them- selves of the benefit of the suit, he alleged substantially in his com- plaint these facts, and that the pur- chasers upon the foreclosure sale acted throughout for the benefit of the bondholders; that nothing had been or would be realized by a con- tinuance of the existing situation, and prayed that a receiver be ap- pointed and the road sold for the benefit of the bondholders. To that action the Union Trust Company was not made a party, nor were the pur- chasers upon the foreclosure sale made parties. A receiver was ap- pointed therein, who under the SEC. 97.] PRIOR LIEN ON THE PROPERTY. 633 When, however, such certificates are issued with the knowl- edge and assent of all the parties interested in the subject matter of the receivership, as against hona -fide holders of such obligations, such parties are estopped from denying that such certificates are what they in fact purport to be, namely, the obligations of receivers, and as such entitled to priority of pay- ment from the income, and, if that is insufficient, from the proceeds of the trust property.^ It is not the certificates them- orderB of the court issued his cer- tificates of indebtedness to the amount of $350,000. Finally the court directed a judgment in form substantially as prayed for, direct- ing a sale of the road subject to the receiver's certificates, and providing that the accrued interest thereon, and the allowed claims and obliga- tions of the receivership remaining unpaid, including costs and taxes, which amounted to $155,000, be paid from the purchase money. For this amount ($505,000) the road was sold, and the entire property consumed, leaving nothing for the bondholders. This action was brought by the plaintiff, one of such bondholders, in behalf of him- self and of others similarly situated, to procure the sale of the road under the judgments of foreclosure pro- cured by the Union Trust Company, as trustee for the mortgage bond- holders, and asked relief against the Sackett action and the proceedings therein as fraudulent, and praying to foreclose all liens, real or appar- ent, upon the road, and to establish the priority of the liens asserted by the plaintiflf against all the liens allowed and created in the Sackett action. It was found by the trial court that the Sackett action was a representative one ; that, since Sackett brought the action for him- self and all other bondholders, he represented them all, and they are bound by the judgment, and hence the plaintiff could not maintain the present action. Upon appeal, how- ever, the General Term decided that it was not a representative one, and that the findings requested by the plaintiff's, namely, " that said suit of Sackett «. Boot was neither brought nor conducted for the purpose of realizing the property to the owners of the bonds," ought to have been made. And it was further decided that the receiver's certificates did not bind the plaintiffs, since they were not concluded by the judg- ment and proceedings in the action in which they were issued. ' In Langdon v. Vermont & Canada E. Co., 53 Vt. 228, it appeared that the Vermont Canada E. Co, brought its bill in equity against the Vermont Central B. Co. , to enforce the terms of a lease entered into between them, which was held binding by the court, and the property of both railroads was placed in the hands of receivers to carry out the provisions of the lease. Subsequently, by decrees of the court, upon notice to and the assent of all parties, the first and second mortgage bondholders of the Vermont Central E. Co. were author- ized to elect annually, at meetings duly called for that purpose, a com- mittee, consisting of two first and one second mortgage bondholder, who should advise with the receiv- ers and managers, concerning their 534 EECEIVEES CERTIFICATES. [chap. XI. selves which limit the rights of the holder to a specific fund to which he can only look for payment of them; these are the mere forms by which the order of the court is executed ; but it is the latter — the order of the court — which determines their validity and right of payment, and to which the lender is bound to look.^ management of the property, and audit their accounts. The bondhold- ers elected and kept in office such a committee. The receivers and man- agers continued to act as such in the management of the property, and under authority of various decrees of the court, entered by consent of the parties, the Vermont and Canada Co., and the bondholders' commit- tee, having full notice thereof, and assenting, or failing to object there- to, issued various loans to a large amount for the purpose of equip- ment, and other additions to, or improvements upon, the property; securing the same upon certain equipment and the car service thereof; and negotiated said loans as receivers and managers. It was held that such obligations were en- titled to priority of payment from the assets of the trust, binding upon both the Vermont & Canada R. Co. and the bondholders. 'Appeal of Neafie, 12 At. Rep. (Pa.), 371. In this case the receiver of a ship-building company was " authorized and directed to con- tinue the work upon the vessels now under construction until fur- ther order of the court. Expendi- tures incurred by the receiver for work and labor and material in the said work, are hereby declared to be a lieu upon the said vessels. And it is further ordered that the same shall be first repaid out of the moneys received on account of the said vessel." Subsequently he was granted authority to borrow the sum of $30,000, and to issue there- for certificates in the following form , to- wit: "Receiver's Office American Shipbuilding Company, Phila. . . . 188 . , $1,000, No. . . . This is to certify that there is due to ... or assigns, from Henry G. Qorringe, receiver, and not individually, one thousand dollars with interest at six per cent., on account of money bor- rowed by said receiver, under order of court, for payment of wages for work done, and for materials fur- nished in and about the completion of the vessels of said company now under construction." Under these orders the receiver issued his cer- tificates to the extent of $8,000 and completed and sold the vessels, but the anticipated surplus for profit was not realized. The general cred- itors objecting to the payment of these certificates out of the general assets of the company, it was held that the payment of the certificates was not limited to any particular fund, and the holders were entitled to be paid in full out of the general assets. SEC. 98.] FIXED BY THE COURT, GENERALLY. 535 CHAPTER XII. Compensation of Receivers. Sec. 98. Fixed by the Court, generally. 99. When not allowed on account of misconduct. 100. By whom it should be paid. 101. Of Bailroads in the Federal Courts. 103. In New York. 103. By percentage ; upon what the same will be based. 104. Who resign ; and of their successors ; how computed. Sec. 98. Fixed by the court, generally. — A receiver is an officer of the court appointing him, and as such, in the absence of legislation, the court has the authority to determine his compensation ; ^ and in determining the amount thereof, the manner in which he has performed his duties and managed the trust property should be taken into consideration.^ In regulating the compensation much deference will be paid to the court appointing the receiver and supervising his conduct, and if that court finds the officer's conduct upright and the compensation just, an appellate court wiU not interfere, except in a very strong case.' No settled rule has been adopted relating to the mode of ascertaining the amount of such compensation, but it may be said that, in cases of corporations, the courts are not in- clined to allow a percentage on the receipts and disbursements, but prefer to base compensation on the responsibility assumed, the skill and labor expended, and the rates usually paid for somewhat similar services, and thereon to allow a specific com- pensation.^ So in Massachusetts the courts do not determine ' Day V. Croft, 3 Beav. (Eng.), 488 ; * Union Bank Case, 37 N. J. Eq. 430. Magee v. Cowperthwaite, 10 Ala. In Greeley i). Provident Savings 966 ; Martin v. Martin, 14 Or. 165. Bank, 103 Mo. 313, the receiver of ' Matter of Commonwealth Fire a savings bank was allowed $18,000 Ins. Co., 83 Hun (N. Y.), 78. as compensation for his services, ' Morgan v. Hardee, 71 Ga. 736 ; being about three and one-third per HefEron v. Kice, 149 111. 316. cent, of the assets administered. 636 COMPENSATION OF EECEIVEKS. [CHAP. XII. the compensation of receivers upon tlie basis of a fixed commis- sion upon the amount of money passing through their hands, but allow them such an amount as would be reasonable for the services required of and rendered by a person of ordinary ability, and competent for such duties and services.^ In Penn- sylvania, the considerations that are controlling with the court are " the time and labor needed, not necessarily the time and In Karn & Hickson ■». Rover Iron Co., 86 Va. 754, the receiver of an iron company, whose property sold for 135,000, was allowed $3,375 for twenty-one months' service. In McArthur v. Montclair R. Co., 27 N. J. Eq. 77, three receivers were appointed of a railroad, and were chosen for their fitness for the dis- charge of the various duties which were to be devolved upon them in the management of the road, and the examination of the affairs of the company. They appeared to have necessarily devoted much time dur- ing a period of two years to the interest of the trust (which involved the sale of the road), and to have been diligent and thorough in their attention to and the discharge of their duties. The master allowed two for their compensation $3,000 each, and the other $1,400. This was confirmed by the chancellor. In Bank Comm. v. Franklin Inst, for Savings, 11 R. I. 557, the re- ceiver of a savings bank, during one year of his receivership, collected $1,554,148.00 and disbursed $1,406,- 615.00. The master allowed him for that year as compensation $7,500, which the court on appeal refused to disturb. In Iowa the rule by which the amount of compensation to be al- lowed to a receiver should be deter- mined, is, what the receiver, or some other person possessing equal qualifications, could have been em- ployed by private contract to per- form the services rendered. And in the case of a receiver of a savings institution, whose appointment was revoked, the court upon appeal reduced the compensation allowed him by a referee from $6,077.28 to $3,000. French v. Gifford, 31 la. 428. In Martin i>. Martin, 14 Oregon, 165, the receiver of a copartnership immediately after his appointment sold the stock of merchandise of the firm to its principal creditors for $30,000, who thereupon employed the receiver to manage the business at a salary of $300 a month, and a promise of a share of the profits of the business, he continuing as re- ceiver. During a period of twenty, eight months his duties as receiver were merely incidental to his em- ployment as manager, and for that time he was allowed $3,400 com- pensation as receiver. This the court upon appeal Jield was ex- cessive under the circumstances and reduced it to $1,800. ' Grant v. Bryant, 101 Mass. 567. In this case the receiver of a copart- nership charged for his compensa- tion $1,853.75, being two and a half per cent, of the gross amount of assets which came into his hands by sale of the stock, collection of notes, accounts and otherwise. He was allowed $1,000 as being a reason- able compensation for the services rendered. The same rule was ap- plied in Jones i>. Keen, 115 Mass. 170. SEC. 98.] FIXED BY THE COURT, GENERALLY. 537 labor expended, in the proper performance of the duties im- posed ; the fair value of such time and labor, measured by the common business standards ; the degree of activity, integrity and despatch with which the work of the receivership is con- ducted. When there has been delay in closing up his accounts, inattention to his trust, use of the trust fund by the receiver in his own private business, or a want in any particular of the good faith and integrity that a court of equity uniformly requires of all its agents and officers, the compensation may be reduced below the ordinary standard, or denied altogether, as justice and right may require." ' In an ordinary case, if the local laws provide a compensation for administrators or executors, the courts will be inclined to grant an allowance on the basis provided for by such laws, in the absence of any showing that there was anything difficult or extraordinary in the receiver's duties.^ If, before entering upon the discharge of his duties, the court grants him a specific compensation, and he volun- tarily performs services which he is not required to perform, it furnishes no basis for an extra aUowance, but is included in his compensation as receiver.' And when the court fixes a specific ' Schwartz «. Keystone Oil Co. , 153 compensation should be allowed the Pa. St. 283. In this case the corporate receiver. The maximum rate al- estate involved some $96,000, and lowed by statute law to trustees of the work was nearly all done in the insolvent debtors was eight per first six months by a superintendent cent., which, though it could not and clerks employed by the receiver, be exceeded, could be reduced by who gave only a portion of his time the court. It was held that the to the work. Compensation for the allowance would not be regulated assistants was claimed and allowed. by that statute, but by the gen- The receiver claimed $11,366.66 for eral rule allowing commissions to his own services. Upon appeal this trustees, and that as the receiver was held excessive, and it was re- had not been involved in any diffi- duced to $4,000. culties his compensation would be 'Muller i>. Pondir, 6 Lansing (N. regulated by that rule. T.), 481 ; Magee ■». Cowperthwaite, ' Thompson v. Willamette S. M. 10 Ala. 966; Abbott v. Baltimore & L. & Man. Co., 15 Or. 604. In this Rappahannock Steam Packet Co., 4 case, by virtue of his office as re- Md. Ch. 310. In the latter case, the ceiver, there was transferred and receiver of a steam packet company, delivered to him as such receiver one month after his appointment, three-fifths of all the shares of sold under the direction of the court stoclc of the defendant corporation ; all the property of the company for by virtue of holding such stock as $26,000, and the question arose what such receiver, he was elected a di- 538 COMPENSATION OF RECEIVERS. [CHAP. XII. compensation after the receiver has nearly discharged the duties of his trust, unless it specifically provides that he is to rector of the corporation and chosen president ; while acting as president he exercised supervision over the business of the corporation, and per- formed some of the duties required of the president, but the principal duties appertaining to the office of president were performed by the vice-president ; the pay or salary of the president prior to the receiver- ship was fixed by resolution at $250 a month, and such resolution was in force during the period the re- ceiver was president. The receiver brought an action against the cor- poration to recover the salary for his services as president. The Court, Lord, C. J., said: "The plaintiflE bases his claim to com- pensation on the ground that the services he performed as president were authorized by and for the benefit of the corporation, and that as the corporation itself was not involved in the litigation, it can- not avoid liability on the theory that the services so performed were incident to his duties as receiver, and for which he had received compensation. He therefore insists, while admitting his relation to the stock, and his duty to take care of and protect it for the interests of the estate in litigation, the same as other property intrusted to his cus- tody as receiver, yet, as the court has no power to appoint a receiver for the corporation, or to make the plaintiff president of it, the services he rendered as such officer could not have devolved upon him, nor been included in his compensation as re- ceiver. * * * * The facts show that he individually owns no stock in the defendant corporation, and is ineligible to hold the office of presi- dent ; that the stock assigned and delivered to him and transferred on the books of the company, is to him in his representative character as receiver, and that it is only in such character he is known to the defend- ant, eligible to hold its offices, perform the duties thereof, and receive the compensation fixed for such services; and therefore it is only as receiver or representative of the stock in litigation in his custody that he was qualified or elected to hold the office of presi- dent. It is said that he abstained from voting for himself ; did not 'cause himself to be elected;' but that the office of president was con- ferred upon him by the voluntary votes of the other two directors. Whether he voted or not for him- self, he could only vote in his rep- resentative and not in his individual capacity ; and it was as such he was elected and performed the services, his right to thus act being based on the shares he represented for the estate in litigation, and of which he was receiver. Pending the litiga- tion, his relation to the stock, so to speak, was that of the true owner, and he was trustee for him. As that stock constituted a part of the subject matter in litigation, while it was in his charge, he owed it such duties as the nature of the property and its profitable management re- quired ; and, as a consequence, his compensation as receiver included such duties or services as are inci- dent to its custody and his office, and which he may have performed in respect to it. In a word, whatever services he may have performed, although done as president, it was done by virtue of his title as re- SEC. 99.J NOT ALLOWED ON ACCOUNT OF MISCONDUCT. 539 receive the same up to the time of his discharge, it will be con- strued as intended to fix the compensation only up to the date of the order ; for in proportion as the receiver's responsibility is lightened, and the degree of skill and labor required of him is diminished, so the rate of compensation must decrease.' Sec. 99. . When not allowed on account of misconduct. — A receiver may forfeit his title to all compensation, or, at least, to full compensation, in consequence of unfaithfulness to his trust, or complicity in fraudulent schemes respecting the trust estate. When the question is one of honesty and fair intention on the part of the receiver, and the acts adduced as evidence to prove the opposite consist merely of inferences and conclu- sions, the court will not deprive him of compensation.^ It is only upon the ground of deliberate fraud that so severe a penalty as a loss of all pay can with propriety be adjudged ; while on the ground of error or mistake alone the receiver may be charged with the expenditure upon final settle- ment.' Compensation is allowed as the reward of faith- ful execution of the trust confided. To compensate sloth, ignorance, reckless confusion and procrastinating delay, by ceiver, and for such services the admitted facts show he has been paid. It may be true that he was not required to act as president ; that Weidler might have been elected to that ofSce, as he did, in fact, perform substantially its duties ; but if he undertook to dis- charge its duties, he acted in his official capacity, and whatever bene- fit or emolument resulted, or which the defendant corporation became liable to pay, it belonged to the estate which he represented, and entitled him to no additional charge as receiver, much less as an indi- vidual." ' Union Bank Case, 29 N. J. Eq. 480. This was a receivership over a bank, and the receiver was actively engaged for a period of two years and two months, during which time he collected $172,44^.48, and paid out $147,708.25. At the end of such time the court made an order award- ing him $6,000 a year from the date of his appointment. Thereafter he continued to be receiver for nearly four years, and collected about $25,000, and paid out about $3,000. The receiver claiming that the order established his right to $6,000 for his services during the whole time he was receiver, it was held that such order was merely intended to fix his compensation up to the date of the order, and up to that time he was allowed $6,000 a year, and for the remainder of the time of his receivership the gross sum of $3,500. ' Cowdrey v. Railroad Co., 1 Woods (TJ. S. C. C), 331, 343. ^ Farmers' Loan & Trust Co. ». Central R. of Iowa, 8 Fed. Rep. 60. 540 COMPENSATION OF KECEIVERS. [CHAP. XII. which the interests of the trust estate are being impaired instead of being promoted, would be to prevent the very object equity has in view in allowing compensation to trustees. If the course of a receiver from the outset has been marked with neglect, inattention and misconduct, resulting in probable loss, which to a great extent could have been avoided if he had dis- charged his duties with that degree of vigilance which the law exacts from aU persons acting in capacities of trust and con- fidence, the court will not grant him any compensation.' Sec. 100. By whom it should be paid. — When no question is made as to the legality and propriety of the receiver's appointment, and he has faithfully discharged the duties of his trust, he is entitled to have his compensation paid from the funds in his hands.^ The corpus of the estate itseH becomes ' Clapp «. Clapp, 49 Hun (N. Y.), 195. 