McKinney v. Nayberger , 138 Or. 203 ( 1931 )

ON THE MERITS (2 P.2d 1111) Department 1. This is an appeal from a judgment of involuntary nonsuit entered by the circuit court in an action wherein the complaint alleged that in a suit for the foreclosure of a mortgage instituted by the defendant Nayberger, as plaintiff, against this plaintiff, Nayberger prayed for and wrongfully obtained the appointment of this other defendant Guild as the receiver of a parcel of improved income-producing real property owned by the present plaintiff. The complaint in the present action alleges that, after the circuit court had appointed Guild, this court held void the circuit court's order, and that as a result of the wrongful receivership the plaintiff sustained damages in the sum of $25,550. The only facts of which we need take notice are: The plaintiff owned a parcel of improved income-producing real property in Portland, encumbered with two mortgages, the second of which was owned by the defendant Nayberger; the latter instituted a suit for the foreclosure of his mortgage and moved for the appointment of a receiver; after appropriate service had been made upon McKinney (this plaintiff, but defendant in that suit), McKinney opposed the application; thereupon a hearing was had in the circuit court and the petition was allowed; the circuit court fixed the receiver's bond in the sum of $1,000, but demanded no undertaking in McKinney's favor in the event it should develop that the receivership was improperly allowed; Guild qualified for his office, and took possession of the property, which was an apartment house; when a Mrs. Nichols, who was McKinney's agent in charge of the property, refused to recognize Guild's authority and refused to pay to him rent she continued to collect from the tenants, Guild caused her to be cited for contempt of court by the circuit court; upon the hearing she was adjudged guilty; thereafter Guild collected the rents which included a charge for the use of the furniture belonging to McKinney; Guild, upon taking possession, requested the plaintiff to move this furniture out of the building; the plaintiff declined to do so, protesting Guild's possession; these furnishings were not subject to the mortgage, were free from all encumbrances, and were not mentioned in the order appointing Guild; the latter remained in possession as receiver for approximately 17 months' time; the receivership was terminated when this court in State ex rel. Nayberger v.McDonald, 128 Or. 684 (274 P. 1104), being an appeal by the aforesaid Mrs. Nichols from the order of the circuit court which had adjudged her guilty of contempt, held: "The appointment (of Guild as receiver) was absolutely void. Being a mere nullity, the defendant here was not bound to obey it. Neither was McKinney the owner of the property." McKinney never appealed from the order which granted the receivership and that order has not been vacated.

The complaint in the present action alleged that the order appointing Guild receiver "was wholly void in that said circuit court was without jurisdiction," but contained no allegations of malice and the absence of probable cause. The answer avers that before Nayberger applied to the court he had stated fully all of the facts to his attorney, obtained his advice, and acted throughout in good faith. The plaintiff does not contend that the proof disclosed malice or bad faith.

The defendant contends that, since the aforementioned allegations are absent from the complaint and since the proof fails to disclose malice, the judgment of the circuit court must be affirmed. He calls to our attention Mitchell v. Silver Lake Lodge, 29 Or. 294 (45 P. 798), and Hess v. German Baking Co., 37 Or. 297 (60 P. 1011). In the first of these cases this court held that a defendant whose property had been wrongfully attached could not recover damages against the plaintiff without alleging and proving that his adversary was actuated by malice and acted without probable cause when he procured the writ, unless the action was upon the attachment bond. The decision pointed out: "Upon the termination of a civil action in favor of the defendant, the costs and disbursements awarded him by law are considered to be an adequate compensation for his injury, and sufficient punishment of the plaintiff for prosecuting an unfounded claim." Accordingly, the court concluded that in any