2 Radford ». Polsom, 55 la. 276. The receiver in this case was appointed of some lands, the title to which was in dispute, and during the time he had charge of the prop- erty he received therefrom fl6,- 336.35, and disbursed $10,045.37. He was allowed $500 per year for his compensation, one-third of which was to be paid from the funds in his hands, and the remaining two- thirds were to be paid by the plain- tiff, upon the application of whose assignor he was appointed, and were to be taxed as costs against them. By the final decree it was found that the title to the property was in the defendant, but by reason of his de- fault and failure to perform his covenants the services of the re- ceiver were required. Upon appeal by the receiver and the plaintiffs it was held that it was error to charge the plaintiffs with the amount of two-thirds of the receiver's compen- sation, and that the receiver was entitled to have his compensation paid from the funds in his hands and could not be compelled to accept therefor a judgment against the plaintiffs. In JafEray v. Raab, 73 la. 335, a copartnership executed a chattel mortgage or deed of trust on their entire stock of goods and other property to secure certain preferred creditors, and shortly thereafter the plaintiffs, who were creditors of the copartnership, and whose claims were not secured, sued out attach- ment and levied the same upon the stock of goods. Thereafter the landlord of the firm, claiming a landlord's lien for the rent to accrue under the lease, commenced an action for an injunction to restrain any further sale of the goods. Thereupon the plaintiffs' filed an original bill in equity against all the parties, in which they claimed that the trust deed or chattel mort- gage was void, because made with intent to delay and defraud credit- ors, and that the lien of the landlord was much less than claimed by him, and prayed the appointment of a receiver. No objection being made thereto, n person agreed upon by the parties was appointed receiver. Thereafter an order was made con- SEC. lOO.J BY WHOM IT SHOULD BE PAID. 541 chargeable, not only with the expenses incurred under the order of the court, but also with the receiver's compensation.' But where the appointment has been determined by the court to be wholly void for want of jurisdiction, he is not entitled, when ordered to account for and make restoration of the property which thus came unlawfully into his hands, to retain anything for his services as such officer.^ Or when he has procured him- self to be appointed through fraudulent means, without the con- sent and contrary to the wishes of the parties, he is an intruder and trespasser, and not entitled to any compensation.^ If his appointment is not absolutely void, but is held to have been merely improperly made, it would be unjust and inequitable in all such cases to require the receiver's compensation to be paid from the fund in his hands, without reference to the legality of his appointment. Under such circumstances the court will be governed largely by the individual merits of each case, and exercise an equitable discretion, compelling either the fund to bear the payment, or those parties who in equity should pay the receiver's compensation, in whole or in part, as justice may require.^ solidating the cases into one, and a trial was had and decree rendered sustaining the validity of the trust deed and the lien of the landlord. The final report of the receiver was thereafter approved by the court, he having accounted for assets to the amount of $40,000, and he was allowed $3,000 for his services as receiver, and that of this sum $1,400 to be retained by him from the money in his hands, and $600 to be taxed as costs against the plaintiffs. Upon appeal by the plaintiflfs there- from it was held error to charge a portion of the receiver's compen- sation to the plaintiffs, but that the whole compensation should be paid from the fund in the receiver's hands. ' Beckwith v. Carroll, 56 Ala. 12 ; Cotton Mills V. Cotton Mills, 115 N. C. 476; Pennsylvania, etc., Co. «. Jacksonville, etc., R. Co., 66 Fed. Rep. 431; Heise -o. Starr. 44 lU. App. 406. But see Howe v. Jones, 66 la. 156. » People V. Jones, 33 Mich. 303. 3 O'Mahoney v. Belmont, 63 N. Y. 133. * French v. Gifford, 31 la. 438. The order made appointing the receiver in this case was upon ap- peal vacated, as having been im- properly made, and the receiver was directed to return the property to the oflScers of the institution. The court upon appeal charged the fund in the receiver's hands with one-third of his compensation, and the remaining two-thirds against the plaintiffs upon whose applica- tion the appointment was made. See, also, Webster ■». Watts, 45 Hun, 319; Pittsfield Nat. Bank, v 542 COMPENSATION OF RECEIVERS. [CHAP. XII. In a recent case a bill was filed to foreclose a second mort- gage on a street railroad, and a receiver was appointed. Some time after the receiver had taken possession of the property, the trustee named in the first mortgage upon the railroad, who had not been made a party to the bill, intervened and filed a cross-bill, praying that the entire property be sold, and the proceeds distributed according to the priorities of the parties concerned. The property was twice sold free from all incum- brances, but both sales were set aside. A decree was then entered, directing a sale subject to the first mortgage, and upon the sale thereunder the property was bid in for the bondholders secured by the first mortgage. The court thereupon directed that there should be allowed to the receivers and trustees appointed to make the sales, certain counsel fees, and eight per cent, on the gross amount expended by them and on the amount of the first mortgage debt. The auditor was directed to audit the purchase money to the allowances specified, and that the deficiency be charged to the first mortgage bondholders. Thereafter the court, by a final decree, directed the trustee under the first mortgage to collect the deficiency from the bondholders, and, on their failure to pay, he was ordered to make sale of the first mortgage debt and security, with all the rights of the first mortgage bondholders therein. Upon appeal from this final decree, it was held that neither the trustee under the first mortgage nor the holders of the bonds secured thereby, were liable for any part of the allowances made to compensate the receivers and trustees.^ Baynes, 140 N. T. 331; Ferguson v. in regard to the right of the court Dent, 47 Fed. Rep. 88. to assess the first mortgage bonds to In Verplanck «. Mercantile Ins. pay the commissions and expendi- Co., 2 Paige (N. Y.), 438, upon an tures allowed to the receivers and appeal from an order appointing a trustees. It is contended by the ap- receiver of the defendant company, pellees that Tome, as the representa- the chancellor reversed the order tive of the first mortgage bondhold- because it was made ex parte, and ers, was a party to the proceedings, directed the receiver to return the and that therefore the fund repre- property to the ofBcers of the com- sented by him was not only liable to pany, without, it seems, allowing be decreed upon but was liable for him any compensation. the commissions and disbursements ' Tome V. King, 64 Md. 166. " But that were allowed to the receivers the principal questions," Chief Judge and trustees. Whether this be so Alvet said in this case, " are those or not depends upon circumstances. SEC. 100.] BY WHOM IT SHOULD BE PAID. 543 Where a Federal court has once passed upon and deter- mined the compensation which should be allowed to its receiver, It is certainly true as a general rule as contended by the appellees, that where a subsequent mortgagee or other incumbrancer files a bill for the purpose of ascertaining the ex- tent of priorities, making a prior mortgagee a party, but without ofEering to redeem, the prior mort- gagee may insist upon being dis- missed with costs. But if such prior mortgagee or incumbrancer, instead of asking to be dismissed, consents to a sale and to take his principal and interest out of the pro- ceeds, as he thereby adopts the suit and takes the benefit of it, he must contribute, in the event of a defi- ciency of the fund, to the costs of the suit and expenses of the sale ; and therefore such costs and ex- penses will be paid out of the fund, even though there may not be enough left to pay the prior incum- brancer his principal and interest. White D. Bishop of Peterborough Jac. 402; 2 Daniell Ch. Pr. 139o! But that is not this case. Here, as we have seen, the original bill was filed by the trustees in the second mortgage without making the first mortgagees, or any of them, parties. It was at the instance of the second mortgagees that this property was placed in the hands of receivers, and by so doing the right and power of the trustees in the first mortgage to take possession and operate the road as authorized by that deed, was defeated; and, as that was the effect of placing receiv- ers on the property, the trustee in the first mortgage should have been made a party to the bill filed by the trustees for the second mortgage bondholders. Miltenberger v. Rail- road Co., 106 U. S. 386-306 ; 1 Sup. Ct. Rep. 140. But that was not done, and the receivers were appointed, and they took possession of the en- tire property for the benefit of the second mortgage bondholders, with- out an opportunity on the part of the trustee for the first mortgage bond- holders to be heard. It was not until some time after the receiver had taken possession of the property and some portion of it had been sold, that Tome, as trustee, inter- vened by petition, and upon being admitted as a party defendant, filed his cross-bill, in which he prayed for a sale. In two of the efforts made to sell the property under in- terlocutory orders he joined, but those efforts wholly failed. In the final decree for sale the property was decreed to be sold subject to the first mortgage, and therefore the first mortgage bondholders were in no manner affected in their rights by that sale. The sale having been made subject to the first mortgage, in no event could the first mortgage bond- holders participate in the distribu- tion of the proceeds of that sale, even though such proceeds had greatly exceeded the second mort- gage debt, that sale only operating upon the equity of redemption cov- ered by the second mortgage. Wood- worth V. Blair, 113 U. S. 8 ; 5 Sup. Ct. Rep. 6. Seeing, then, that the receivers were appointed solely at the instance and for the benefit of the second mortgage bondholders, and that the trustees who sold the property were appointed to sell ex- clusively for the benefit of the first mortgage bondholders, upon what principle is it that the first mort- gage bondholders should be made to pay the commissions and expenses 544 COMPENSATION OF KECEIVERS. [CHAP. XII. and has determined also that there is a balance due from the receiver to the trust estate, which he is ordered and does pay into court, but subsequently applies to a State court in another suit which involved the same estate, and obtains from it a decree increasing his compensation and declaring that a sum is due him from the trust estate, the Federal court will not regard such determination as binding upon it, and will not direct the allowed, or any part of them, to such receivers and trustees? We must confess that we are at a loss to un- derstand how it can be done, upon any principle of justice or reason. None of the first mortgage debt has been realized by sale, and that in- cumbrance remains intact. It is said, however, that the property was purchased at the sale for the benefit of the holders of the first mortgage bonds, and that therefore they were benefited by the sale. But we do not perceive how that fact, supposing it to be true, can justify the charging these bond- holders with the commissions and other expenses in question. The objects in filing the original bill were to have receivers appointed and a sale of the property decreed, and that, too, without the consent or co-operation of the trustees of the first mortgage bondholders; and both objects of the suit were gratified strictly in conformity to the prayer of the bill. The property having been sold for the benefit of the second mortgage bondholders, it was a right of the first mortgage bondholders, or any one or more of them, to purchase in the equity of redemption ; or, if it had been sold to a stranger, they could have pur- chased it from him as well ; and by such purchase they rendered them- selves liable for nothing more than the purchase money, — certainly not for the commissions and expenses to the receivers and trustees on an ac- count that still remains a charge upon the property, and subject to which they made the purchase. There is therefore no ground what- ever for the attempted assessment and summary sequestration and sale of the whole first mortgage debt with its security for the payments of the commissions and other amount allowed by the decree. For any costs that may have been incurred by reason of the filing of the cross- bill by Tome, and for any proper proportion of the expenses incurred in the abortive efEorts to sell the property for the common benefit of both sets of mortgage bondholders. Tome, as trustee, is chargeable; but not for the commissions and amounts to indemnify the receivers. If the fund in court be not sufficient to afibrd adequate compensation and indemnity to the receivers, the par- ties at whose instance they were put upon the property should be required to provide the means of payment. It follows from the views we have expressed that the final order or decree on the 30th day of December, 1884, and the preceding order on the 3d of July, 1884, must be reversed in so far as the first mortgage bonds are assessed for the purpose of raising a fund of $13,927.80, to make good the defi- ciency as shown by the auditor's statements, referred to in the final decree, from which these appeals are taken." SEC. lOl.J OF RAILROADS IN THE FEDERAL COURTS. 645 fund deposited by the receiver to be appropriated in part pay- ment of what had been found due him by the State court.^ Sec. 101. Of Railroads in the Federal Courts. — A court of equity selects a person as receiver whom it regards competent and trustworthy, and the amount of whose compensation is graduated somewhat by the duties and somewhat by the re- sponsibilities of the situation. What another, even competent, person would have done the work for, is not the proper rule in fixing the compensation of a receiver. Where a receiver is a manager as well as a mere receiver, his duties and responsibili- ties are largely increased ; and the management of a business like that of a railroad is one of the most difficult and respon- sible duties with which a receiver is charged. The peculiar duties, responsibilities and accountability of a receiver entitle him to a larger amount than would be demanded by the head officer of an ordinary railroad of its size and business. It is not usual to allow a percentage on the receipts and disbursements, but to fix the compensation in some other manner.^ The ques- tion of compensation is a judicial one, and while the matter is left to the discretion of the court, it is discretionary only in the sense that there are no fixed rules to determine the proper compensation, but is not discretionary in the sense that the courts are at liberty to give anything more than a fair and reasonable compensation. In determining the amount, the court wiU regard the magnitude of the trust, the care and responsibility springing therefrom, the time occupied in per- forming its duties, the skill and ability displayed, and the suc- cess which has attended its administration.' ' In re Hinckley, Receiver, 3 Fed. year. The Supreme Court will or- Rep. 356. dinarily not review the allowances *Cowdrey». Railroad Co., 1 Woods, made to railroad receivers for com- 331. In this case, had the receiver pensation, but said that " we do not been allowed five per cent, on the see that the economical administra- receipts and disbursements, his com- tion of insolvent companies will be missions would have amounted to promoted, or that justice requires between $25,000 and $30,000 per a higher standard of compensation year. The president of the rail- than these courts generally give, to road, before it passed into the re- whose discretion the subject must ceiver's hands, received $5,000 a be largely remittad." year. The court allowed the re- ' Central Trust Co. v. Wabash, St. ceiver as compensation $10,000 a Louis & Pacific R. Co., 32 Fed. Bep. 546 COMPENSATION OF RECEIVERS. [CHAP. XII. The court sometimes fixes the compensation of a receiver at the time of his appointment, and he will not ordinarily be released from such agreement if good and sufficient reason is not shown. But in case the duties of a receiver prove to be more arduous than he or the court expected, or in case he per- forms duties in addition to those ordinarily required of a receiver, in either case, provided he has faithfully administered his trust without intentional error or fraud, he is entitled to, and the court wiU grant him, compensation in addition to that fixed by the order under which he was appointed.' 187. In this case at the time of the receivers' (two) appointment the mileage of the railroad was about 3,600 miles. Within a short time after their appointment the disinte- gration of the property commenced, and line after line was surrendered to trustees, mortgagors and lessors, so that near the close of the re- ceivership the receivers had less than 1,000 miles under their con- trol. Their administration was suc- cessful, and extended over a period of a little over two years and one- half, and during that time the re. ceivers received and paid out about $60,000,000. Neither one of the re- ceivers devoted his entire time to the business of the receivership. The master allowed as compensa- tion to each $112,500, to cover all their services. The court, upon re- view, reduced this amount and allowed each receiver $70,000 to the date of the order. And see Central Trust Co. of N. Y. ■». Cincinnati, J. & M. R. Co., 58 Fed. Rep. 500 ; Bos- ton Safe Deposit & Trust Co. v. Chamberlain, 66 Fed. Rep. 847. ' Farmers' Loan & Trust Co. ®. Central R. of Iowa, 8 Fed. Rep. 60 ; s. c. 3 McCrary, 318. The compen- sation of the receiver in this case, was fixed by the order of his ap- pointment at $3,000 a year. The receivership extended over a period of 37^ months, during which time the receiver disbursed $1,700,000. Demands were made upon him for reports and statements of his ac- counts, and the condition of the road, and the state of the litigation concerning it, required a greater amount of time and labor by the re- ceiver than was anticipated at the time of his appointment. For the extra services the court allowed him |1,800. During a period of fifteen months the receiver dis- charged the duties of superintend, ent also ; for this the court allowed him $3,500. And for twenty days' services rendered in court as attor, ney he was allowed $390. He was allowed in all for extra services, in addition to his regular compensa. tion, $4,390. In Easton v. Houston & Texas Cent. R. Co., 40 Fed. Rep. 189, the trustees under a mortgage upon the property of a railroad company con- tracted originally to render their services for the sum of $1,500, which sum they were paid up to the time of the institution of the fore- closure action, in which they were appointed receivers and were paid by allowances made by the court to them as receivers, and by appro- priations made by themselves as trustees at the rate of $4,500 per year. The services rendered were SEC. 102.] IN NEW YORK. 547 Sec. 102. In New York.— The rate of compensation allowed to receivers in New York is governed by statute.' Receivers of moneyed institutions are entitled to the same commissions and compensations for their services as are allowed to executors and administrators ; ^ but such compensation shall in no case exceed ten thousand dollars per annum.' Executors and administrators are allowed : " For receiving and paying out all sums of money, not exceeding one thousand dollars, at the rate of five dollars per cent. For receiving and paying out any sums exceeding one thousand dollars, and not amounting to ten thousand dollars, at the rate of two dollars and fifty cents per cent. For all sums of above ten thousand dollars, at the rate of one doUar per cent."* And "where the value of the personal estate of the decedent amounts to one hundred thousand dollars, or more, over aU his debts, each executor or administrator is entitled to the full compensation allowed by law to a sole executor or administrator, unless there are more than three, in which case the compensation, to which they would be entitled, shall be apportioned among them according to the services rendered by them respectively ; and a like apportion- ment shall be made in all cases where there shall be more than one executor or administrator." ° The compensation of receivers of insolvent life insurance companies, is, however, not restricted or governed by the above statutes, but such receivers were, previous to the passage of the act of 1883, entitled to receive compensation in accordance with the provision contained in the Code of Civil Procedure,^ not exclusive of their business, and * Laws of 1863, chap. 362, § 8. did not take all or nearly all of their ^ Code of Civil Procedure, § 2736. time, and there was no great re- * Matter of Attorney General v. sponsibility requiring extraordinary Guardian Life Ins. Co., 93 N. Y. 631. compensation. It was Tield that In this case the fee of the receiver they had been amply compensated of the defendant insurance company and that an extra allowance was was fixed by the court at five per improper. cent, on the amount of the assets ' N. T. Laws of 1842, chap. 8 ; of the company, and it was claimed Laws of 1879, chap. 442 ; Laws of that his commissions should have 1883, chap. 878, § 2 ; N. Y. Code of been such only as were allowed to Civil Procedure, § 3320. executors and administrators. The " Laws of 1842, chap. 3. Court said : " The statutes regula- ' Laws of 1879, chap. 442. ting the compensation of receivers 548 COMPENSATION OF RECEIVERS. [CHAP. XII. which provides : " A receiver, except as otherwise especially- prescribed by statute, is entitled, in addition to his lawful expenses, to such a commission, not exceeding five per centum, upon the sum received and disbursed by him, as the court by which, or the judge by whom, he is appointed allows." ^ If the receiver was appointed under the authority of the act of 1869, which requires the Attorney-General to apply to the court, at the instance of the Superintendent of the Insurance Depart- prior to chapter 378 of the Laws of 1883 are in great confusion, and it is extremely difficult to determine their precise form and efEect. Much can be said in favor of the conflict- ing views contended for by the learned counsel upon the argument of this case. Whichever view we should take of the matter would not be free from some doubt. We are inclined to believe that the Supreme Court has properly construed the statutes, and we certainly do not see our way clear to a reversal of its decision. We accept this result the more readily as the recent statute above referred to removes all doubt as to the compensation of receivers, and as those cases which may not be governed by the statute are sub- ject to the control of the Supreme Court in the exercise of its discre- tion at the Special Term, and upon review at the General Term within the limit of five per cent." In respect to this case the Supreme Court in the matter of the Security Life Ins. & Ann. Co., 31 Hun, 36, said: "It did not appear in that case as it has in the present case, under what particular statutory au- thority the receiver was appointed. But it did appear that he had been appointed by the court receiver of a similar corporation to the Security Life Insurance Company, and that the services performed by him un- der his appointment were of the same general nature. And § 8330 of the Civil Procedure was prob- ably regarded as a controlling au- thority over the application made in his behalf for the allowance of his commissions ; for no other pro- vision has been found conferring the power upon the court to make the allowance ■v^hich was directed and sanctioned in that case. By this section the court or judge by whom the receiver has been ap- pointed, was authorized to prescribe his compensation at a sum not ex- ceeding five per cent, upon the sums received and disbursed by him, pro- vided the particular case in which the application should be made was not otherwise specially provided for by statute, and the court must have considered such application not to have been within the special provi- sions of any other statute, in order to warrant the exercise of this au- thority. And assuming that to have been the consideration and deter- mination of the court, it would fol- low from it that the statute restrict- ing the compensation to the com- missions allowed to executors and administrators were inapplicable to a receiver to an insolvent life insur- ance company. This conclusion ap- pears very reasonably to follow from the final determination made in the case of the Ouardian Mutual Insur- ance Company." ' Code of Civil Procedure, § 8330. SEC. 102.] IN NEW YORK. 549 ment, for a receiver, it is provided that " the compensation of the receiver under this act shall be fixed by the Superintendent of the Insurance Department, and shall not exceed the sum of five per cent, on the amount of the assets of such company, as shall come into his possession." ^ The Superintendent acts in a judicial capacity, and should give all parties interested an opportunity to be heard. His decision is not conclusive ; but upon the presentation of the accounts of the receiver to the court for settlement, the jurisdiction of the Superintendent and the regularity of its exercise are before the court and may be determined by it.^ The act of 1883 provides, that " every receiver shall be allowed to receive as compensation for his services as such receiver five per cent, for the first one hundred thousand dol. lars actually received and paid out, and two and one-half per cent, on all sums received and paid out in excess of the said one hundred thousand dollars," and aU acts or parts of acts incon- sistent therewith were repealed.' This act, however, applies only to the winding up of the affairs of insolvent corporations under the statutes of New York, and does not apply to the case of a receiver pendente lite, appointed in a foreclosure action, to foreclose a mortgage executed by a corporation, and a receiver appointed in an action to foreclose such a mortgage is not entitled to the compensation specified in that act, but his compensation is governed by the above provision of the Code of Civil Procedure, providing for the allowance by the court or judge appointing him.* ' Laws of 1869, chap. 902, § 13. order made upon settlement of the ' Attorney General «. North Am. receiver's account directing a recon- Life Ins. Co., 89 N. Y. 94 ; affirming sideration by the superintendent of on this point s. c. 26 Hun, 294. The his order was proper. The Court, superintendent, in this case, at the at General Term, said that the de- request of a receiver, made before cision of the superintendent is not his services had approached com- unrestrained, but is subject to the pletion, and upon an estimate of the supervisory power of the court, 26 assets, less than one-half of the Hun, 294. The Court of Appeals, amount upon which the receiver however, did not pass upon this claimed compensation, fixed the rate question, limiting its decision to of allowance at five per cent, with- the facts in the case, out notice to anyone interested in 'Laws of 1883, chap. 378, §§ 2 said assets; it was held that the and 11, passed April 11,1888. order was premature, and that an ■* United States Trust Co. v. N. Y. 550 COMPENSATION OF EECEIVEKS. [CHAP. XII. The provisions of the act of 1883 are prospective in their operation, and do not apply to receivers who had been ap- pointed and had entered upon the discharge of their duties before the passage of the act. A receiver, therefore, of a life insurance company, appointed under the act of 1869, and who entered upon the performance of his duties prior to the pas- sage of the act of 1883, is entitled to have his compensation fixed by the Superintendent of the Insurance Department as provided by that act ; and in case of refusal he is entitled to a mandamus to compel the Superintendent to so fix his com- missions.' But a receiver who is not appointed under the pro- visions of that act is entitled to have his compensation fixed as provided by the above provision of the Code of Civil Pro- cedure.^ He is entitled to commissions upon the proceeds of West Shore & Buffalo Ry. Co., 101 N. T. 478. This was an action to foreclose a mortgage executed by the railroad company, defendant, upon its property and franchises, and two receivers were appointed of the mortgaged property and their compensation was fixed at $40,000 each, under § 3320 of the New York Code of Civil Pro- cedure, and within the limit of five per cent. It was claimed that the case was taken out of the general rule by force of the act of 1888, chap. 378, under which a receiver is entitled to a fixed percentage upon receipts and disbursements, which the court was bound to allow, irrespective of any consider- ation of the character or value of the services rendered. It was held, however, that the receivers ap- pointed in this action were not "receivers of corporations" within the meaning of the act of 1883, and, therefore, their compensation was properly fixed as stated. And see Gardiner v. Tyler, 3 Abb. Ct. of Appeals Dec. 347; s. u. 4 Abb. N. 8. 363. 'People ex rel. Newcomb v. Mc- Call, 94 N. Y. 587; affirming 65 How. Pr. 443. The provision re- epecting compensation of receivers appointed under chapter 903 of the Laws of 1869, provides that "the compensation of the receiver under this act shall be fixed by the Super- intendent of the Insurance Depart- ment, and shall not exceed the sum of five per cent, on the amount of the assets of such company as shall come into his possession." ^ Matter of Security Life Ins. & Ann. Co., 31 Hun (N. Y.), 36. In People V. Mutual Benefit Associates, 39 Hun (N. Y.), 49, a receiver of the defendant, after having acted some time in the execution of the trust, tendered to the court his resigna- tion, and upon the settlement of his accounts, the total amount of the funds, which had come into his hands, was fixed at $10,619.70. It was held that his commissions were rightly determined by the law in force at the time of his appoint- ment, viz., § 3330 of the Code of the Civil Procedure, and that an allowance to him of $550 should not not be increased. In Hanover Ins. Co. . Rockaway Beach Improvement Co., 35 Hun (N. Y.), 376, it was held error for a Special Term sitting in Albany to remove a receiver of a corporation appointed in an action the venue of which was laid in the county of New York. = Dougherty v. Jones, 37 Ga. 348 ; Smith V. Trenton Delaware Falls Co. 3 Green's Ch. (N. J.), 505. In Campbell v. Spratt, 5 N. Y. Weekly Dig. 35, it appeared from the papers that sufficient ground existed for the removal of a receiver upon proper application, but the removal having been made without proper notice of the application to the receiver and opportunity to be heard in opposition, it was held up- on appeal that it could not be sus- tained. In Bruus v. Stewart Manufactur- ing Co. 81 Hun (N. T.) 195, a re- ceiver of a corporation having been been appointed, and a motion to vacate the appointment having been denied, it was held that the court could not, upon objections made by other persons, remove the receiver for different and other rea- sons without first giving to the re- ceiver notice of the charges against him, and an opportunity to be heard. The proceedings authorized by N. Y. Laws of 1880, chap. 537, as amended by chap. 639 of 1881, for the removal of receivers of insol- vent corporations, only apply to such receivers as are by statute re- quired to make and file reports of their proceedings at certain definite and prescribed times, and in an action brought by a stockholder and creditor to close up the busi- ness of a corporation, wherein a receiver of its property has been appointed, is was 7ield that notice of a motion by the Attorney Gen- SEC. 109.] POWER OP REMOVAL BY THE COURT. 571 meddle in questions affecting the rights of the parties, but must retire from his office, and give up the property committed to his custody, whenever required so to do by the court. His rights thereby are usually not affected one way or the other, and unless his own rights and liabilities are affected thereby, he has no more right to appeal and ask for a revision or reversal of the order removing him than an entire stranger to the cause, whatever the right of a party in interest may be to appeal there- from. And though he has entered an appeal from the order, and filed an approved appeal bond, this will not suspend the order or prevent the court from enforcing its order of removal by ap- propriate remedies.^ If the motion to vacate the order and discharge him is concurred in by all parties in interest, the receiver cannot even be heard in opposition thereto, for as the representative of the court to which the motion is addressed, he has no standing for such purpose, but must abide by its order.^ And strangers who are not parties to the cause, cannot make such application, even though they are stockholders of the corporation over which the receivership extends.^ eral under said acts for the removal relates to the necessity of his ap- of the receiver should have been pointment or of its continuance, served upon all the parties who had Howard v. Lowell Machine Co. 75 appeared in the action, and that it Ga. 325. was improper to remove the re- ' L'Engle v. Florida Central R. ceiver and appoint another in his Co., 14 Fla. 366. In this case the place, when notice of the motion defendant, a railroad company, had been served upon the receiver moved to vacate an order previously alone. Attrill «. Rockaway Beach made appointing a receiver of its Improvement Co., 25 Hun (N. T.), property. To this the plaintiff con- 509. sented. but the receiver objected, ■ In the Matter of Colvin, 3 Md. and thereupon the court ordered Ch. 302. the receiver to restore the railroad In Georgia an order appointing a to the company, but required him receiver may be revoked without still to receive and disburse its giving him notice to show cause earnings. Upon appeal it was held why it should not be done. It is that the receiver should not have only in cases where his conduct is been heard in opposition to the called in question and where it is motion, and that the railroad, includ- sought to make him liable, or ing its future earnings, should have where he is called on to account or been restored to the company, to make return, that he is entitled sj^ifth National Bank 1>. Pitts- to notice or to a hearing; but he is burgh & Castle Shannon R. Co., 1 not so entitled when the question Fed. Rep. (U. S. C. C), 190. 572 REMOVAL AND DISCHARGE OF EECEIVEES. [CHAP. XIV. Unless an appellate court has power to review decrees resting in the discretionary power of a court of equity, an appeal will not lie from a decree of the latter court discharg- ing a receiver.^ But it has been held in Ohio, where the power to appoint and remove receivers is conferred on the judges as well as on the courts, that if no new facts are brought before it, and the court acts on the original cause and assumes to treat the order discharging the receiver as a nullity, it assumes an authority which the law does not warrant and which cannot be justified or defended on the ground of discretion, but is judicial error which may be corrected on appeal.' Sec. 110. When a receiver will be discharged. — It is not the province of a court of equity to take possession of the property and conduct the business of corporations except when the exercise of such extraordinary jurisdiction is indispensably necessary to save or protect some clear right of a suitor, which would otherwise be lost or greatly endangered, and which can- not be saved or protected by any other action or mode of pro- ceeding. If such danger ceases to exist after the court has taken the property into its custody, it then should not hesitate to discharge the receiver and to turn over the property to those who are rightfully entitled to its possession ; for the court ought not to exercise this extraordinary power of managing the business of a corporation and its property for the mere convenience of parties and to advance their personal interests.^ Though the 'Siney «. New York Cod Bolidated but before the adjourned day Stage Co., 28 How. Pr. (N. Y.), 481 ; arrived the company applied to the B. c. 18 Abb. 435; Colgate v. Michi- judges of the court, and they made gan Lake Shore R. Co., 28 Mich. an order vacating the appointment 288 >Folaom v. Evans, 5 Minn. 418 ; and directing the receiver to return Washington City & Point Lookout the road to the company . Upon the B. Co. V. Southern Maryland R. Co., adjourned day, the court, without 55 Md. 153. notice or further hearing, directed ' Cincinnati, Sandusky & Cleve- an order to be entered vacating the land R. Co. ■». Sloan, 31 Ohio St. 1. last order named because it was In this case the defendant in error made without jurisdiction or power, filed his petition in the Court of Upon appeal from this last order, it Common Pleas against the plaintifE was Tield that the order was appeal- in error, and, without notice to the able, and was made without latter, the court, being in session, authority and therefore should be appointed a receiver of its property, reversed, and then adjourned for one month ; » Taylor v. Philadelphia & Read- SEC. 110.] WHEN A RECEIVER WILL BE DISCHARGED. 573 court will not, ordinarily of its own motion, discharge its receiver, yet when the court becomes informed of the facts and it appears that the corporation, by collusion with a creditor who prays for the appointment of a receiver, allows its property to go into a receiver's hands, not for the purpose of meeting its obligation to the petitioning creditor, but for the purpose of keeping its property from other creditors, the court will of its own motion discharge the receiver.^ The discharge of a receiver may become a matter of absolute right which does not rest in the discretion of a court. Thus when the primary object of the action is to foreclose a mort- gage, the amount of which with interest has been definitely fixed by the court, and the mortgagor is ready and willing to pay the same, the right to pay that sum, and have a restoration of its property by discharge of the receiver is clear, and does not depend on the discretion of the court. It is a right which the party can claim ; and if he shows himself entitled to it, there is no discretion in the court to withhold it, and a refusal is judicial error and can be corrected on appeal.^ And it would Ing Co., 9 Fed. Rep. 1 ; Howard v. the peculiar character of the times La Crosse & Milwaukee R. Co., 1 affecting all similar institutions, Woolworth (U. S. C. C), 49 ; Craw- was compelled to suspend business, ford V. Ross, 39 Ga. 44 ; Railroad and a receiver was appointed, who Co. V. Soutter, 2 Wall. (U. S.), 523. subsequently, upon the application In a case where an order was of the bank and upon its showing made in a State Court upon an ex its solvency and ability to proceed parte application appointing a with its business, was discharged, receiver of a railroad company, and Ferry v. Bank of Central New York, after removal of the suit to the 15 How. Pr. (N. Y.), 445. United States Circuit Court, upon a ' Sage v. Memphis & L. E. Co., hearing of both sides, it not appear- 18 Fep. Rep. 571. ing that the property of the com- See also Hoyt v. Continental Ins. pany was in jeopardy, or in need of Co., 21 N. Y. Week. Dig. 145. the protecting control of the court, ' Railroad Co. v. Soutter, 2 Wall. and the continuance of the receiver- (U. S.), 521. ship being likely to prove prejudi- And see the case of Davis v. Dun- cial to innocent holders of the can, 19 Fed. Rep. 477, where it is securities of the company, the court held that after entering an order rescinded the order appointing the discharging a receiver, and direct- receiver. McHenry «. New York, ing him to turn over the property Penn. & O. R. Co., 35 Fed. Rep. (XJ. in his hands to the corporation, and S. C. C.) 114. which order was complied with, the See the case of a bank which, by court cannot, after the adjournment 574 EEMOVAL AND DISCHARGE OF RECEIVERS. [CHAP. XIV. seem that, when the motion for a discharge is made with the concurrence of all parties in interest, the right thereto likewise does not depend on the discretion of the court.' Where a receiver's duties are not ended, he will not be dis- charged on his own application from performance of duties which he has voluntarily agreed to perform, by assigning rea- sons, such as might excuse every man of business and person of capacity for such a trust, from accepting it ; ^ not even upon- the application of the party at whose instance he was appointed, when it appears that the interests of others might be prejudiced by discharging the receiver. The receiver does not act alone for the party who applied for his appointment, but as the rep- resentative of the court for the benefit of all parties interested in the trust property ; and before the court will discharge him, it will look into the condition of the corporation and the rights of all parties interested, and if those interests require that the receiver should continue in the performance of his trust, he will not be discharged.^ But the duties of a receiver pendente lite terminate with a judgment adverse to the party who procures his appointment ; he is not thereby wholly discharged, but is still amenable, as an officer of the court, to the court for the purpose of accounting to the court for the trust estate in his hands.^ And the abatement or discontinuance of the action causes the same termination of his functions.® But the court may, according to the exigencies of the case, upon good cause shown, either continue him in the active exercise of his func- tions, or discharge him by a further order.* When the judg- of the term at whicli the order was In the Matter of the Long Branch k made and entered of record, in any Sea Shore Railroad Co., 24 N. J. Eq. ■way change or modify it. 398. ' L'Engle «. Florida Cent. R. Co., * Ireland ®. Nichols, 40 How. Pr. 14 Fla. 366. (N. Y.), 87 ; Field ii. Jones, 11 Qa. ' Beers e. Chelsea Bank, 4 Edw. 413 ; Colwell v. Garfield National Ch. (N. T.), 277. Bank, 119 N. T. 412; Peterson v. 3 Atlas Bank «. Nahant Bank, 23 Gihson, 21 Ark. 140. Pick (Mass.), 480 ; People v. Globe ^ MoCosker v. Brady, 1 Barb. Ch. Mutual Life Ins. Co., 57 How. Pr. (N. T.), 346; Whiteside ■». Prender- (N. Y.), 482 ; Hazard d. Credit Mo- gast, 2 Barb. Ch. (N. Y.), 471; Mont- bilier of America, 38 Fed. Rep. 195 ; gomery «. Merrill, 18 Mich. 338. Fay v. Erie & Kalamazoo Railroad « Ireland v. Nichols, 40 How. Pr. Bank, Harrington Ch. (Mich.), 194 ; (N. Y.), 87 ; Whiteside «. Prender- SEC. 111.] WHEN A RECEIVER WILL BE REMOVED. 575 ment in the action is not adverse to the party procuring the appointment, and leaves the possession of the receiver undis- turbed, his active functions continue, notwithstanding the judgment, until he is duly discharged.' Sec. 111. When a Receiver will be removed for cause. — The exercise of the power to remove a receiver for cause is a matter properly resting in the discretion of the court which ap- pointed him and which has general supervision of his actions and is familiar with his duties. The proper action to be taken must necessarily be governed by the circumstances of each particular case.^ Mere surmises of neglect without a reasonable inference showing a want of faithfulness in dis- charging the duties of his trust are not sufficient ground for removal.^ Neither is relationship of a receiver to a party to the action alone sufficient ground for the removal; it is but a circumstance to be taken into consideration at the time of making his appointment.* And the fact that the re- ceiver has employed the counsel of a party to the suit, to act as his counsel in such suit, unless it is shown to be col- lusive, does not furnish sufficient ground for removing a re- ceiver after he has once been appointed and entered upon his duties.' As an officer of the court he should remain unbiased and im- partial in the discharge of his duties or be removed ; * and therefore, if a receiver of a railroad company unjustly dis- criminates in the charges imposed upon rival shippers over his road, in order to increase his revenues, it is good cause for removal.' And if receivers use their influence and powers as receivers in advancing the interests of the majority, bond- holders and other parties, at the expense of the minority gast, 2 Barb. Ch. (N. Y.),471; Cop- •'Wetter «. Schlieper, 7 Abb. per Hill Mining Co. v. Spencer, 25 (N. Y.), 93 ; Shainwald v. Lewis, Cal. 11. 8 Fed. Rep. 878. ' Beverly «. Brooke, 4 Gratt. (Va.) ' Bank of Monroe «. Schermer- 220; Visage v. Schofield, 60 Ga. horn, Clarke Ch. (N. T.), 366 ; Shain- 680. wald V. Lewis, 8 Fed. Rep. 878. ' First National Bank v. Barnum « First National Bank «. Barnum Wire & Iron Works, 60 Mich. 487. Wire & Iron Works, 60 Mich. 487. ' Cowdrey v. Railroad Company, 1 ' Handy v. Cleveland & M. R. Co. Woods (TJ. S. C, C), 348. 31 Fed. Rep. 689. 676 REMOVAL AND DISCHARGE OF RECEIVERS. [CHAP. XIV. bondholders and the railroad, they will be removed.^ So it has also been held that a receiver who had been one of the trustees or directors of the corporation, and charged with bad faith and mismanagement of the property of the corporation before the receivership, many of which charges he did not deny, was not a proper person to exercise the power of a receiver and that he should be removed.^ And where it was necessary to investi- gate the conduct of a receiver, as an officer of the corporation, to ascertain whether he has not obtained an advantage which he ought not to be permitted to retain, this has been held to be sufficient cause for removal.^ ' Atkins V. Wabasli, St. Louis & 9 Abb. N. C. (N. Y.), 166 ; Wilson v. Pacific Railroad Company, 29 Fed. Barney, 5 Hun (N. T,), 257. Rep. 161. ' 'McCulloQgli «. Merchants Loan « Keeler v. Brooklyn Elevated R. and Trust Co. 29 N. J. Eq. 217. INDEX. (Thb Rbfbrbncb Numbbks are to Pages.) ACCOUNTS OF RECEIVERS. To -WHAT Courts and when Receiver must render his Accounts ; to court appointing him, 556. to such person and at such time and place as the court may desig. nate, 556. how receiver must present accounts, 556. how audited, 557. specific duties and functions of master who is to audit accounts, 658. how interested parties may appear and object to accounts, 558, 559. proceeding, if receiver dies pending accounting, 560. principles which should govern in passing upon accounts, 560. What will be allowed the Receiver as expenses ; general rule, 561, 564. specific examples of items properly allowed, 561-566. specific examples of items disallowed, 561-566. Right of Receiver to appeal prom accounting ; may appeal the same as any other party to a proceeding : his fiduciary capacity does not prevent his so doing, 567. See also titles Counsel, Expenses, Interest, Trust Funds. ACTIONS. Actions against the Corporation ; do not abate by the appointment of a receiver, 22. unless the corporation is dissolved, 33. or unless an injunction restrains the bringing of suits, 23. when the corporation is dissolved and a receiver is appointed all actions for or against the corporation abate and all proceedings for or against it are void, 24. same rule applies where the charter is annulled, 34. Actions bt the Corporation ; may be brought in foreign jurisdiction on promissory notes after the appointment of a receiver, though there is a statute in force in the foreign jurisdiction precluding the corporation from suing after the appointment of a receiver, 3i, n. 8. 578 INDEX. (The Reference Numbers are to Pages.) ACTIONS— Continued. Actions by the Ebceiybr ; general lule is that the receiver should allege in his complaint his authority to bring suits and in a traversable form so that if issue be joined it may be proved, 199. general rule stated as to his bringing suit in his own name or joining the corporation with him, 197, 198. rules stated as to what court the receiver may bring actions in, and the effect thereof, 300. death of the receiver does not abate an action, 200. one exception stated to the rule requiring the receiver to aver his authority to bring an action : and that is, where he sues for in- jury to trust property while in his possession, as for trespass or to enforce a contract made with him directly or upon an obligation due to him, 201. may be begun by receiver in the name of the corporation against one of the directors of an insolvent corporation to recover a penalty for the violation of a statutory duty, but it must appear that the action is prosecuted by direction of the receiver, 29, n. 3. ti receiver cannot maintain an action in the jurisdiction wherein his powers are exercised against the purchaser of real property of the corporation situate in another jurisdiction to determine the title thereto, 301. Actions against the Eecbivbr ; for breach of contract prior to the appointment of the receiver cannot be enforced against the receiver until the corporation Is adjudged dissolved, 314. but the court appointing him may permit a claimant to sue the receiver instead of the corporation for a debt created by the latter before the receiver's appointment, 315. but the receiver cannot be compelled by action to fulfill the simple contracts of the corporation, 316. court may prohibit the prosecution of actions against the pur- chaser of trust property in other courts to enforce a liability under covenants and may compel such claimants to sue for redress in the courts having jurisdiction of the original cause, 491. Bee also titles Leave to Sue, Stockholders, Directors, Offi- cers, Dissolution of Corporation, Creditors, Judgment Creditors, National Banks, Powers of Receivers, Lim- itations UPON Powers of Receivers, Bonds of Receivers, Sureties, Negligence, Dissolution of Corporation, Em- PLOTEES, Attachment, Replevin, Mandamus, Trustee Pro- cess, Injunction, Supersbdiab, Garnishee Process, Inju- ries to Persons and Property, Negligence, Liability of Receivers. INDEX. 579 (The Reference Numbers are to Pages.) ANCILLARY RECEIVERS, when may be appointed, 236, 237. of foreign corporation, cannot recover from a bidder the difference between his bid and the price finally obtained when the sale was made under the order of the Court of Chancery of New Jersey when the conditions imposed by the court were not complied with, 283, n. 1. ANNUITY BONDS. See Insurance, Liability of Receivers. APPELLATE COURTS, do not appoint receivers unless they possess jurisdiction of the action and of the person against whom the remedy is sought, 3. APPEAL, if the corporate property is turned over to a new corporation and the old corporation takes an appeal from the decree of sale, a receiver of the property will not be appointed pending the appeal, 3, n. 5. question of receiver's appointment not reviewable upon, 5. corporation may appeal from j udgments recovered against it, although a judgment of sequestration has been had against it and a per- manent receiver has been appointed, 22, n. 8. if the receiver of a corporation judicially declared dissolved appeal from a judgment against the corporation and sets such judgment aside this does not make him a party to the action, 26. where in proceedings upon an order to show cause the receiver is adjudged guilty of misconduct, the court, on appeal, cannot review the order if it directs the receiver to pay the amount due, 1 58, n. 2. when a discretionary order is made by the court appointing the receiver an appeal will not lie therefrom, 286, n. 1. appeals in Federal Courts : when allowed and when denied, 486. remedy when appeal refused, 487. APPOINTMENT OF RECEIVERS, Presumptions concerning ; presumption is that appointment is properly made, 80. also that court had power to make it, 30. Vi^HEKB POWER TO APPOINT RESIDES ; inheres in courts which possess equitable jurisdiction, 3. codes limit equitable jurisdiction of the court to appoint a receiver if an adequate remedy is prescribed, 3. appellate courts do not appoint a receiver unless they have juris- diction of the suit upon appeal and also of the person, 3. judge in vacation ordinarily no power, 4. but such appointment, if confirmed by the proper court, is valid from the date of the entry of the confirming order, 4. in California the Superior Court has no power to appoint in quo warranto proceedings upon judgment of forfeiture of charter, 4. exercise of appointing power is discretionary, and not ordinarily reviewable upon appeal, 5. 580 INDEX. • (The Reference Numbers are to Pages.) APPOINTMENT OF REGE1VEB.S— Continued. not condition precedent to the exercise of the appointing power by a Federal Court that corporate property should be in th( same district where the court is held, 5. sufficient that the corporation appear, 5. it is a condition precedent to^ the exercise of such power that the- cause be pending, and that the corporation be a party thereto, 5. not condition precedent to the exercise of the appointing power in the case of » foreign corporation that a statutory provision should exist therefor, 5. sufficient that corporate property exist within the jurisdiction of the court, 5. When thb appointment is complete ; complete when the appointment is confirmed by a special order when the question of the proper person to be appointed is referred to master, 7. but where the master is directed to appoint, no order is neces- sary, 7. How THE APPOINTMENT IS PROVED ; allegation of due appointment is sufficient to admit proof of appointment, 5. proved usually by producing a duly authenticated copy of thfr order appointing the receiver and the giving of a bond, 6. but when jurisdiction is put in issue, that also must be proved^ 6, n. 3. Who mat be appointed Receiver ; a proper person is one having no interest in the capital stock, none in its debts, and no obligation to those who have, 84. it is not necessary that the receiver should be an individual, trust companies often have power conferred upon them by statute, 84. a creditor, officer or stockholder may be a receiver, 84. regulated by statute in New York, 85. Who will not be. appointed eecbiver ; person under whose charge and control the resources of the cor- poration have been exhausted, ought not to be appointed, the receiver, 86. law partner of the solicitor of the complainant is not a proper person to be appointed, 86. nor should a party to the suit, 87. nor a master of the court, 87. nor a trustee whose duty it is to watch the receiver, be himself appointed receiver, 87. When Eecbiver will be appointed ; 1. Upon ex parte application. only on the utmost particularity of statement of circumstance* rendering such appointment necessary, 46. facts stated which may justify such appointment, 47. INDEX. 581 (The Reference Numbers are to Pages.) APPOINTMENT OF RECEIVERS— Continwed. 2. Upon corporate insolvency. insolvency defined, 47. appointment of a receiver not a necessary sequence of insolvency, 47, rests in the discretion of the court, 47. circumstances to justify such appointment must be un- usual, 48. interests of stockholders and creditors will control, 48. cases justifying such appointment, stated, 48. assignment of corporation, after service of legal process, will not deprive court of jurisdiction to appoint receiver, 48. rule in New York stated, 48. 3. Upon default in mortgage obligations. not a matter of right upon default in the payment of in- terest, 49. but where necessity appears, course clear, 19. cases illustrating rule, 49, 50. the usual course is to appoint a receiver upon the application of bondholders, 49, 50, 51. the usual course under a deed of trust, 49. the rule is where a railroad is insolvent and cannot borrow money to pay debts, that bondholders may apply, 51. rule in New York where the security is inadequate and the person liable is insolvent, 53. rule where the whole amount of the mortgage is due, 52. rule where the whole amount is not due, 52. where the mortgage is not entitled to have the whole sold as one parcel, 52. where the corporation is bankrupt and interest has accumu- lated on the bonds exceeding the value of the security, 52. where no interest has been paid on the first mortgage bonds for ten years, 52. where tbe officers refuse to exhibit the books to the bond- holders and the trustees of the mortgage, 53. 4. Upon the misconduct of officers. justified by fraud and mismanagement on the part of officers in charge, 58. such appointment does not dissolve the corporation, 53. justified where the officials are corrupt and irresponsible, 53. justified by the directors of the insolvent corporation refusing to institute proceedings for its dissolution, 54, n. 1. stockholder may institute proceedings in such case to compel the proper distribution of the assets and have receiver appointed to preserve assets, 54, n. 1. justified where officers are guilty of fraudulent mismanage- ment and misappropriation of the corporate funds, 54. 682 INDEX. (The Reference Numbers are to Pages.) APPOINTMENT OF EECEIVEKS— OiwiimMfid. justified where a majority of the stockholders are fraudu- lently seeking to carry out designs antagonistic to the best interests of the corporation, 55. where officers mortgage the corporate property to secure their own claims and threaten to sell the corporate property without notice, 56, 57. where the corporation has gone into liquidation and left the directors in charge for three years without accounting, 56. where the directors, without authority, make a lease of the railroad, 56. where the money paid by the bondholders is being wasted by the directors, 57. where the executive committee repeatedly vote to themselves large sums of money in addition to their regular compensa- tion, 57. where the officers and a majority of stockholders refuse to keep the road in repair and thereby endanger the rights of the minority, 57. where, to prevent the attorney-general from bringing suit, the officers of a corporation cause a confederate to bring suit and have a confederate appointed receiver, he will be removed and a proper receiver appointed, 57. 5. Upon application of a judgment creditor. where the allegation is that the corporate property is so heavily mortgaged that if he were to proceed to sale on execution there would be no bidders, 58. where he is unable to collect the amount of his judgment against a corporation by common law execution. 58. See also infra, % 7. 6. Upon the absence of persons authorized to take charge of the property of the corporation. where a majority of the stockholders neglect to elect officers, 59. where the officers elected resign and the corporation is insol- vent, 59. where the creditors ask for the receiver's appointment and where the charter vests the liquidation of the corporation in stockholders through commissioners appointed by them and such commissioners consent to such appointment, 59. where office of liquidator expires and no legal provision made for the appointment of another, 59. 7. Of foreign corporations. where the officers in charge refuse to make application of corporate funds to the payment of creditors or stockholders, 59. INDEX. 583 (The Reference Numbers are to Pages.) APPOINTMENT OF UECEIVEUS—Gontinued. where property of, is transferred to domestic corporation upon the only consideration that the issue of shares shall go to shareholders of foreign corporation, subject to the payment of the debts ; in such case sequestrator appointed in judg- ment creditor's suit in foreign tribunal may apply for the appointment of a receiver, 60. where a railroad extends through several states, 60. where such corporation intends to apply revenues to the pay- ment of junior incumbrances to the exclusion of prior incumbrances, 60. 8. Of National Banks. upon a violation of obligations of the statute, 60, 61, etc. equity's power to appoint not excluded in other cases where the statute does not prescribe, 61. where the bank is insolvent and the officers are making preferential payments, depositor may apply who has re- covered judgment and whose execution has been returned nulla bona, 63. where the court, on a creditor's bill, has appointed a receiver and taken possession to enforce liability of stockholders, the right of the Comptroller of the Currency to appoint another receiver is doubtful, 63. where a bank is insolvent and its managing agents are mis- managing its affairs and some creditors are favored to the exclusion of others, a stockholder not favored may apply for the appointment of a receiver where the bank only is made a defendant, 63. where the bank is insolvent and disposing of its assets among its stockholders. State Court need not suspend its equitable remedy to reach assets until the Federal Court shall act, 63. 9. Miscellaneous Cases. where State and Federal Court will respectfully appoint, see Jurisdiction of Courts. where there are several railroads, tenants in common through a tunnel, a receiver may be appointed to preserve and pro- tect the respective rights of each, 46, n. 1. the imminent danger of a forfeiture of the charter j ustifies the appointment of a receiver, 49, u. 4, at p. 50. where the majority of the stock of the company Is in the hands of a construction company, whose interests are ad- verse to the mortgage stockholders, the appointment of a receiver is justified, 51, u. 4. where two interested receivers cannot agree, one disinterested receiver will be appointed, 63. 584 INDEX. (The Reference Numbers are to Pages.Ji APPOINTMENT OF RECEIVERS— Continued. where a railroad company is compelled to stop the construc- tion of its road-bed through lack of funds, a receiver will be appointed to prevent a valuable land grant from lapsing, upon bondholders' application, 64. where a judgment is recovered against a bridge company under which its tolls are sold in execution a receiver will be appointed, 64. where the court is authorized to appoint a receiver upon the dissolution of a copartnership, 4. When Ebcbiver will not be appointhd ; 1. Upon ex parte application, unless the corporation is out of the jurisdiction of the court, or none of its officers can be found, 65. unless there is no time to give notice to the corporation, and destruction or loss of property cannot otherwise be pre- vented, 65. will not be appointed on bill or information unless it be stated when or where the information was obtained, 65, n. 1. settled practice is not to appoint as a rule without giving the corporation an opportunity to be heard in relation to its rights, 65. non-residence of officers and plea of delay does not justify appointment of receiver on ex parte application ; notice should be given to lessee company in possession of prop- erty, 66. on ex parte application general rule is that reason must bee given for receiver's appointment, and also reason for not notifying the adverse party, 66. opinions merely as to injurious effect of not giving notice will not suffice ; facts must be stated, 66. same rule applies in case of extinct corporation, 66. substitute of defunct corporation should have notice of the application for the appointment of a receiver, 66. general statement that if notice be given, books, etc., will be spirited away or property disposed of, will not suffice, 66. 2. Upon insolvency of corporation, unless statute gives power, equity no authority to act, by its receiver, as court of insolvency, 66. fraud or breach of trust must be shown as the foundation of claim for equitable intervention, 67. allegation of insolvency not sufficient, 67. same rule obtains even if corporation itself makes the appli- cation for the appointment of a receiver, or if it is, be made with its consent, 67. rule in New Jersey, 67. INDEX. 585 (The Reference Numbers are to Pages.) APPOINTMENT OF B.KCEIVEB.S— Continued. 3. Upon default in mortgage obligations, no appointment to be made if mortgage property will bring enougb to pay debt, 68. where mere technical rights of very Bmall minority of bond- holders may be invaded, this does not justify the appoint- ment, 68. where the mortgage upon income provides for an express con- dition being violated, and the court is in doubt upon the subject, an appointment is not to be made, 68. not sufficient to secure appointment to show that default has been made in the payment of interest secured by mortgage, and that the trustees are entitled to immediate possession which they had demanded, 69. fact of ultimate loss to beneficiaries if property remain in the hands of its owners until final decree and sale must also be shown, 69. redress should be sought first at the hands of the board of directors or managing body before stockholders seek the aid of a court of equity. Unless good cause shown for not doing so, a receiver will not be appointed, 74. 4. Upon the application of general creditors and judgment creditors. creditor at large cannot have receiver appointed on a charge of corporate insolvency, and that the trustees are seeking to facilitate the recovery of judgments against the corpora- ation instead of effecting corporate dissolution. There mu?t be judgment and inability to collect the same by execution before application can be made by creditor, 75. neither will a receiver be appointed when the ordinary remedies provided by law are open to creditors, 75, and cases in note 8. the last stated rule applies to the case of judgment cred- itors, 76. hut see rule in Wisconsin under statute, 82. if there are no assets a receiver will not be appointed, 76. allegations that the corporation is insolvent, that other cred- iters threaten to sue, that there is no property out of which a judgment, if obtained, can be satisfied, and that the action is brought on behalf of plaintiff and other uniting creditors, are insufficient to justify the appointment of a receiver, 77. rule in Michigan, 70. rule in Federal Courts in Michigan, 70. -where creditor holds a note from directors secured by a mort- gage from the corporation, even though the corporation be insolvent, the remedy is by foreclosure and a receiver will not be appointed, 70, n. 1. 586 INDEX. (Thb Reference Numbers are to Pages.) APPOINTMENT OF REGMVEUS— Continued. 5. Upon wrongful conduct of officers. mere misconduct of officers alone does not justify appointment of receiver, 71. where bill charges neither corporate insolvency nor asks for corporate dissolution, but merely prays that a receiver be appointed of books, papers, etc., receiver will not be ap- pointed, 72. payment of a large sum of money to one of the officers by his associates not sufficient, when explained, to warrant the granting of a receiver, 72, n. 3. legislation which authorizes simple contract creditors, and who have no express lien by mortgage, trust deed or other- wise, to institute proceedings in state courts against insolv- ent corporations, has not the effect of abrogating the rules of law and equity under which the Federal Courts enter- tain jurisdiction and grant relief to creditors of an insolvent corporation, 77, in the Federal Courts it is well settled that simple contract creditor cannot have receiver appointed, 78. 6. TTpon application of minority of stockholders. not matter of right to have receiver appointed, 78. circumstances which will alone justify appointment in such case considered, 72, 78. where claim is made that a majority are violating the char tered rights of the minority, a, strong case must be made out ; mere general charges of fraud will not suffice, 73 ; must be very specific, 73. examples given in notes, 73, n. 3. past wrongful conduct not sufficient, 74. rule in New Tork and California, 74. rule in Louisiana, 73, n. 1. 7. Upon dissolution of the corporation. statutes in most states provide therefor by the appointment of directors to be the trustees of the creditors and stock- holders, etc., 79. receiver in such case should not be appointed without notice to such trustees of application therefor, 79. if decree of foreign government dissolving corporation is recognized by stockholders and creditors as binding and commissioners are appointed therefor, stockholders in such foreign courts or elsewhere cannot apply for appointment of receiver, 80. 8. Under special circumstances as stated. general rule relating to the appointment of a receiver is that unless indispensably necessary to save or protect some clear right of a suitor, which would otherwise be lost or greatly INDEX. 587 (The Reference Numbers are to Pages.) APPOINTMENT OP RKCmYERS— Continued. endangered, and which cannot be saved or protected in any other action or proceeding, equity will not appoint a receiver, 80. possible injuries to stockholders, disputed equitable claims, illegal issues of stock where the sums paid cannot be iden- tified do not justify the appointment of a receiver, 80. gross fraud and imminent danger to trust funds in case of officers acting as trustees to hold the same appointed by the legislature will alone justify their removal and the appoint- ment of a receiver, 81. consent of both parties to appointment of receiver does not justify the appointment by court in improper case, 81. nor -where the title to a railroad track is in dispute and neither party has actual physical possession, 81. nor where the parties disagree as to the management of the property, 81. nor in an action to prevent the consolidation of railroad com- panies where it is claimed that a part of the stockholderB participating in the meeting for the election of directors for the new company, have been inhibited from partici- pating by injunction, 81. nor on the application of a creditor will the court remove one receiver and appoint another, 82. nor appoint another receiver to forclose a mortgage on the property of a railroad company where receivers have already been appointed on application of judgment credi- tors, 82. nor will the court appoint a receiver on application of parties having no interest in the cause, 82. if, under a decree of sale to which the corporation consents, property is turned over by the receiver to the new corpora- tion, and subsequently the corporation appeals, a receiver will not be appointed pending appeal, 3, n. 5. When and how the appointment mat bb and mat not bb ques- tion kd ; if it has been Improvidently granted or a modification desired, the application should be made to the court making the order, 31. but no other tribunal can question its regularity, 31. if the appointment is binding on the corporation where proceed- ings are brought in equity against it, no one else can question it, 31. it cannot be questioned by the party who has bought goods of the receiver, 33. if the judge who appoints a receiver is disqualified by reason of relationship to the parties, this does not make the appointment void ; it is voidable only, 33. 588 INDEX. (The Reference Numkers are to Pages.) APPOINTMENT OF BSC'EiyERS— Continued. When the appointment mat not be attacked collateballt ; cannot be attacked because such appointment was inequitable or erroneous, 30. if the court had jurisdiction — if the inherent power of court to make is unquestioned — the appointment is conclusive, 80. when the court had not inherent jurisdiction, 32. when the court having no power to appoint a receiver in vacation does so, 33. when the appointment was made ex parte and no necessity was shown therefor, 33. when the appointment was made on application of the corporation itself it is a nullity, 33. unless the court is specially empowered by statute to make the appointment, 33. Effect op Receiver's appointment ; so far effects corporate dissolution that directors need not there- after make their annual report, 8. how far the exercise by the corporation of its rights and functions is affected by the appointment of receiver, considered, 9. terminates action of board of directors, 9, n. 3. not a recognition by the court of the due incorporation of the corporation, 15. not an estoppel upon proceedings for violation of its organic law, 15. does not relieve corporation from the payment of a state tax upon gross receipts of corporation, 13. aside from statute, by virtue of his appointment receiver takes title to personal estate, 16. and generally under statutes also equitable and legal title to real estate, 16. formal conveyance is not necessary, 16. but the rule is different where receiver of dissolved corporation appointed ex parte, 16. if no provision is made in the act of dissolution by the legislature for succession to the property, and a general statute provides for trustees to take charge, receiver takes no title, 16. does not abate suits by corporation against others, 33. receiver need not apply to court for leave to continue the prose- cution of a suit, 33. does not abate suits pending against corporation, 23. but the receiver may be made a party and continue the de- fense, 33. suits may continue to be brought against the corporation, 33. unless corporation has been dissolved, 23. or unless an injunction restrains the bringing of suits, 22. INDEX. 68& (The Refbrhncb Numbers are to Pages.) ASSESSMENT, from what time assessment upon stockholders in National Bank, when made by receiver, bears interest, 250. effect of voluntary assessment made by the stockholders upon them- selves, upon an assessment made by a receiver upon stockholders to- pay liability in case of National Banks, 250. upon what based, 251. what will not relieve stockholder from, 253-254. See also Stockholders, Insurance Companies. ASSETS, term judicially defined, 170, n. 2. trust fund for the payment of debts, 18. this includes debts to mature, 18. also all contractual engagements not fully extinguished, 18. law prohibiting the following of assets into the hands of any one, not bona fide creditor. Invalid, 18. exclusive corporate right to manufacture patented articles becomes an asset in the hands of receiver, 165. securities deposited by life insurance company to secure registered policies, are only deposited with state as their custodian, and the. proceeds on sale belong to the receiver, 171. See also Kotaltieb, Contempt oe Court. ASSIGNMENTS, of claim by a foreign creditor to a resident of the state where the cor- poration is situated, will not enable such creditor to obtain pref- erence over other creditors, 36, n. 2. by making an assignment, after legal process asking for receiver's appointment, has been served, corporation cannot deprive the court of jurisdiction, 48. of claims which may be regarded as liens prior to mortgage indebted- ness, and pass right of original holder, 130. of corporate property improperly made, though it recite erroneously that it was made by direction of trustees or directors is void, and may be attached by a receiver, 174, 182. by receiver of a debt due to the corporation from a citizen of a foreign state is valid when executed by the receiver in his own name with- out the use of the name of the corporation or the corporate seal, 224, n. 2. when the corporation executes an assignment in due form and in accord with the laws of a foreign state where such property may be^ the receiver takes legal title to such property and may sue to recover possession thereof against any person who claims a lien subsequent to the assignment, 225, 228. when there has been a failure to defend a suit brought against a cor- poration, this does not operate as an assignment, 257. 590 INDEX. (The Reference Numbers are to Pages.) ASSIGNMENTS— Conimweti. a preference so obtained cannot be attached by a receiver as in- valid, 257. of judgment, by receiver when will be set aside, 460, n. 1. when assignee entitled to benefit of set-oflF against a receiver, 463, u. 1 ; 464, n. 1 ; when compelled to allow, 471, n. 1. See also Appointment of Rbceivek. ASSOCIATIONS, VOLUNTARY, method of winding up and distributing assets indicated, 78, n. 3. ATTACHMENT, valid against the property of a foreign corporation, situate within foreign territory, though the receiver is appointed in another state, 21. creditor not deprived of his lien obtained thereby, Jhough at the time the attachment was issued he knew that the corporation was in- solvent, 22. corporation may move to vacate attachment, even when moving for voluntary dissolution and the appointment of temporary receiver, 22, n. 8. New York creditors of an Ohio corporation procured attachments against funds of said corporation deposited in New York bank. Prior to the suits thereon and the issues of attachments receivers of such corporation had been appointed in Ohio and applied to vacate such attachments, held that the attachments were valid, 35, n. 1, attachment is invalid when made on the rolling stock of a railroad company temporarily in another state pending an application for the appointment of a receiver in the state of the domicile of the corpor- poratlon ; 36, n. 2 at page 39 ; case of Bank vs. McLeod. invalid as against receiver where the statute in force is intended to facilitate an equitable settlement of the affairs of Insolvent corpor- ations, 163, n. 1 ; but contra idem. lien by, cannot be acquired without court's consent, upon corporate property which has passed into the receiver's hands, 167. when receiver may intervene in the attachment suit, 181. when not allowed preference as against receiver in the case of National Banks, 241, 242, 243. when issued in New York by party residing in Louisiana against funds belonging to Louisiana bank on deposit in New York bank is valid ; the creditor, though a foreign one, when coming as suitor in New York courts, will occupy the same position as a resident of the State of New York, 41, n. 1. when residents of Arkansas procure in Texas an attachment on prop- erty situate therein, and owned by a corporation in Tennessee, of which a receiver who claimed title to said lands had been appointed by a Tennessee court prior to the beginning of the attachment suit, such attachment is valid, 41, n. 1. INDEX. 591 (The Reference Numbers are to Pages.) AmACnUE^T— Continued. when resident of Connecticut attaclied in Indiana a debt due from res- ident of that state to a partnership located in Illinois, and prior thereto a general assignment had been made to a receiver pursuant to an order of the Illinois court, the attachment was held superior to the receiver's title, 43, n. 3. where property purchased by the receiver to complete an unfinished work of the corporation cannot be attached to a foreign state as the property of the corporation, 227, n. 1. in an action brought by a receiver upon promissory notes which are part of the assets of the corporation, which notes were made by a foreign resident but payable in the state where the receiver was appointed, it is no defense that subsequent to the receivership such notes were attached by a corporation creditor in such foreign state, 238. where corporate property of which the receiver has duly possessed himself cannot be attached in a foreign state by a resident corpora- tion creditor, 339, n. 1. procedure concerning attachment in case of purely statutory receivers, 334, 335, 236. when attachments procured in one state are valid against a receiver appointed in another state, and when he is estopped from denying the validity of their claims, 278, n. 2. when an attachment is made by creditors in Rhode Island against the property of a Rhode Island bank, which property is in Illinois, is valid, 801, n. 1. See also Foreign Creditors, Foreign Corporations. For attach- ment in cases of Contempt of Court, see that title. ATTORNEY. Bee Counsel. ATTORNE r-GENERAL, in New York, is charged with the duty of bringing suit against a cor- poration where mismanagement on part of its officers is alleged ; such officers cannot by having suit brought by confederates and having one appointed as receiver prevent attorney-general from bringing an action and having a receiver appointed, 57. BAGGAGE, remedy for loss of, when claim brought against a receiver subsequent to his discharge ; effect of, 433, n. 1. BANK, claim for money advanced to company for payment of creditors not entitled to a lien over mortgage creditors, 126, n. 2, at p. 127. depositor in bank merely a creditor, 339. is trustee only when there is a speciiic appropriation of a particular fund, 339. See also National Banks, Savings Banks, Depositor, Lien, Drafts, Stock, Interest Drafts, " for Collection." 692 INDEX. ( The Reference Numbers are to Pages.) BANKRUPTCY, adj udication of, against the corporation, made after his appointment, the receiver may make a motion to set aside, 175. See Appointment of Ebcbiter, title 3, Default in Mortgage Obliga- tions BONDS, receiver may bring an action to determine the validity of, and to what extent the mortgage accompanying such bonds is a valid lien on property, 168. when the receiver of a railroad buys its first mortgage bonds, already due, and subsequently re-issues them as collateral security for loans made to operate the road, they are valid and entitled to priority and have all the protection afibrded them in their original and first issue, 390. See Mortgage. BONDS OF RECEIVERS, usual form of receiver's bond, 428. established practice to require bond with sureties, 438. court may dispense with giving of sureties, 438. but not with receiver's personal bond, 438. for liability of sureties, remedies against, etc. , see Sureties. ^ title of the receiver to corporate property not complete until bond given, 163, u. 1. the fact that the bond is made payable to certain specified creditors is. immaterial ; it is for the benefit of all, 436. real party in interest has right to sue although the bond is made pay- able to people of the state or to the court, 436. if the appointment of the receiver is put in issue, the giving of the receiver's bond must be proved, 6. but irregularities in the execution of the bond cannot be taken advan- tage of by the corporation or by the parties to the suit in which the receiver was appointed, 6. BONDHOLDERS, where deeds of trust mortgage the income and the profits of a railroad and the railroad itself and authorize the trustees under certain de- faults to take possession of the mortgaged property and apply the income to the payment of the interest, the bondholders may, upon the happening of the specified events, have receiver appointed upon application of the trustees, or if they neglect so to do the bond- holders themselves may apply directly to the court, 49, 50. may apply for the appointment of a receiver, when the company has become insolvent and unable to borrow money ; nor is it necessary to delay until there has been a default in payment of interest, 51. where the interests of mortgage bondholders are jeopardized by a majority of the company's stock being in hands of a construction company whose interests are adverse, the appointment of a receiver is justified, 51. u, 4. INDEX. 693 (The Reference Numbers are to Pages.) BONDHOLDERS— Core«mM«(i. where corporation has been declared bankrupt and interest has accu- mulated for ten years, a receiver will be appointed on application of bondholders, 53. or where the officers of the company refuse to show its books to the bondholders, 53, where money justly belonging to, is being squandered by directors, court may appoint a receiver at the instance of stockholders, 57. where vast majority of bondholders are in favor of a certain course or funding scheme and interest is withheld from those not in favor of the plan, this will not justify the appointment of a receiver, 68, n. 4. if bondholders neglect to act promptly and take immediate possession of the property mortgaged, they may not be able to successfully resist the application of corporate funds to the payment of expenses or labor, 128. circumstances which will justify the court in assuming that the re- ceiver is acting as the agent of the bondholders and not as the executory officer of the court, 395, 296. Oonsult also Lienb, Mortgage, Appointment of Recbivbk. BOOKS, court has power to compel a receiver to allow a creditor to inspect and make extracts from the corporation's books, 107. and even from the receiver's books, accounts and papers, 107. and to punish as for a contempt parties who refuse to permit a receiver to examine books and papers, 107. if the officers of a corporation refuse to exhibit the books to the bond- holders and to the trustees of the mortgage, and interest on the mortgage is unpaid, this may justify the appointment of a re- ceiver, 52. See also Stock Books. CALLS FOR STOCK (see Stockholders). CAPITAL, distribution of, among stockholders : if an insolvent corporation does so the receiver may recover back the same from those who re- ceived it as in fraud of creditors, 185. CASES ANNOTATED. Abbott V. Baltimore & Rappahannock Steam Packet Co. 4 Md. Ch. 310, p. 537. Abbott ®. Jewett, 25 Hun (N. Y.), 603, p. 490. Ackerman i). Moore, 81 Ga. 688, p. 443. Adams v. Woods, 8 Cal. 306, pp. 858, 56Si. Addison D. Lewis, 75 Va. 701, p. 130. Alexander «. Relfe, 74 Mo. 495, p. 183. Allen V. Dallas & Wichita R. Co., 3 Woods (U. S. C. C), 319, p. 49. American Loan & Trust Co. v. Toledo C. & S. R. Co., 29 Fed.. Bep. 416. p. 68. 594 INDEX. CASES ANNOTATED— ConiinMefZ. Andrews v. Smith, 19 Blatch. (U. S. C. C.) 100, p. 93. Appleton V. Trumbull, 84 Me. 73, p. 193. Armstrong v. American Exchange Bank, 133 U. S. 433, p. 501. Arnot v. Bingham, 55 Hun (N. Y.), 553, p. 333. Artisans' Bank «. Treadwell, 34 Barb. (N. Y.) 553, p. 164. Atchison v. Davidson, 2 Pinney (Wis.), 48, p. 153. Atkins «. Petersburg R. Co., 3 Hughes {V. S. C. C), 307, p. 137. Atkinson v. Rochester Printing Co., 114 N. Y. 168, p. 335. Atkinson v. Smith, 89 N. C. 73, p. 430. Atlas Bank «. Nahant Bank, 3 Met. (Mass.) 581, p. 319. Atlas Bank c. Nahant Bank, 23 Pick. (Mass.) 480, p. 163. Attorney-General v. Bank of Columbia, 1 Paige (N. Y.), 511, p. 86. Attorney-General v. Chenango County Mut. Ins. Co., 13 Barb. (N. Y.) 671, p. 551. Attorney-General v. Continental Life Ins. Co., 94 N. Y. 199, p. 143. Attorney-General v. Continental L. Ins. Co., 32 Hun (N. Y.),223, p. 555 Attorney-General v. Continental L. Ins. Co., 27 Hun (N. Y.), 524, p. 388- Attorney-General v. Continental Life Ins. Co., 88 N. Y. 571, p. 358. Attorney-General v. Life and Fire Ins. Co., 4 Paige (N. Y.), 224, p. 274. Attorney-General v. North American Life Ins. Co., 83 N. Y. 173, p. 346. Attorney-General v. North American Life Ins. Co., 89 N. Y. 94, 107, pp. 382, 549, 551. Attorney-General v. North American Life Ins. Co., 6 Abb. N. C. (N. T.) 293, p. 448. Attorney-General ■». Security Life Ins. & Ann. Co., 79 N. Y. 267, pp. 154, 450. Attrill 0. Rockaway Beach Imp. Co., 25 Hun (N. Y.), 376, p. 570. Attrill V. Rockaway Beach Imp. Co., 25 Hun (N. Y.), 509, p. 571. Auburn Button Co. v. Sylvester, 68 Hun (N. Y.), 401, p. 23. Baker i). Bartol, 7 Cal. 551, p. 436. Baker ®. Cooper, 57 Me. 388, p. 197. Baker v. Louisiana Portable R. Co., 34 La. An. 754, p. 74. Ballou V. Farnum, 9 Allen (Mass.), 47, p. 393. Baltimore & Ohio R. Co. «. Cannon, 72 Md. 493, p. 78. Bangs V. Duckenfield, 18 N. Y. 592, pp. 209, 311. Bangs 1). Gray, 13 N. Y. 477, p. 313. Bank Commissioners v. Franklin Inst, for Savings, 11 R. I. 557, p. 388. Bank v. McLeod, 38 Ohio St. 174, pp. 39, 200. Bank Commissioners v. Franklin Inst, for Savings, 11 R. I. 557, p. 536, Bank of Augusta v. Earle, 13 Peters (U. S.), 519, p. 34. Bank of Mississippi •». Duncan, 59 Miss. 740, p. 432. Bank of Montreal ■». C. C. W. R. Co., 48 la. 518, p. 515. Bank of Montreal v. Thayer, 2 McCrary, 1 ; 7 Fed. Rep. 622, p. 517. Bank of Niagara, In Matter of, 6 Paige (N. Y.), 213, p. 553. Bank of Niagara v. Johnson, 8 Wend. (N. Y.) 645, p. 27. Bank of Washington v. Creditors, 86 N. C. 323, p. 429. Barnes ii. Newcomb, 89 N. Y. 108, p. 354. INDEX. 595 CASES ANNOTATED— CoreWnaecZ. Barron v. Mullin, 21 Minn. 374, p. 150. Barter v. Wheeler, 49 N. H. 9, p. 391. Bartlett v. Keim, 50 N. J. Law, 260, p. 175. Barton b. Barbour, 104 U. S. 126, p. 114. Barton ii. Enterprise Loan & Building Co., 114 Ind. 226, p. 76. Bassick Mining Co. «. Schoolfield, 15 Col. 376, p. 288. Battershall «. Davis, 31 Barb. 323, p. 149. Bell -0. Chicago, St. Louis & New Orleans R. Co., 34 La. An. 785, pp 150, 167. Bell V. Ohio Life & Trust Co., 1 Bissell, 260, p. 99. Bell V. Shibley, 33 Barb. (N. Y.) 610, p. 263. Billings v. Robinson, 94 N. T. 420 ; 28 Hun, 122, p. 262. Billingsley v. Pollock, 69 Miss. 759, p. 337. Bissell ®. Heath, 98 Mich. 472, p. 192. Blair v. St. Louis H. & K. R. Co., 22 Fed. Rep. 471, p. 135. Blair e. St. Louis H. & K. R. Co., 28 Fed. Rep. 521, p. 127. Bloomfield R. Co. «. Grace, 112 Ind. 128, p. 451. Blumenthal v. Brainard, 38 Vt. 402, p. 395. Bonner & Eddy v. Franklin Co-operative Assn., 4 Tex. Civ. Rep. 166, p. 405. Booth v. Welles, 42 Fed. Rep. 11, p. 336. Boulware v. Davis, 90 Ala. 207, p. 43. Bound «. South Carolina R. Co., 47 Fed. Rep. 30, p. 131. Bowden «. Johnson, 107 U. S. 251, pp. 247, 253. Bowen «. Kuehn, 79 Wis. 53, p. 189. Brabbrook Tailoring Co. •». Belden Bros. & Co., 40 111. App. 326, p. 77. Brande «. Bond, 63 Wis. 140, p. 149. Briarfield Iron Works D. Foster, 54 Ala. 622, p. 72. Brigham v. Luddington, 12 Blatchford, 237, p. 33. BrinkerhofE v. Bostwick, 88 N. T. 52, p. 246. Brooks V. Town of Hartford, 61 Conn. 112, p. 373. Brouwer v. Harbeok, 9 N. Y. 589, p. 182. Brower v. Brower, 2 Ed. Ch. (N. Y.) 621, p. 559, Brown ». Brown, 71 Tex. 355, p. 403. Brown «. Gay, 76 Tex. 444, p. 424. Brown v. Hazlehurst, 54 Md. 26, p. 564. Brown «. Wabash Ry. Co., 96 111. 297, p. 447. Bruns v. Stewart Manufacturing Co., 31 Hun (N. Y.), 195, p. 570. Brush «. Jay, 118 N. Y. 482, p. 148. BufEalo Chemical Works v. Bank of Commerce, 79 Hun, 93, p. 116. Burlington, Cedar Rapids & N. R. Co. o. Verry, 48 la. 458, p. 494. Burnham v. Bowen, 111 U. S. 776, p. 132, Burton v. Burley, 9 Bissell, 258, p. 305. Butterworth v. O'Brien, 28 Barb. 187 ; 23 N. Y. 275, p. 268. Cadle ». Tracy, 11 Blatchf . 101, p. 244. Cagill V. Wooldridge, 8 Baxt. (Tenn.), 580, p. 230. Camp V. Receivers, 2 Paige, 288, p. 388. 596 INDEX. CASES ANtiOTATED— Continued. Campbell b. Spratt, 5 N. Y. Week Dig. 25, p. 570. Cardot v. Barney, 63 N. Y. 281, p. 399. Carr •». Houser, 46 Ga. 477, p. 285. Carr's Admr. v. Morris, 85 Va. 21 ; 6 S. E. Rep. 613, p. 413, Carley i). Graves, 85 Mich. 483, p. 332. Case 11. Citizens' Bank of Louisiana, 3 Woods, 28, p. 242. Case V. Small, 4 Woods, 78, p. 161. Case V. Terrell, 11 Wall. (U. S.), 199, p. 305. Casey v. Galll, 94 U. S. 673, p. 247. Casey i>. La Societe de Credit Mobilier, 3 Woods, 77, p. 303. Catlin ». Wilcox Silver Plate Co., 123 Ind. 477, p. 43. Central Nat. Bank «. Hazard, 30 Fed. Kep. 484, 580. Central Trust Co. v. Marietta & N. G. R. Co., 51 Fed. Rep. 15, p. 316. Central Trust Co. v. New York City & Northern R. Co., 110 N. Y. 250,. p. 374. Central Trust Co. v. Ohio Central R. C, 28 Am. and Eng. R. Cas., 666,. p. 369. Central Trust Co. v. Seasongood, 130 U. S. 483, p. 537. Central Trust Co. v. St. Louis, A. & T. R. Co., 40 Fed. Rep. 426, p. 117. Central Trust Co. v. St. Louis, A. & T. R. Co., 59 Fed. Rep. 885, p. 491. Central Trust Co. v. Wabash, St. Louis and Pacific R. Co., 38 Fed. Rep. 868, p. 523. Central Trust Co. c. Wabash, St. Louis & Pacific R. Co., 26 Fed. Rep. 13, p. 407. Central Trust Co. ■». Wabash, St. Louis & Pacific R. Co., 34 Fed. Rep. 359, p. 834. Chamberlain v. Rochester, etc.. Vessel Co., 7 Hun (N. Y.), 557, p. 163. Chandler ■». Brown, 77 111. 333, pp. 187, 189. Chandler v. Siddle, 3 Dillon, 477, p. 186. Chase v. Petroleum Bank, 66 Pa. St. 169, p. 463. Chautauqua County Bank v. Risley, 19 N. Y. 369, p. 166. Chemical Nat. Bank v. Bailey, 13 Blatchf. 480, p. 500. Chicago Deposit Vault Co. v. McNulta, 153 U. S. 554, p. 391. Chicago, Milwaukee & St. Paul R. Co. v. Keokuk Northern Line Packet Co., 108 111. 317, p. 329. Cincinnati, Sandusky & Cleveland R. Co. v. Sloan, 31 Ohio St. 1, p. 572. City Ins. Co. v. Commercial Bank, 68 111. 848, p. 301. City of Rochester v. Bronson, 41 How. Pr. (N. Y.), 78, p. 9. Clapp «. Clapp, 49 Hun (N. Y.), 195; 37 N. Y. St. Rep. 185 ; 7 N. Y. Supp. 495, p. 412. Clark V. Bininger, 75 N. Y. 344, p. 158. Clarke ii. Thomas, 34 Ohio St. 46, p. 194. Cole V. Oil Well Supply Co., 57 Fed. Rep. 584, p. 20. Colt V. Brown, 13 Gray (Mass.), 333, p. 463. Columbian Book Co. t. De Qolyer, 115 Mass. 67, p. 167. Columbian Ins. Co. v. Stevens, 37 N. Y. 586, p. 887. Colwell V. Garfield National Bank, 119 N. Y. 408, p. 303. INDEX. 597 ■CASES ANJSOTATED— Continued. Comer v. Bray, 83 Ala. 217, p. 197. Commercial Nat. Bank i). Armstrong, 39 Fed. Rep. 684 ; 148 U. S. 150, p. 507. Commercial Nat. Bank v. Birch, 141 111. 319, p. 183. Commonwealth v. Eagle Fire Ins. Co., 96 Masa. 344, p. 383. Commonwealth Fire Ins. Co.. In the Matter of, 33 Hun (N. T.), 78, p. 562. Commonwealth «. Gould, 118 Mass. 300, p. 434. Commonwealth v. Hide and Leather Ins. Co., 119 Mass. 155, p. 103. Commonwealth i). Lancaster Savings Bank, 123 Mass. 493, p. 373. ■Commonwealth «. Mass. Mut. Fire Ins. Co., 119 Mass. 45, p. 351. Commonwealth v. Mechanics' Ins. Co., 123 Mass. 431, p. 357. Commonwealth v. Phcenix Bank, 11 Met. (Mass.), 139, p. 464. Commonwealth v. Hunk, 36 Pa. St. 235, p. 371. Commonwealth 1). Shoe and Leather Dealers Ins. Co., 112 Mass. 131, p. 463. Conley & Harrixon ■». Der, 11 Lea (Tenn.), 374, p. 377. Conro V. Gray, 4 How. Pr. 166, p. 58. Cook «. Cole, 55 la. 70, pp. 164, 463. Cook County Nat. Bank ». United States, 107 U. S. 405, pp. 503, 503. Cooke V. Warner, 56 Conn. 334, pp. 171, 365. Coombs V. Smith, 78 Mo. 33, p. 315. Cooper V. Corbin, 105 111. 234, p. 498. Corey «. Long, 43 How. Pr. (N. T.), 493, p. 561. Corn Exchange Bank «. Blye, 101 N. Y. 303, p. 503. Cowdrey u. Galveston, H. & H. R. Co.. 93 U. S. 353, p. 354. Cowdrey «. Railroad Co., 1 Woods, 331, 335, pp. 315, 515. Cragie v. Hadley, 99 N. T. 131, p. 504. Credit Co. v. Arkansas R. Co., 15 Fed. Rep. 46, p. 534. Crocker v. Marine Nat. Bank, 101 Mass. 240, p. 160. Curran v. Craig, 23 Fed. Rep. 101, p. 456. Curtis 1). Leavitt, 15 N. Y. 9, pp. 13, 256. Catling V. Damarel, 88 N. Y. 410, p. 263. Cutting V. Marlor, 78 N. Y. 454, p. 364. Dann Mfg. Co. v. Parkhurst, 135 Ind. 317, p. 30. Davis i>. Duncan, 19 Fed. Rep. 478, pp. 434, 573. Davis V. Gray, 16 Wallace, 203, pp. 169, 197. Davis V. Life Assn., 11 Fed. Rep. 781, p. 235. Davis V. Stevens, 17 Blatchf. 259, p. 253. Davis «. Stover, 58 N. Y. 473; 16 Abb. N. S. 225, p. 462. Davis 1). Weed, 44 Conn. 569, p. 253. Dawson «. Raynes, 2 Buss. (Eng.), 467, 438. Day-Benson, Receiver, In the Matter of, 34 Wis. 638, p. 103. Dayton v. Borst, 31 N. Y. 435 ; 7 Bosworth, 115, 186. Dean v. Biggs, 35 Hun (N. Y.), 132, p. 187. Delano v. Butler, 118 U. S. 634, p. 251. Devendorf v. Beardsley, 23 Barb. 656, p. 305. 698 INDEX. CASES ANNOTATED— Continued. Dow V. Memphis & Little Rock B. Co., 30 Fed. Rep. 260, p. 140. Dow V. Memphis & Little Rock B. Co., 124 U. S. 653, p. 377. Downes ». Hammond, 47 Ind. 131, p. 208. Drever v. Maudesley, 13 Law Jour. N. S. Eq. (Eng.), 433, p. 430. Dagger v. Collins, 69 Ala. 334, p. 442. Duncans. Trustees of Chesapeake, etc., R. R. Co.,9. Am. Ry. Rep. (Va.), 368, p. 128. Dutcher v. Importers' and Traders' Nat. Bank, 59 N. Y. 5, p. 182. Dutcher v. Marine Nat. Bank, 13 Blatchf . 435, p. 266. Eames & Dorris, 103 111. 350, p. 367. East Tenn., etc., R. Co. v. Atlanta & F. B. Co., 49 Fed. Rep. 608, p. 91. Eastern Township Bank v. Vermont Cent. Nat. Bank, 23 Blatchf. 498, p. 303. Easton v. Houston & T. C, Ry. Co., 38 Fed. Rep. 784, p. 326. Baston i). Houston & Texas Cent. R. Co., 40 Fed. Bep. 189, p. 546. Ellicott V. United States Ins. Co., 7. Gill (Md.), 307, p. 168. Elmira Iron and Steel Rolling Co. v. Erie Railway Co., 26 N. J. Eq. 284, p. 369. Erie Railway Co. v. Heath, 8 Blatchf. 536, 103. Erwin v. Davenport, 9 Heisk. (Tenn.), 44, p. 400. Eskridge v. Rushnuth, 3 Cal. Ct. App. 562, p. 565. Evans v. Trimountain Mut. Fire Ins. Co. , 9 Allen (Mass.), 329, p. 274. Everett & Dilley v. McCaig & Perry, 28 Md. 190, p. 273. Ex parte Benson & Co., 18 S. C. 38, p. 220. Ex parte Brown & wife, 15 S. C. 518, p. 402. Ex parte Norwood, 3 Bissell, 504, p. 233. Ex parte Williams, 17 S. C. 396, p. 361. Farley v. St. Paul, Minn. & Manitoba R. Co., 4 McCrary, 138, p. 399. Farmers' Loan & Trust Co., 129 U. S. 306. p. 486. Farmers' Loan & Trust Co. s. Bankers' & Mechanics' Telegraph Co. , 119 N. T. 15, p. 460. Farmers' Loan & Trust Co. v. Central B. of Iowa, 7 Fed. Rep. 537 ; 2 MoCrary, 181, pp. 433, 491. Farmers' Loan & Trust Co. ■». Central R. of Iowa, 3 Fed. Rep. 751 ; 1 McCrary, 353, p. 558. Farmers' Loan & Trust Co. v. Central R. of Ohio, 8 Fed. Bep. 60 ; s. u. 2 McCrary, 318, p. 546. Farmers' Loan & Trust Co. v. Chicago & Alton Ry. Co., 42 Fed. Bep. 6^ p. 331. Farmers' Loan & Trust Co. ■». Grape Creek Coal Co., 50 Fed. Bep. 481„ p. 535. Farmers' Loan & Trust Co. v. Hoffman House, 7 Misc. (N.Y.) 358, p. 273. Farmers' Loan & Trust Co. v. Winona & S. W. B. Co., 59 Fed. Rep. 957, p. 51. Farnsworth ■». Western Union Tel. Co., 6 N. Y. Supp. 735, p. 171. Farns worth v. Wood, 91 N. Y. 308, p. 266. Ferry «. Bank of Central N. Y., 15 How. Pr. (N. Y.), pp. 445, 578. INDEX. 599 CASES ANNOTATED— Continued. Fidelity Ins. & Safe Deposit Co. v. Shenandoali Iron Co., 43 Fed. Hep. 373, p. 515. Fidelity Safe Deposit & Trust Co. D. Armstrong, 35 Fed. Rep. 567, p. 330. Fifth National Bank «. Armstrong, 40 Fed. Rep. 46, p. 507. Fifty-four First Mortgage Bonds, In re., 15 9. C. 804, p. 390. Finance Co. of Penn. v. Charleston, C. & C. R. Co., 49 Fed. Rep. 693, p. 131. First National Bank ■». Armstrong, 39 Fed. Eep. 331, p. 340. First National Bank of Cleveland v. Shedd, 121 U. S. 74, p. 147. First National Bank of Montgomery v. Armstrong, 36 Fed. Rep. 59, p. 506. First National Bank of Wellston v. Armstrong, 43 Fed. Rep. 193, p. 507. Fischer v. Superior Court, 98 Cal. 67, p. 109. Fisher v. Anderson, 37 Hun (N. Y.), 176, p. 484. Fitch i>. Wetherbee, 110 111. 475, p. 270. Florida Central R. Co. v. Bisbee, 18 Fla. 60, p. 356. Folger V. Columbian Ins. Co., 99 Mass. 267, p. 28. Fordyce v. Dixon, 70 Tex. 694, p. 448. Fordyce & Swanson u. Beecher, 3 Tex. Civ. Rep. 39, p. 434. Fort Wayne Furnace Co. v. Fort Wayne Coal & Iron Co., 96 Ala. 473, p. 73. Fort Wayne, Muncie & Cin. R. Co. v. Mellett, 93 Ind. 535, p. 457. Fosdick ■». Schall, 99 U. S. 255, p. 323. Frank «. Bingham, 58 Hun (N. Y.), 580, p. 333. Frank v. Morrison, 58 Md. 433, p. 197. Frayser i). Richmond & Allegany R. R. Co., 81 Va. 388, p. 19. Freeman v. Winchester, 10 Smedes & M. (Miss.) 577, p. 274. French Bank Case, 53 Cal. 495, p. 75. French v. Dauchy, 57 Hun (N. Y.), 100, p. 482. French v. Gifford, 31 la. 438, pp. 536, 541. Gaehle v. Snowden, 56 Md. 843, p. 414. Gaither v. Stockbridge, 67 Md. 223, pp. 330, 453. Garver b. Kent, 70 Ind. 438, p. 373. Gaylord v. Fort Wayne, M. & C. R. Co., 6 Biss. 286, p. 89. Gelpeke «. Milwaukee & Hor. R. Co., 11 Wis. 454, p. 275. Gill V. Balis, 73 Mo. 434, pp. 186, 199. Gillett V. Fairchild, 4 Denio (N. Y.), 80, p. 199. Oilman «. Ketcham, 84 Wis. 60, pp. 43, 44. Girard Life Ins. & Trust Co. v. Cooper, 51 Fed. Rep. 333, p. 316. Gleeson v. The Willamette Valley, 63 Fed. Rep. 293, p. 91. Grant v. Bryant, 101 Mass. 567, p. 536. Grayden v. Church, 7 Mich. 36, p. 236. Greeley s. Provident Savings Bank, 98 Mo. 458, p. 376. Gutsch ■». Mcllhargey and one, 69 Mich. 377, p. 455. Hackensack Water Co. v. De Kay, 36 N. J. Eq. 548, p. 150. Hackett o. Reynolds, Lamberton & Co., 114 Pa. St. 338, p. 507. 600 INDEX. CASES A'S'SOTATEB— Continued. Hackley v. Draper, 60 N. Y. 88, p. 460. Hade d. McVay, Allison & Co., 31 Ohio St. 331, p. 510. Hagedon v. Bank of Wisconsin, 1 Pinney (Wis.), 61, p. 167. Hagewisch v. Silven, 140 N. T. 414, p. 300. Hale D. Frost, 99 U. S. 389, p. 130. Hand B. Dexter, 41 Ga. 457, p. 73. Hand v. Savannah & Charleston E. Co., 17 S. C. 217, pp. 393, 296. Hardee v. Sunset Oil Co., 56 Fed. Rep. 51, p. 73. Harland ■». Bankers' & Merchants' Tel. Co., 33 Fed. Eep. 305, p. 280. Harvey v. Allen, 16 Blatchf. 29, p. 243. Harvey v. Lord 11 Biss. 144, pp. 62, 311. Havemeyer «. Superior Court, 84 Cal. 267, 327, p. 4. Hayes Beardsley, 136 N. Y. 299, p. 304. Hayes «. Brotzman, 46 Md. 519, p. 197. Hayes ■o. Shoemaker, 39 Fed. Rep. 319, p. 312. Heermans b. Clarkson, 64 N. Y. 171, p. 203. Heferon v. Flower, 35 111. App. 200, p. 203. Heffion B. Milligan. 40 111. App. 391, p. 565. Hendee i). Connecticut & PasBumpsic R. Co., 33 Blatchf. 453, p. 240. Henderson v. Walker, 55 Ga. 481, p. 403. Herrick «. Miller, 123 Ind. 304-345, p. 383. Herring «. N. Y., L. B. & W. R. Co., 105 N. Y. 340, p. 169. Hihernia National Bank v. Lacombe, 84 JST. Y. 367, p. 38. Hightower v. Thornton, 8 Ga. 486, p. 485. Hill V. Western & Atlantic R. Co., 86 Ga. 384, p. 186. Hills «. Parker, HI Mass. 508, p. 454. Hinckley v. Gilman & Clinton S. R. Co., 94 U. S. 467, p. 568. Hinckley «. Railroad Co., 100 U. S. 53, p. 385. Hobbs V. McLean, 117 U. S. 583, p. 355. Holbrook v. Receiver of American Fire Ins. Co., 6 Paige (N. Y.), 220 p. 465. Holcombe v. Johnson, 37 Minn. 353, p. 411. Holden v. Upton, 134 Mass. 177, p. 184. Hollingshead v. Woodward, 107 N. Y. 96, p. 8. Hooper v. Winston, 34 111. 353, pp. 561, 564. Hoover v. Montclalr & Greenwood Lake R. Co., 39 N. J. Eq. 4, p. 523. Hopkins v. Taylor, 87 111. 436, p. 269. Hospes V. Northwestern Mfg. & Car Co., 41 Minn. 256, p. 147. Hovey v. McDonald, 109 U. S. 150, p. 425. Howard v. Lowell Machine Co., 75 Ga. 325, p. 571. Howland v. Edmonds, 24 N. Y. 307, p. 363. Hoyt D. Thompson, 5 N. Y. 330, pp. 174, 334. Hubbell V. Syracuse Iron Works, 42 Hun (N. Y.), 183, p. 168. Humphreys v. Allen, 101 111. 490, p. 528. Hupfeld V, Automaton Piaiio Co., 66 Fed. Rep. 788, p. 117. Hyde v. Lynde, 4 N. Y. 387, p. 355. Inglehart v. Bierce, 36 111. 133, p. 331. INDEX. 601 CASES ANNOTATED— Coreimweti. Illinois Trust & Savings Bank ii. First National Bank of Buffalo 15 Fed. Rep. 858, p. 505. Importers' & Traders, National Bank v. Peters, 123 N. T. 272, p. 333. In re Armstrong, 41 Fed. Rep. 381, p. 304. In re Fifty-four First Mortgage Bonds, 15 S. C. 304, p. 390 In re Tyler, 149 U. S. 164, p. 372. Investment Co. v. Ohio & N. R. R. Co., 36 Fed. Rep. 48, p. 524. Jackson «. Horton, 126 111. 566, p. 461. Jackson ■». Roberts, 31 N. T. 304, p. 210. Jaffray «. Raab, 72 la. 335, p. 540. Jay V. De Groot, 3 Hun (N. T.), 205, p. 365. Jerome v. McCarter, 94 TJ. S. 734, p. 526. Jewett D. Miller, 10 N. T. 402, p. 285. Johnson v. Gunter, 6 Bush (Ky.), 534, p. 283. Johnson e. Pov^ers, 21 Neb. 292, p. 409. Johnston v. Laflin, 5 Dillon, 65; 103 TJ. S. 800, p. 313. Jones 1). Sisson, 6 Gray (Mass.), 288, p. 210. Jordan v. Wells, 3 Woods, 527, p. 444. Judd 1). Bankers cSi Merchants' Tel. Co., 24 Blatchf. 420, p. 94. Kadish d. Chicago Brewing Assn., 35 111. App. 411, p. 355. Kain v. Smith, 80 N. T. 458, pp. 33, 396. Kennedy, v. Gibson, 8 Wall. (TJ. S.) 498, p. 216. Kennedy v. I. C. & L. R. Co., 3 Fed. Rep. 97, p. 444. Kennedy v. St. Paul & Pacific R. Co., 2 Dillon, 448, p. 520. Kennedy v. St. Paul & Pacific R. Co., 6 Dillon, 515, p. 122. Kerr v. Brandon, 84 N. C. 128, p. 434. Kerr v. Little, 39 N. J. Eq. 83, p. 145. Kilmer v. Hobart, 58 How^. Pr. (N. Y.) 452, p. 230. Kimball v. QafEord, 78 la. 65, p. 331. King V. Armstrong, 50 Ohio St. 222, p. 511. Klauber v. San Diego St. Car Co., 95 Cal. 353, p. 11. Klein v. Jewett, 26 N. J. Eq. 474, p. 402. Kneeland v. American Loan & Trust Co., 136 U. S. 89, pp. 142, 151, 320, 821. Knight V. Lord Plymouth, 3 Atk. (Eng.) 480, p. 417. Knott «. Receivers of Morris Canal & Banking Co., 3 Green's Ch. (N. J.) 423, p. 144. Koontz ». Northern Bank, 16 Wall. (TJ. S.) 196, p. 284. Kronberg v. Elder, 18 Kan. 150, p. 6. Lamphear v. Buckingham, 33 Conn. 237, p. 393. Langdon v. Vermont & Canada R. Co., 53 Vt. 228, p. 533. Langdon v. Vermont & Canada R. Co., 54 Vt. 593, p. 217. Laybourn v. Seymour, 53 Minn. 105, p. 464. Lehigh Coal & Navigation Co. ■». Central R. Co. of N. J., 38 N. J. Eq. 175, p. 444. Lehigh Coal & Navigation Co. v. Central R. Co. of N. J., 41 N. J. Eq. 167, p. 216. 602 INDEX. CASES ANNOTATED— CoraimiietZ. L'Engle v. Florida Central R. Co., 14 Fla. 266, pp. 571, 574. Leo 0. Green, 52 N. J. Eq. 1, p. 156. Libby v. Rosekrans, 55 Barb. (N. Y.) 202, p. 458. Lindsay «. Jackson, 2 Paige (N. T.), 581, p. 461. Litchfield Bank v. Peck, 39 Conn. 384, p. 271. i Livingston ■». Pettigrew, 7 Lans. (N. Y.) 405, p. 862. Locke V. Covert, 43 Hun (N. Y.), 484, p. 387. Louisvillle Banking Co. v. Paine, 67 Miss. 678, p. 387. Louisville, New Albany & Chicago R. Co. «. Caudle, 46 Ind. 277, p. 12.. Ludgater b. Channell, 3 Mac. & Qord. (Eng.) 174, p. 480. Lycoming Fire Ins. Co. ». Wright, 55 Vt. 626, p. 223. Lyman v. Central Vermont R. Co., 59 Vt. 167, p. 397. Manchester Locomotive Works v. Truesdale, 44 Minn. 115, p. 128. Manlove v. Burger, 38 Ind. 211, pp. 198, 208. Mann ii. Fairchild, 3 Keyes (N. Y.), 106, p. 195. Martin -o. Black, 9 Paige (N. Y.), 641, p. 453. Martin v. Martin, 14 Or. 165, p. 535. Mason d. Supreme Court of Equitable League, 77 Md. 483, p. 53. Matter of Attorney-General v. Atlantic Mutual Life Ins. Co., 100 N. Y. 279, p. 170. Matter of Att'y-General v. Guardian Life Ins. Co., 93 N. Y. 681, p. 547. Matter of Attorney-General i). North American Life Ins. Co., 91 N. Y. 57, p. 357. Matter of Brown, 3 Edw. (N. Y.) 848, p. 452. Matter of Christian Jensen Co., 138 N. Y. 550, p. 111. Matter of Commonwealth Fire Ins. Co., 24 Hun (N. Y.), 78, p. 383. Matter of Day, 34 Wis. 638, p. 103. Matter of Ensign, 95 N. Y. 664, p. 443, Matter of Guardian Savings Inst., 78 N. Y. 408, p. 567. Matter of Harmony Fire & Marine Ins. Co., 45 N. Y. 310, p. 450, Matter of Jaycox & Green, 13 Blatchf. 70, p. 267. Matter of John Berry, 26 Barb. (N. Y.) 55, pp. 163, 164. Matter of Loos, 50 Hun (N. Y.), 67, p. 167. Matter of Receivership of Columbian Ins. Co., 8 Abb. N. Y. Court of Appeals Dec. 389, p. 371. Matter of Receiver of Grocers' Bank, 114 N. Y. 621, p. 144. Matter of Receiver of the Middle District Bank, 1 Paige (N. Y.), 585, p. 463. Matter of Reciprocity Bank, 32 N. Y. 9, p. 194. Matter of Schuyler's Steam Tow Boat Co., 186 N. Y. 169, p. 91. Matter of Security Life Ins. & Ann. Co., 31 Hun (N. Y.), 36, pp. 548,553. Matter of Stafford, 11 Barb. (N. Y.) 353, p. 419. Matter of United States Rolling Stock Co., 57 How. Pr. 17, p. 364. Matter of Van Allen, 37 Barb. (N. Y.) 235, p. 464. Matter of Woven Tape Skirt Co., 13 Hun (N. Y.), Ill, p. 16. Matter of Woven Tape Skirt Co., 85 N. Y. 506, p. 552. Mayer i). Attorney-General, 33 N. J. Eq. 815, p. 353. INDEX. 603 CASES ANNOrA.TED— Continued. Maynard v. Bond, 67 Mo. 315, p. 163. MoAlpin V. Jones, 10 La. An. 553, y. 230. McArthur i). Montclair R. Co., 37 N. J. Eq. 77, p. 536. MoCay v. Black, 14 Phlla. 635, p. 413. McCuUoch V. Norwood, 57 N. Y. 563, p. S. McDonald u. Miller, 54 111. App. 325, p. 492. McEvers v. Lawrence, Hoffman's Ch. (N. Y.), 171, p. 374. McQowan v. Myers, 66 la. 99, p. 167. McHenry v. N. Y., Pen. & O. R. Co., 25 Fed. Rep. 114, p. 573. Mcllhenny v. Binz, 80 Tex. 1, p. 131. Mcllrath v. Snure, 32 Minn. 391, p. 369. McLain v. Wallace, 103 Ind. 562, p. 341. McLain v. Placerville & Sacramento V. R. Co., 66 Cal. 606, p. 147. McLaren v. First Nat. Bank of Milwaukee, 76 Wis. 259, p.' 184. McMinnville & Manchester R. Co. «. Huggins & Price 3 Baxt 177 p. 390. McNulta V. Lockridge, 137 111. 370, p. 408. McNulta v. Lockridge, 141 U. S. 327, p. 118. Meara's Admr. ■». Holbrook, 20 Ohio St. 137, p. 402. Melendy v. Barbour, 78 Va. 544, p. 403. Mellen ». MoHue Iron Works, 131 U. S. 353, p. 148. Mercantile Trust Co. ■». Lamoille Val. R. Co , 16 Blatchf. 324, p. 95, Merrill v. Cape Ann Granite Co., 161 Mass. 213, p. 463. Metz V. Buflfalo, Corry & P. R. Co., 58 N. Y. 61, p. 493. Meyer v. Johnston, 53 Ala. 337, pp. 516, 532. Miller v. Loeb, 64 Barb. (N. Y.), 454, p. 428. Miller v. Mackenzie, 29 N. J. Eq. 291, p. 198. Miltenberger v. Logansport Ry. Co., 106 U. S. 286, pp. 381, 523. Milwaukee & St. Paul R. Co. v. Milwaukee & Minn. R. Co., 20 Wis 165, p. 89. Minchin v. Second Nat. Bank of Paterson, 36 N. J. Eq. 436, p. 19. Miner v. Belle Isle Co., 93 Mich. 97, pp. 54, 56. Minehan v. Brunswick & Albany R. Co., 53 Ga. 248, p. 451. Minnesota Thresher Manfg. Co. v. Langdon, 44 Minn. 39, pp. 150, 261. Mississippi & Ohio R. Co. ■». Russell, 115 lU. 52, p. 13. Mobile & Ohio R. Co. v. Davis, 63 Miss. 271, p. 492. Monitor Furnace Co. v. Peters, 40 Ohio St. 575, p. 485. Moran v. Lydecker, 11 Abb. N. C. (N. Y.), 398, p. 531. Moran v. Sturges, 154 U. S. 356, p. 91. Morris v. Glenn, 87 Ala. 638, p. 361. Moseby v. Burrow, 53 Tex. 396, p. 41. Movius «. Lee, 24 Blatchf. 391, p. 345. Munhall «. Boedecker, 44 111., App. 131, p. 483. Murray v. Vanderbilt, 39 Barb. 140, p. 5. Mutual Benefit Life Ins. Co. v. Hillyard, 8 Vt. 444, p. 353. National Bank «. Case, 99 U. S. 638, p. 253. National Bank d. Colby, 21 Wallace, 609, p. 242. 604 INDEX. CASES ANNOTATED— Continued. National Bank ■». Insurance Co., 104 U. S. 54, p. 498. National Bank of the Commonwealth u. Mechanics' National Bank, 94 U. S. 437, p. 500. National Security Bank -i>. Butler, 129 U. S. 333, p. 341. National Trust Co. o. Miller, 33 N. J. Eq. 155, p. 324. Neafie, Appeal of, 13 At. Rep. (Pa ) 371, p. 534. Negus 1). City of Brooklyn, 10 Abb. N. C. (N. T.) 180, p. 382. Nettles ». Marco, 33 S. C. 47. p. 190. Newboldc. Peoria & Springfield R. Co., 5 Bradw. (111.) 367, p. 519. Newell «. Smith, 49 Vt. 355, p. 395. Newman v. Davenport, 9 Baxt. (Tenn.) 538, p. 363. New York Breweries Co. -b. Higgins, 79 Huu (N. Y.), 250, p. 337. New York & Western Union Tel. Co.». Jewett, 115 N.Y. 166, pp. 3,421. North Carolina R. Co. v. Drew, 8 Woods, 711, p. 377. Olcott V. Heermans, 3 Hun (N. Y.), 431, p. 303. O'Mahoney v. Belmont, 63 N. Y. 133, p. 411. Osgood V. Laytin, 3 Abb. N. Y. Ct. of App. Deo. 418, p. 185. Osgood «. Maguire, 61 N. Y. 524, p. 338. Osgood «. Ogden, 3 Abb. N. Y. Ct. of App. Dec. 435, p. 177. Otis D. Gross, 96 111. 613, p. 341. Owen V. Kellogg, 56 Hun (N. Y.), 4'55, p. 451. Pacific R. Co. 1). Ketchum, 95 U. S. 1, p. 3. Pacific Ry. Co. ■». Wade, 91 Cal. 449, p. 116. Paige V. Smith, 99 Mass. 395, p. 395. Pairpont Mfg. Co. o. Phil. Optical & Watch Co., 161 Pa. St. 17, p. 30. Palys V. Jewett, 33 N. J. Eq. 302, p. 445. Parker v. Browning, 8 Paige (N. Y.), 388, p. 275. Parsons v. Charter Oak Life Ins. Co., 31 Fed. Rep. 305, p. 233. Patrick v. Bells, 80 Kan. 680, p. 273. Patterson v. Stewart, 41 Minn. 84, p. 195. Peacock v. Pittsburg Locomotive & Car Works, 52 Ga. 417, p. 437. People V. Columbia Car Spring Co.. 13 Hun (N. Y.), 585, p. 556. People V. Empire Order of Mut. Aid, 70 Hun (N. Y.), 439, p. 181. People V. B. Remington & Sons, 19 Abb. N. C. (N. Y.) 350, p. 414. People V. E. Remington & Sons, 54 Hun (N. Y.), 480, p. 482. People V. E. Remington & Sons, 60 Hun (N. Y.), 43, p. 185. People D. E. Remington & Sons, 59 Hun (N. Y.), 282, p. 165. People v. Globe Mut. Life Ins Co., 57 How. Pr. (N.Y.) 482, pp. 317, 574. People V. Jones, 33 Mich. 303, pp. 158, 541. People V. Knickerbocker Life Ins. Co.. 18 N. Y. Week. Dig. 492, p. 558. People V. Knickerbocker Life Ins. Co., 31 Hun (N. Y.), 623, p. 558. People 1). Knickerbocker Life Ins. Co., 34 Hun (N. Y.), 476, p. 154. People ®. Knickerbocker Life Ins. Co., 40 Hun (N. Y.), 44, p. 348. People 'D. Knickerbocker Life Ins. Co., 106 N. Y. 619, p. 26. People v. Madison Square Bank, 75 Hun (N. Y.), 114, p. 339. People V. Mechanics & Traders' Savings Inst., 93 N. Y. 7, p. 840. People v. Merchants & Mechanics' Bank, 78 N. Y. 369, p. 334. INDEX. 605 CASES ANNOTATED— Continued. People V. Murdock, 50 111. App. 311, p. 434. People V. Mutual Benefit Association, 39 Hun (N. Y.), 49, pp. 550, 551, 555. People V. National Trust Co., 83 N. T. 288, p. 319. People v. Security Life Ins. & Ann. Co., 33 Hun (N. Y.), 601, p. 156. People V. Security Life Ins. & Ann. Co., 78 N. Y. 115, pp. 346, 349, 465- People V. Troy Steel & Iron Co., 83 Hun (N. Y.), 303, p. 18, 23. People «. Universal Life Ins. Co., 80 Hun (N. Y.), 142, p. 338. People's Mutual Ins. Co. v. Allen, 10 Gray (Mass.), 297, p. 210. Peters «. Foster, 56 Hun (N. Y.), 607, p. 348. Phelan v. Ganebin, 5 Col. 14, p. 86. Philadelphia National Bank v. Dowd, 38 Fed. Rep. 172, p. 506. Philadelphia & Reading Railroad Co. v. Commonwealth, 104 Pa. St. 80, p. 375. Phoenix Foundry, etc., Co. v. North River Const. Co., 33 Hun (N. Y.), 156, p. 111. Phoenix Warehouse Co. v. Badger, 67 N. Y. 294, p, 193. Pittsburg Carbon Co. v. McMillin, 119 N. Y. 53, pp. 178, 260. Piatt «. Archer, 13 Blatchf. 851, p, 565. Poland «. Lamoille Valley R. Co., 52 Vt. 144 p. 184. Pond V. Cooke, 45 Conn. 126, p. 227. Pond 1). Framingham & Lowell R. Co., 180 Mass. 194, p. 48. Ponder v. Catterson, 127 Ind. 434, p. 201. Porter v. Industrial Inf. Co., 5 Misc. (N. Y.), 263, p. 54. Porter v. Sabin, 149 U. S. 478, p. 96. Potter V. Kingman, 136 Mass. 141, p. 439. Powers ». Loughridge, 38 N. J. Eq. 896, p. 417. Preston v. Loughraui, 58 Hun (N. Y.), 210, p. 166. Pringle v. Woodworth, 90 N. Y. 502, pp. 27, 269. Quincy, Missouri & Pacific R. Co. ■». Humphreys, 145 U. S. 83, p. 827. Radford ■». Folaom, 55 la. 276, pp. 384, 540. Raht «. Attrill, 106 N. Y. 433, p. 133. Railroad Co. ■». Soutter, 3 Wall. (U. S.) 531, p. 560. Ramsay v. Peyser, 83 N. Y. 1, p. 381. Receivers of New Jersey & New York By. Co., In re, 39 N. J. Eq. 67, p. 146. Receivers of State Bank v. First Nat. Bank of Plainfield, 34 N. J. Eq. 450, p. 276. Relfe V. Rundle, 103 U. S. 222, p, 383. Republic Life Ins. Co. v. Swigert, 135 111. 150, p. 258 Reynolds v. Stockton, 140 U. S. 254, pp. 96, 273. Rice V. St. Paul & Pacific R. Co., 24 Minn. 464, p. 68. Richards v. Osceola Bank, 79 la. 707, p. 33. Richards v. The People, 81 111. 551, p. 106. Riddle v. First National Bank, 37 Fed. Rep. 508, p. 499. Riggs V. Whitney, 14 Abb. Pr. (N. Y.) 888, p. 440. Rinn ■». Astor Fire Ins. Co., 59 N. Y. 143, p. 450. 606 INDEX. CASES ANNOTATED— OimiiKMfid. BobertB v. Hill, 23 Blatchf. 313, p. 343. Robinson v. Atlantic & G. W. B. Co., 66 Pa. St. 160, pp. 167, 440. Robinson ■». Turpentine, 59 Fed. Rep. 544, p. 349. Rogers v. Wendell, 54 Hun (N. T.), 541, p. 359. Rogera «. Wheeler, 43 N. T. 598, p. 891. Rosa v. Williams, 11 Heisk. (Tenn.), 410, p. 433. Rudd V. Robinson, 54 Hun (N. Y.), 339, p. 260. Buggies V. Brock, 6 Hun (N. Y,), 164, p. 191. Russel V. Barry, 51 Mich. 287, p. 306. Russell V. Texas & Pacific R. Co., 68 Tex. 646, p. 149. Ryan v. Hayes, 62 Tex. 43, pp. 433, 434. Ryan v. Kingsberry, 88 Ga. 361, p. 16. Ryan i). Rand, 30 Abb. N. C. (N. Y.) 313, p. 358. Sage u. Memphis & L. R. Co., 125 U. S. 361, pp. 58, 379. Sagery v. Du Boia, 3 Sandf. Ch. 466, p. 186. Salway v. Salway, 3 Buss. & Myl. (Eng.) 215, p. 418. Sands v. Hill, 55 N. Y. 18, pp. 205, 210. Sands o. Sanders, 38 N. Y. 416, pp. 310, 311. SandH i>. Sweet, 44 Barb. 180, p. 307. Sayles v. Jourdan, 3 N. Y. Supp. 827, p. 360. Soammon «. Kimball, 92 U. S. 362, p. 464. Schenck v. Ingraham, 5 Hun (N. Y.), 397, p. 559. Schmid v. N. Y., L. E. &. W. B. Co., 33 Hun (N. Y.), 335, p. 489. Schowalter t). Laredo Improvement Co., 83 Tex. 163, p. 187. Schwartz i>. Keystone Oil Co., 153 Pc. St. 283, pp. 385, 537. Screven «. Clark, 78 Qa. 41, p. 373. Seidenbach, Schwab & Co. i>. Denklespell, 11 Lea (Tenn.) 397, p. 432. Seney v. New York Consolidated Stage Co., 18 Abb. (N. Y.) 435 ; s. c. 38 How. Pr. 481, p. 569. Setcomb v. Catlin, 128 111. 556, p. 107, Shaw V. Railroad Co., 100 U, S. 605, p. 526. Sherwood v. Milford Bank, 94 Mich. 78, p. 337. Simmons v. Wood, 45 How. Pr. 363, p. 383. Simpkins s. Smith and Parmelee Gold Co., 50 How. Pr. 56, p. 301. Singerly ». Fox, 75 Pa. St. 112, p. 201. Sloan V. Central Iowa By. Co., 62 la, 728, pp. 407, 488. Smith ■». Manhattan Ins. Co., 4 Hun (N. Y.), 137, p. 450. Smith v. McCuUough, 104 U. S. 25, p. 381. Smith v. New York Consolidated Stage Co., 18 Abb. Pr. 420, p. 163. Smith «. United States Express Co., 135 111. 379, p. 378. Snow V. Winslow, 54 la. 300, p. 496. Southern Development Co. v. Houston & T. C. R. Co., 37 Fed. Rep. 344, p. 108. Sprague v. Smith, 29 Vt. 431, p. 392. Stanton v. Alabama & Chattanooga R. Co., 3 Woods, 606, pp. 516, S28. State D. Butler, 15 Lea (Tenn.), 114, p. 563. State of Florida d. Johnson, 13 Fla. 33, p. 159. INDEX. 607 CASES ANNOTA^TED— Continued. State of Georgia v. Atlantic & Gulf R. Co., 3 Woods, 434, p. 371. State of Tennessee v. Edgefield & Kentucky R. Co., 4 Baxt. (Tenn) 92, p. 355. State of Tennessee v. Edgefield & Kentucky R. Co., 6 Lea (Tenn ) 353 pp. 141, 297. State use of Peterson ». Gibson, 21 Ark. 140, p. 429. Stevens v. Overstolz, 43 Fed. Rep. 771, p. 310. Stevens ii. Union Trust Co., 57 Hun (N. Y.), 498, p. 532. Stewart v. Beebe, 28 Barb. 84, p. 199. Stewart v. Johnston, 87 Ga. 97, p. 430. Stewart ii. Lay, 45 la. 604, pp. 191, 193. Stillman v. Dougherty, 68 Md. 423, pp. 186, 191. St. Louis & San Francisco R. Co. e. Johnston, 133 U. S. 566, p. 504. Stockton V. Mechanics and Laborers' Savings Bank, 33 N. J. Eq. 163, p. 343. Stokes 1). N. J. Pottery Co., 46 N. J. Law, 337, p. 178. Strang v Montgomery & Eufaula R. Co., 3 Woods, 613, p. 231. Strong V. Southworth, 8 Bened. 331, p. 247. Stuart V. Boulware, 133 U. S. 78, p. 563. Sturges 1). Vanderbilt, 73 N. Y. 884, p. 24. Sturgis «. Knapp, 33 Vt. 486, p. 171. Swann ». Clark, 110 U. S. 603, p. 530. Swann ». Wright's Executor, 110 U. S. 590, p. 150. Talmage «. Pell, 7 N. Y. 328, p. 175. Taylor v. Columbian Ins. Co., 14 Allen, 353, p. 35. Taylor v. Phila. & Reading R. Co., 9 Fed. Rep. 1, p. 525. Terry d. Bamberger, 44 Conn. 558, p. 199. Texas & Pacific R. Co. v. Cox, 145 U. S. 593, p. 406. Texas & Pacific R. Co. d. Griffin, 76 Tex. 441, p. 495. Texas & Pacific R. Co. v. Huffman, 83 Tex. 286, p. 495. Texas & Pacific R. Co. v. Johnson, 76 Tex. 431 ; 151 U. S. 81, p. 495. Thau V. Bankers & Merchants' Tel. Co., 56 N. Y. Superior Court, 588, p. 59. Thomas «. MacGregor, 81 N. Y. 593, p. 435. Thomas v. Peoria & R. I. R. Co., 36 Fed. Rep. 808, pp. 820, 825, 829. Thomas v. Whallon, 31 Barb. 172, p. 207. Thompson v. Greeley, 107 Mo. 577, p. 195. Thompson v. HoUaday, 15 Or. 34, p. 385. Thompson v. Phoenix Insurance Co., 136 U. S. 287, pp. 169, 565. Thompson v. Scott, 4 Dill. 508, pp. 112, 444. Thompson v. Willamette S. M. L. & Man. Co., 15 Or. 604, p. 537. Thurman v. Morgan, 79 Va. 367, p. 432. Titherington's Admr. v. Hodge, 81 Ky. 386, p. 285. Tobey «. Russell, 9 R. I. 58, pp. 212, 314. Toby «. Oregon Pacific R. Co., 98 Cal. 490, p. 148. Tolford «. Church, 66 Mich. 431, p. 306. ToUeson «. People's Bank, 85 Ga. 171, p. 104. 608 INDEX. CASES ANNOTATED— C'oraMn«cd. Tome V. King, 64 Md. 166, p. 542. Tracy v. First Nat. Bank of Selma, 37 N. Y. 523, p. 243. Tremper v. Brooks, 40 Mich. 333, p. 157. Turner v. I. B. & W. B. Co., 8 Biss. 315, pp. 135, 325. Turner v. Peoria & Springfield R. Co., 95 111. 134, p. 513. Union Bank Case, 37 N. J. Eq. 420, pp. 412, 416, 539. Union Mutual Life Ins. Co. v. Union Mills Plaster Co., 37 Fed. Rep. 386, p. 71. Union Trust Co. v. Illinois Midland R. Co., 117 U. S. 432, pp. 295, 522, 536. Union Trust Co. ■». Railroad Co., 4 Dillon, 114, p. 60. Union Trust Co. «. Rockford I. & St. L. R. Co., 6 Biss. 197, p. 90. Union Trust Co. v. Weber, 96 111. 346, p. 370. United States v. Knox, 102 U. S. 432, p. 249. United States Trust Co. v. N. Y., West Shore & Buffalo R. Co., 101 N. Y. 478, p. 549. Upton v. Hansborough, 3 Bissell, 417, pp. 186, 193. Upton v. Tribilcock, 91 U. S. 45, p. 194. Utica Insurance Co. ■». Lynch, 11 Paige (N. Y.), 530, p. 383. Van Antwerp v. Hulburd, 7 Blatchf. 426, p. 159. Vanatta i). N. J. Mutual Life Ins. Co., 31 N. J. Eq. 15, p. 352. Vanderbilt v. Central R. Co., 43 N. J. Eq. 669, p. 367. Van Dyck v. McQuade, 85 N. Y. 616, p. 264. Varnum v. Hart, 119 N. Y. 101, pp. 166, 357. Venango National Bank «. Taylor, 56 Pa. St. 14, p. 510. Vermont & Canada R. Co. «. Vermont Cent. B Co., 50 Vt. 500, p. 389. Verplanck v. Mercantile Ins. Co , 2 Paige (N. Y.), 438, p. 543. Vienna Bakery Co. ■». Heissler, 50 111. App. 406, p. 74. Vilas V. Page, 106 N. Y. 439, p. 134. Voorhees «. Sessions, 34 Mich. 99, p. 102. Wabash, St. L. & Pacific R. Co. v. Central Trust Co., 32 Fed. Rep. 269,. p. 364. Wallace v. Loomis, 97 U. S. 146, pp. 523, 527. Walling v. Miller, 108 N. Y. 173, p. 166. Walsh V. Raymond, 58 Conn. 251, p. 361. Wardle v. Townsend, 75 Mich. 385, pp. 207, 210. Washington Life Ins. Co. v. Fleischauer, 10 Hun (N. Y.), 117, p. 382. Watkins ». Minn. Thresher Mfg. Co., 41 Minn. 150, p. 153. Waverly Co. v. Worthington Co., 4 Misc. 447, p. 23. Wayne Pike Co. 13. State, 134 Ind. 673, p. 198. Weeks v. Weeks, 106 N. Y. 636, p. 145. Weems «. Lathrop, 42 Tex. 207, pp. 431, 437. Wehrl V. Atlanta Furniture Co., 89 Qa. 297, p. 70. Welles ■». Graves, 41 Fed. Rep. 459, p. 309. Welles V. J. B. Pace Tobacco Co., 3 N. Y. Supp. 393, p. 236. Welles D. Stout, 88 Fed. Rep. 807, p. 509. White 1). Havens, 30 How. Pr. 177, p. 313. INDEX. 609 (The Reference Numbers are to Pages.) CASES ANNOTATED— Coniirewed. White V. Joy, 13 N. Y. 83, p. 199. Whitesides i). Lafferty, 8 Humph. (Tenn.), 150, p. 386. Whitney v. Butler, 118 U. S. 665, p. 311. Whittlesey v. Delaney, 73 N. T. 571, p. 178. Whittlesey ■». Frantz, 74 N. Y. 456, p. 81. Wilcox V. Continental Life Ins. Co., 56 Conn. 468, p. 199. Wilde V. Baker, 14 Allen, 349, p. 437. Wilkinson v. Rutherford, 49 N. J. Law, 341, p. 197. Williams v. Babcook, 25 Barb. 109, pp. 206, 209. Wilmer v. Atlanta & Richmond Air Line R. Co., 2 Woods 409, pp. 16, 92. Wilson ». Barney, 5 Hun (N. Y.), 257, p. 570. Winans v. Manufacturing Co., 48 Kan. 777, p. 23. Wincock v. Turpiu, 96 111. 135, p. 267. Winters v. Armstrong, 87 Fed. Rep. 508, p. 307. Wiswall V. Sampson, 14 Howard (U. S.), 52, p. 441. Woerishofler v. North River Const. Co., 99 N. Y 398, p. HI. Woodruff V. Erie Railway Co., 93 N. Y. 609, p. 256. Woodruff t). Jewett, 115 N. Y. 267, p. 426. Woodward v. Ellsworth, 4 Col. 580, p. 243. Wright V. Merchants Nat. Bank, 1 Flippin, 568, p. 61. Wyckoff V. Schofleld. 103 N. Y. 630, p. 286. Yardley v. Clothier, 49 Fed. Rep. 337; 51 Fed. Rep. 506, p. 509. Young, In re, 7 Fed. Rep. 855, p. 455. Young V. Rollins, 85 N. C. 485, p. 89. CATTLE, corporation liable for injuries to, when made so by statute, even when the road is in the hands of a receiver, 12. without statute, receiver is liable for injury to, 407, n. 2. CATTLE GUARDS, failure to erect, liability of receiver for, 407. CERTIORARI, in California, is the proper remedy to procure annulment of the order appointing a receiver, 77, n. 1 . CERTIFIED CHECKS, liability of receiver, for misappropriation of funds of, 339. CERTIFICATES OF DEPOSIT, liability of receiver for, 339. CERTIFICATES OF RECEIVERS, they are evidence that the holder is entitled to partake of a fund under the control of the court which has permitted the certifi- cates to be issued, 513, 522, n. 1. have not qualities of commercial paper, 513. not assignable so as to bar equities against the payee, 513. 610 INDEX. (The Reference Numbers are to Pages.) CERTIFICATES OF 'RECEIVERS— Continued. order under which they are issued ia usually printed on the cer- tificate, 513, n. 1. holder and transferee are bound to take notice of its terms, 513, n. 1, at p 514. assignment thereof does not create the liability incident to the indorsement of negotiable paper, 514. nor is it an implied warranty that the certificate is collect- able, 514. does not make the indorser liable as a guarantor, 514. parties receiving them take the risk of the depletion of the fund by claims not before the court at the time the certificates were issued, 514. and also the risk of final action of the court concerning them, 514. power to issue certificates strictly construed, 514. does not embrace the power to issue a bond or a negotiable instru- ment good in the hands of a ionafide holder for value, 515. party receiving them takes the risk of the receiver having made them conformably with order of court, 515 and notes. certificates only good for the amount of money actually paid for them and not what appears on their face, 516. purchaser not bound to see that the money paid is properly used by the receiver, 516. cases illustrating the principle that the certificates are only valid for the specific purposes designated, 515, n. 1, 516 and notes. where the order authorizes the receiver to sell them at not less than a certain discount and the certificates are so sold the p ar- chaser is entitled to receive not only the money paid, but pay according to tenor of certificates, 516. Teceiver is personally liable if he issues certificates not in accord with the order of the court, 389, 516. immaterial that there was no purpose to defraud, 517. if the certificates are issued for a purpose not authorized by the order of the court, they are not valid even in the hands of a ionafide holder for value, 518. same rule where there is any material deviation from the order of the court, 519. relationship as regards prior payment of certificates and bonded indebtedness, 523, n. 1. inherent power of a court of equity to authorize receiver to bor- row money considered, 130. absolute necessity is a determining element upon the question of their Issuing, 530, 533, n. 1. where the receiver has no funds to complete an unfinished portion of work of great public utility, such as a railroad or a canal, 530, or a portion thereof, certificate may issue, 533. -where a valuable land grant would lapse, issue made, 520. INDEX. 611 (The Reference Numbers ark to Pages.) CERTIFICATES OP RECEIVERS— Continued. form of certificate given, 520, n. 1. where the money is necessary for the ecoDomical management and conservation of the railroad, issue made, 532. when repairs are rendered necessary to insure the safety of a rail- road and the income is inadequate, issue made, 522. where rolling stock, machinery and other things are necessary, issue made, 523. where the road should be sold and the proceeds distributed the court will not authorize an issue of certificates, 533. where the road is in too dilapidated a condition to spend money upon it, certificates will not issue, 524, n. 1. if some bondholders object to the issue of certificates their righfs should be protected, 524, n. 1. where it is sought by such certificates to raise money for better- ments in order to enable the next earnings of the road to be applied to the payment of bondholders, court has no power to issue, 535. consent of parties interested is not necessary to enable the court to exercise the right to issue certificates, 535. nor is prior notice necessary, 526. notice to the trustees of a trust mortgage is suflioient to bind the bondholders, 536. mortgagee who has not had notice must act promptly or he will not be heard, 527. cases illustrating the circumstances justifying a priority given to receiver's certificates over mortgage indebtedness, 526-529 and notes, where the decree of sale does not reserve to the purchaser the right to contest liens, but makes the sale subject to liens the purchaser cannot attack the certificates even upon the ground of concealment and fraud subsequently discovered, 529-530. when by the decree of sale itself the certificates are declared to be a first lien, the purchaser is estopped from denying this fact, 520. fcut hypothecated certificates are a lien only to the extent of the money actually advanced, '530, n. 1. where the order authorizing the certificates gave them priority over mortgage indebtedness, but it does not contain a provision that the purchaser shall assume them if there is a deficiency on the sale, the court will not modify the judgment to give such right, even though such provision be contained in the certifi- cates, 531. tut the general rule is that to deprive parties holding a priority of lien, in favor of receiver's certificates, such parties are enti- tled to have their day in court and contest the questions involved, 531. 612 INDEX. (The Reference Numbers are to Pages.) CERTIFICATES OF RECEIVERS— Con*inMed. but when certificates have been issued with the assent and knowl- edge of all parties interested this rule does not apply, 533. receiver's duty to conduct proceedings for the negotiation and sale of the certificates is a trust personal to him and cannot be dele- gated, 289. see also f ally as to law in New York relating to Receiver's certifi- cates and payment of wages of employees, and what are and are not embraced within the term laborer and employee, 123-133. See also fully Likns and MoKTaAGB. CHARTER, annulment of, effects corporate dissolution, 8. all suits pending for or against, absolutely abate upon annulment of the charter, and all proceedings for or against it are void, if a receiver is appointed, 24 ; imminent danger of the forfeiture of „ justifies the appointment of a receiver, 51, n. 4. CHATTEL MORTGAGE, receiver may avoid, on ground that it was not filed as required by law, 168. CHECKS CERTIFIED, do not establish a trust relation between a bank and a depositor, 339. CHOSE IN ACTION, defined, 198, n. 3 at p. 199. CIRCUIT COURT RECEIVER, jurisdiction is limited to the jurisdiction of the appointing court, 83. except on the principle of comity, 34. CLAIMS, time of filing ; for power of court over, see Filing of Claims. CLEARING HOUSE, liability of receiver for funds sent to, 339. CLOUD ON TITLE, action to remove by purchaser upon a receiver's sale of a railroad. Title of such purchaser held superior to the title of a prior pur- chaser at a sheriff's sale, 149, n. 3. CODES, limit the equitable power of courts to appoint a receiver if an adequate remedy is therein prescribed, 3. COLLATERAL SECURITY, taking security for debt does not extinguish the debt to the amount of the security taken, 477; nor does the creditor thereby relinquish his right to obtain satisfaction of his debt from the property of the cor- poration, 477. insolvency of the corporation does not change the rule, 478. but the contrary doctrine is held in Massachusetts, North Carolina,. New Jersey and Washington, 479; comments upon, 481. See rule in Nebraska, 480 ; rule in Iowa, 480 ; rule in Rhode Island, 483. cannot be taken away from creditor by the receiver or by the courts, 483» INDEX. 613 (The Refkkence Numbers are to Pages.) COMITY, PRINCIPLE OF, judicially defined, 34, n. 1. jurisdiction of receivers outside of appointing court depends entirely upon comity, 34. does not permit, as of riglit, a foreign receiver to bring suits in foreign tribunals against the protest of citizens within such foreign juris- diction, 33, n. 3. especially when the interests of parties in such foreign state may, by the receiver bringing suit therein, have their remedies impaired or their securities diminished, 35. rule as to the extent of the principle varies in different states, 35. rule in Pennsylvania, 85. rule in New Jersey, 36. rule in Ohio, 36. rule in New York, 86. rule in Illinois, 36. rule in Georgia, 87. rule in Texas, 87. rule in Supreme Court United States, 44. extent and scope of its application to receivers in foreign jurisdiction stated, 223. will never give foreign creditors a better position than that accorded to domestic creditors, 228, n. 1. COMMISSIONERS, appointed by stockholders to conduct liquidation of corporation, where they consent to the appointment of receiver, when appointed, 59. COMMON CARRIERS, when accidents occur to passengers or baggage while the road is being operated by a receiver, but actions thereon are not brought until after the discharge of the receiver, the question of liability deter- mined, 422, n. 1 ; 424, n. 2. See also Railroad Reckivbks, Negligence, Actions, Penalties, Tickets, Passes. COMPENSATION OF RECEIVERS, Bt whom dbtekmined; usually fixed by the appointing court, 535. when appelate court will not interfere with the sum fixed by the the appointing court, 535. Elements of; in case of corporations the court is disinclined to base compensa- tion on a percentage of the receipts and the expenditures, 535. what elements will be taken into consideration by the court, 535. rule specifically stated in following states : Massachusetts, 535 ; Iowa, 536, note ; Pennsylvania, 536. reduction of compensation, what will justify, 537. extra compensation, what will or will not justify, 537, 539. 614 INDEX. (The Reference Numeers are to Pages.) COMPENSATION OF REOEiVEILS— Continued. By percentage ; upon what principles based, 552-554. When not allowed at all on account of misconduct ; only deliberate fraud on the part of the receiver will justify such a course, 539. or probable loss caused by neglect or inattention, 540. By whom compensation should be paid ; the trust fund should furnish the compensation, 540. unless the receiver's appointment is absolutely void, 541. or he has procured his appointment by fraud, 541. if the appointment is voidable either the fund or the parties equitably chargeable should pay compensation, 541. examples of where different parties chargeable therewith, 542, 543. procedure where a conflict exists between State and Federal Courts as to the compensation to be paid the receiver, 544. Op compensation of Ebcbivbrs of Eailroads in Federal Courts ; elements of receiver's compensation in such cases, 545. where the compensation is fixed upon his appointment, principles stated which influence the court in passing upon the question of a requested increase, 546. Op compensation in New York State ; governed by statutes, 547. cases cited and discussed thereunder, 547-552. Compensation of Receivers who resign ; and of their successors ; how compensation computed, 554-555. COMPROMISES, receivers generally allowed to compromise doubtful claims, 202. courts will give them general power to compromise with debtors who are unable to pay in full, 202. Bee also Settlements. COMPETITION BETWEEN RAILROADS, no part of a receiver's duty to interfere with the construction of ai parallel line of railway or to attempt to defeat any contemplated aid for such enterprise, 288. COMPTROLLER OF CURRENCY, powers and duties of. See National Banks. CONFIRMATION, ORDER OF. See Sale, Liability of Receiver. CONSOLIDATION, in an action to prevent, the election of directors for the new company at a meeting of stockholders will not j ustif y the appointment of a receiver on the ground that part of the stockholders participating^ have been inhibited by injunction, 81. INDEX. 615 (The Reference Numbers are to Paces.) CONSOLIDATION— OoraWnwed. relative rights of the creditors of the various lines making up the consolidation, 334. liens of holders of mortgages covering the consolidated system are not subordinated to the payment of the rentals of leased lines dur- ing the period of the receiver's possession thereof, 334. CONTEMPT OF COURT, receiver guilty of, when disregards writ of prohibition issued against him, 4. party is guilty of, when he refuses to deliver the assets of the corpora- tion to the receiver thereof, 16, n. 1. right of the court to punish receivers for a contempt inherent in the court, 156. application for an attachment for a receiver as for contempt must be made and filed in the original cause, 157. receiver has a right to be heard, 157. must be adjudged guilty before punished, 157. question of contempt does not depend on the intention but on the act, 157. instances of, in refusing to obey order, 157. in appropriating funds, 157. for disobedience to injunction, 158. for activity during the operation of a supersedias, 158. for refusing to pay a lien, 158, n. 2. if parties manufacture patented articles, for the manufacture of which the corporation in the hands of a receiver had an exclusive right, such parties are guilty of a contempt of court and may be punished accordingly, 165. CONTRACTS, BREACH OF. See in full Liabilitt of Rbckivkhs. CONTRACTS, appointment of a receiver does not work a, dissolution of corporate contracts, 11. corporation not liable for a receiver's contract, 11. if a receiver's contract is made by direction or authority of the court, it is a judicial one, and the party making it subjects himself to the jurisdiction of the court and may be required to complete it, 144. the court may refuse to carry out, where unsanctioned and improvi- dently made ; example relating to furnishing of supplies, 145, n. 3. but if the court has sanctioned the contract the party has a right to notice upon motion to modify the contract, 146. when the receiver is authorized to make contracts and when he is not ; subject fully considered, 392-397. general rule is that trust estate cannot be charged by receiver with his executory contracts unless he is authorized by the court so to do, 358. 616 INDEX. (The Reference Numbers are to Pages.) CONTRACTS— CoJiimMed. if receiver is not authorized to make contracts binding on the trust estate, he acts on his own responsibility and is personally liable therefor, 358. receiver may relieve himself from even the claim of contract liability by contract by which the party with whom the contract is made agrees to look to the trust estrate, 360. and where the receiver assigns claims as receiver and covenants that the assigned claims are due and unpaid, he is not personally liable on his covenant ; it is representative, 361. ' receiver cannot be compelled by action to fulfill the sample contracts of the corporation, 816. even in extreme cases, 316, n. 3. not even contracts for salary with a general agent, 816. but the fruits of the contract cannot be retained, if the contract is repudiated, 318. when authorized by the court the court must fulfill, even though afterward such action as led to the making of such contract should seem ill-advised, 864. when the receiver is vested with discretion by the court to make con- tracts, receiver's liability is representative, not personal, as a rule, 365-369. especially if the contract is fully executed, 316. receiver has a right to insist upon contracts made with him being strictly enforced, 868. See Actions. CONTRACTORS, claims of for payment for the construction of a road not entitled to a lien prior to mortgage indebtedness unless the money properly applicable thereto has been used to pay the interest on the mort- gages, 129, n. 1, at p. 130. COPARTNERSHIP, when receiver of, may be appointed upon dissolution of, 4. but dissolution of, not effected ipso facto by appointment of a receiver, 7. COUNSEL, receiver will not be appointed for the purpose of collecting a bill for the services of an attorney against an insolvent bank, on the claim that irresponsible parties may obtain control and squander its assets, 75, n. 3. claims of, for fees prior to the appointment of a receiver, not entitled to lien prior to mortgage creditors, 126, n. 2, at p. 127. payment of judgment by, after counsel has gone on appeal bond prior to appointment of receiver, and judgment is thereafter affirmed, does not entitle him to a lien prior to the mortgage creditors, 126, u. 2, at p. 127. annual salary of, falling due only a short time before road passes into receiver's hands, is entitled to priority over mortgage indebtedness, 135, n. 1. INDEX. 617 (The Reference Numbers ark to Pages.) COUNSEL— Continued. general rules governing selection of counsel by the receiver ; who should and who should not be selected, 201. corporation cannot, as a general rule, subject corporate funds in the hands of a receiver to any liability for legal services, 353. but officers of a corporation whose legal existence is attacked should be afforded means of resisting such attack, 354. when they employ counsel the amount of his compensation is addressed to the sound discretion of the court, 354. if a party begins an action for the preservation of property and a receiver is appointed, equity requires that counsel fees and expenses be awarded such party, 354. if the receiver employs counsel he is liable for the value of their services, 355. but corporation is not liable, 355. and even if the order appointing the receiver is revoked, but counsel is paid prior thereto, the compensation received cannot be recovered by the corporation, 356. counsel fees are regarded as a necessary disbursement, 356. if creditors employ counsel, such counsel must look to creditors for compensation and not to receiver, 356. where receiver employs attorney and court passes upon the attorney's fee and the amount allowed is small ; if the attorney sues the receiver individually, the attorney will be held to be concluded by the action of the court, 861. ■where receiver is appointed by the governor of the state, and he em- ploys counsel, the services rendered are not rendered to the receiver as an individual, but as a public agent of the state, 363. if receiver procures counsel and then relies upon the suggestions and advice of such counsel, in whom also the court has confidence, and loss occurs through the counsel's want of good faith, or money is appropriated by him, the receiver will not be held personally responsible, 416, 417. get off legal services may be off-set against an account due to cor- poration to which such services were rendered under circumstances stated, 462, n. 1, at p. 463. amounts paid to counsel, when allowed as such, to the receiver in his accounts, 561-564. COSTS, of action for the benefit of the trust fund should be borne by it, 386. receiver is personally liable for costs when guilty of bad faith or mis- management, 388. taking an appeal in which he is beaten does not charge him, 888. if an action is begun before the appointment of a receiver, and he elect to continue it for benefit of the fund, he must pay all previous costs, as well as those incurred thereafter, 388. 618 INDEX. (The Reference Numbers are to Pages.) COWV^— Continued. receiver cannot be compelled to pay the fees of a referee appointed to- report as to the amount of compensation to be paid to a previous receiver unless such report is confirmed, 388. Bee also Counsel, Liens, Accounts. COURTS, jurisdiction of State and Federal. See Jurisdiction of Rbceiveks AND Powers op Courts over Receivers. CREDITORS, when and to what extent the receiver is the representative of creditors, 255-371 inclusive. See Foreign Creditors, General Creditors, Judgment Cred- itors, Mortgage, Mortgagee, Liens, Limitations upon Powers OF Rbceiverb. CRIMES, corporation not liable for, when committed by receiver's servants, 11, n. 3. CROSSINGS, receiver has no power without order of the court to permit another railroad to cross the line of the railway he represents, 390. accidents upon. See Negligence, Injuries to Persons and Property. farm. Set Farm Crossings. DAMAGES, See Negligence, Injuries to Persons and Property, Insurance, Liability of Receivers, Stockholders, Bondholders, Accounts of Receivers, Employees, Passengers, Libns, Lot Owner. DEATH CLAIMS, See Employee, Passengers, Insurance Companies, Injuries to Persons and Property. DEATH OF RECEIVER, does not abate actions, but his official successor may properly be sub- stituted, 300. See Successor. DEBTS, receiver cannot contract debts upon trust estate of his own motion, 385. especially applicable to receivers of railroads, 385. nor pay debts contracted before his appointment, 288, but the court appointing the receiver may permit a claimant to sue the receiver instead of the corporation, for a debt created by the latter before the receiver's appointment, 315. usually an unliquidated demand will not be set off against a liquidated debt growing out of the breach of contract independent of the debt due the corporation, 467. same rule applies where the debt from the corporation to the creditor is not due at the time of the receiver's appointment ; and the debt to the corporation is due, 467, and notes 467-469. INDEX. 619 (The Reference Numbers are to Pages.) D'EBTS— Continued. creditors whose debts are not due until after the receiver's appoint- ment have the right to equitable set-off, 470. rules to set off as applicable to debts. See Skt-Ofp, Taxes, Trust Fund. DEBENTURES, See Ckrtipicatbs op Eeckivbhs. DEFINITIONS, " assets," 170, n. 2. "chose in action," 198, n. 3, at p. 199. " dissolution of corporation," 27. " expenses," 143, 143. "final decree," 486. "income," 291, n. 1, at p. 293. "laborer," 133, n. 1. "receiver's fund," 291, n. 1, at p. 393. DEMAND FOB POSSESSION, commencement of a suit in equity to enforce a surrender of possession to the mortgagee in accord with the terms of the mortgage is a demand for possession, 376. DEMAND TO BRING SUIT, where the claim is made that the directors have been guilty of neglect of duty, demand should be made upon the receiver to bring suit prior to the institution of any other action, 485. DEPOSITS, municipal funds, county funds, even though wrongfully deposited in bank and mingled with general assets of bank, stand on no different footing than general deposits, 343. DEPOSITOR, in bank becomes a mere creditor, 339. trust relation does not exist, 339. nor does certification of check create it, 339. to create trust relation there must be specific appropriation of a partic- ular fund, 839. depositor in savings bank also a mere creditor, 339. Contra, New Jersey, 843. See Savings Banks, National Banks. See also Powkks op Rbcbivbrs. DIRECTORS, need not make annual report required by statute after the appoint- ment of a receiver, 8. cease to have any power after the appointment of a receiver, 10. but where made trustees by statute upon the dissolution of a corpora- tion, the title does not vest in receiver, 17, n. 1. 620 INDEX. (The Reference Numbers are to Pages.) DIRECTORS— Continued. action may be begun against, to recover a penalty for the violation of a statutory duty. May be instituted in the name of tlie corporation by the receiver, but it must also appear that such action is prose- cuted by direction of the receiver. fraud and mismanagement on their part justifies appointment of receiver, 53, 245. what misconduct justifies such action, on the part of stockholders. Stockholders, Rights of to Appoint Recbiybk. but when bill alleges that the company is insolvent and has suspended its business for want of funds, a receiver will not be appointed if it appears that the directors are closing its affairs, and are in all respects trustworthy, 67. the fact that directors accepted the report of an auditing committee on a defaulting treasurer's account, does not estop the receiver from bringing his action, 194. right of action rests in receiver against directors for loss occasioned by breach of trust, neglect of duty, etc., 195. stockholders are not necessary parties to such proceedings, 195. DISCHARGE OF RECEIVER, it need not necessarily be even a judgment, 437. a provisional remedy, such as a possessory warrant for property in the custody of a receiver, will sufiBce, 437. or an order of injunction, 437. after his discharge he ceases to represent the corporation or its cred- itors, 431. the court cannot make an order that he pay a creditor if he has turned over the funds appertaining to the trust, 431. if the creditor claims that important rights have been afiected by the discharge of the receiver, and if it is important to retain the re- ceiver, the sole remedy of the creditor is to apply to the court to vacate its order so that the creditor may prosecute his rights, 431, n. 1. how it affects claims for personal loss or injury brought against him subsequent to his discharge, 432, n. 1. thereafter, as a general rule, his liability ceases, 430-436. but not so as to absolve him from the effects of orders directing the receiver to do certain things or pay certain moneys, 436. order of discharge may well be regarded as granted subject to the judgment of the court, in any other existing judgment, 426. See also AXTORNBT-yBNEHAL. DISCOUNTS, principles applicable to, in reference to receivers. See Liability of Receivers. DISSOLUTION OP COPARTNERSHIP. See Copartnbkship. INDEX. 621 (The Reference Numbers are to Pages.) DISSOLUTION OF CORPORATION, not necessarily caused by appointment of receiver, 53-54, u, 3. only results when the period of its legal existence has expired, 8. or when Its charter is annuled, 8. or when a court of competent jurisdiction has declared, 8. or its corporate rights have been surrendered, 8. but not affected by sale of property by receiver by court's order, 8. what facts will be deemed to create, 8, u. 5. contractual relations survive and may be enforced out of prop- erty, 10. Effects upon actions ; action for negligence in New York does not abate upon the disso- lution of the corporation, 18, n. 1. action may be maintained therefor against receiver, 18, n. 1. upon dissolution and the appointment of a receiver all suits for or against corporation abate and all proceedings for or against it are void, 24. by the term " dissolution " it is not intended to embrace cases where dissolution has occurred in consequence of insolvency or non.user or misuser of the corporate franchise, the term " dis- solution " has reference to a formal or judicially declared disso- lution, 37. until it has been formally dissolved, the corporation may sue and be sued in its own name, notwithstanding the appointment of a receiver, 37. a judgment obtained in such case is valid both against the corpo- ration and the receiver, 37. after dissolution the receiver cannot, without authority from the court appointing him, bind the assets of the corporation, 26. when wrongfully declared to bind the assets, a court of foreign jurisdiction will not recognise such invalid act when the rights of its own citizens will be prejudiced, 37. by Wisconsin statutes court may, by injunction, restrain an insol- vent corporation from exercising any corporate rights or fran- chise, or from collecting or recovering debts, 28. also from a party instituting action against it for any purpose, 39. " and also from the further prosecution of an action begun before the receiver was appointed, and who seeks to prosecute the action for his own benefit, 29. but this case not commended, 29. When Receivbb will be appointed upon; method of dissolution usually prescribed by statute, 79. method for voluntary dissolution in New Tork, 85. powers of statutory trustees in such case provided for, 79. should have notice of application for appointment of receiver, 79. 622 INDEX. (The Reference Numbers are to Pages.) DISSOLUTION OP CORPORATION— Ooniinued. corporation may not maintain action in its own name after disso- lution to recover assets, but the receiver can maintain such action in his name as receiver without joining the corporation, 197. See also Actions, Appointment of Rbcbivbr. DISCRIMINATION IN RATES, unjust discrimination in charges imposed by rival shippers over a railroad by a receiver is contrary to law and will not be per- mitted, 288. DISCHARGE OF RECEIVERS, See Removal of Receivbe. DIVIDENDS, declared out of surplus profits and fund set apart for payment thereof to stockholders and checks in favor of stockholders drawn is subject to the equitable lien of stockholders, though the corporation becomes insolvent and passes into the hands of receiver, 21. but not so if no specific fund appropriated to meet checks, 21. after receiver's appointment, unpaid dividends are mere debts on a parity with the general indebtedness, 21. when a claiment is debarred from receiving a dividend declared by the receiver, 449, n. 1 , at p. 450. DRAFTS, where drafts are received by a bank from its correspondent and it credits them as cash, with the understanding that any unpaid draft is to be credited back to its correspondent, the fact that such drafts had on them the words "for collection" does not create a trust relation, 340, n. 1 ; See also pp. 384, 385. EARNINGS, when these come into the hands of a receiver they will be distributed in the order of their priority among the mortgage creditors, 221. they are not the property of the railroad company and are not included in a general description of its property, so as to entitle the purchaser to the same on sale of road, 221. cannot be recovered by receiver prior to the time he took possession, if such earnings remain in the hands of its officers or were paid to them subsequent to his appointment, 281. EJECTMENT, if a, receiver pendente lite finds it necessary to bring suit to reduce chases in action to possession or to recover the property entrusted to his custody, he must sue in ejectment in the name of the corpora- tion, 280. when it will not lie to recover land held by the receiver, 457, n. 1. EMINENT DOMAIN, lands in possession of the receiver cannot be taken by eminent domain for railroad purposes without permission of the court, 105. INDEX. 623 fTHE Reference Numbers are to Pages.) EMPLOYEES, who are and who are not included in the term " employee," or "lab- orer," as used in the statutes giving such persons a specific lien, 133 and 133, n. 1. for claims for negligence resulting in personal injury of employees see Negligence. ENGINE (LOCOMOTIVE), where the claim is made that the receiver is in wrongful possession ; as to remedy, etc., see 454, n. 2, 457, n. 3. when sold on condition of payment on delivery, and such condition is not enforced, this condition does not entitle the vendor to a lien prior to the mortgage creditors, 126, n. 2, at p. 127. EQUIPMENT, claim for, awarded priority over mortgage indebtedness, 135, n. 1. See fully Liens. EQUITY, in the absence of any statute giving the power, a court of equity has no authority to act as a court of insolvency for the liquidation of an insolvent corporation, 66. it has no distinctive jurisdiction over corporations to restrain them in the exercise of their powers or control their action or prevent them from violating their charter where no fraud or breach of trust is alleged as the foundation of the claim for equitable relief, 67, but see 166, n. 1. nor is the rule changed because the application for the appointment of a receiver of an insolvent corporation is made by the corporation itself or with its consent, 67. for full consideration of the power of courts of equity to restrain liti- gation against the receiver and to create liens superior to the mort- gage indebtedness consult Powers op Courts oyer Receivers, pp. 110-131. but where no distinctive equitable principles are involved a court has no right to dispense with rules of law and determine the case upon principles of equity, 274. See also Rolling Stock, Liens. IIQUITABLE DISCRETION, court may in the exercise thereof award priority to claims owing to employees prior to receiver's appointment, 135. also to claims for labor and supplies accruing within six months of receiver's appointment, 135, n. 1, at p. 136. to claims for equipment and supplies furnished on running account, 135, n. 1, at p. 136. claims for money advanced by the bondholders to employees who threatened to strike, 136. but these cases overruled by later decisions, 136. 624 INDEX. (The Reference Numbers are to Pages.) ESTOPPEL, when creditors are estopped from presenting claims against the re- ceiver, 451. EXECUTION, judgment creditor is not bound to issue an execution and have a return nulla bona before equity will appoint a receiver, 58. for validity and invalidity of sales made thereunder as against receiver see Sale. See also Judgment, Lien, Levy, EXECUTIVE COMMITTEE, where they vote to themselves large sums as promotors in addition to their salaries a receiver may be appointed at the instance of the stockholders, 57. EXPENSES, what are properly included in the term, " receiver's ordinary ex- penses," 142, 143. contracted by receiver on trust estate are not valid unless receiving the prior, or there is obtained the subsequent, sanction of court, 286. propriety of, cannot be determined by receiver, 287. what will be allowed as such to the receiver in his accounts, 561-566. payment for, does not entitle party claiming, to a lien prior to th& mortgage creditors, 126, n. 3, at p. 127. EX PARTE PROCEEDINGS, if receiver appointed ex parte, necessity therefor must be clearly shown, 33. See Appointment op Receiver. EVIDENCE, See Appointment of Receiver. FARES, claim for, by connecting lines, what priority accorded to, over mort- gage indebtedness, 126, n. 2. FARM CROSSING, procedure against a receiver when a j adgment has been obt ained com- pelling the company to construct a farm crossing, 315. FEDERAL COURTS, acts empowering State courts to control the earnings of railroads which are in the hands of receivers appointed by Federal courts are void ; jurisdiction of Federal courts is complete and exclusive, 11, n. 3. may appoint receiver though there be no corporate property in the same District where court is held, 5. sufficient if the corporation appear, 5. this holds good in the case of foreign corporation, 5. and in the case of a foreign corporation it is sufficient if corporate property exist within the jurisdiction of the court, 5. See also Jurisdiction of Receivers, Powers of Courts ovbk Receivers. INDEX. 625 (The Reference Numbers are to Pages.) FEES. See Counsel ; also Liens. FILING OP CLAIMS, the power of the court is inherent to relieve a creditor from a default in filing a claim, even after limitation to do bo as stated in published notice has expired, 154. but this is not matter of right, 154. but the order cannot be disturbed on appeal, 156. if time-limit fixed for presentation, rule stated as to when creditors will and when will not be precluded if claims are not presented within such period, 449, n. 1, at p. 450. court may fix time for presentation and payment of claims in the nature of liens, 491. FINAL DECREE, definition of, 486. FIRE INSURANCE. See Insuuancb. " FOR COLLECTION," effects of these words on drafts when placed thereon, as establishing a trust relation, 340, n. 1. FOREIGN CORPORATIONS, property of, is subject to attachment at a suit brought by a creditor though the receiver be appointed in another state, 21. where officers who have complete control of a foreign corporation in process of voluntary dissolution have in their possession corporate funds which are not amenable to jurisdiction of state when corpo- ration was created, and they refuse to make payments from funds to creditors and stockholders, receiver will be appointed, 60. and also where the property of a foreign corporation is transferred to a domestic corporation on the sole consideration that the stock shall go to the shareholders of a foreign corporation, subject to the pay- ment of its debts, 60. and also where a railroad extending through several states is applying its revenues (the only means of paying a prior mortgage) to the pay- ment of junior incumbrances, 60. See also Attachment. FOREIGN CREDITORS, will not be allowed, by an attachment or an assignment of a claim to a resident of the state, to obtain a preference over other creditors, 36, n. 2, 41. but rule otherwise in Georgia and Texas, 37. See also Attachment. FOREIGN JURISDICTION. See Jtimsdiction of Receivers. FOREIGN RECEIVER, will never be permitted, as against the claims of resident creditors, to remove from the state the assets of the corporation, 229. when possession of corporate property will be adjudged to him as against the claims of resident creditors, 229, n. 1. 626 INDEX. (The Reference Numbers are to Pages.) FOREIGN EECEIVBR— (7o?i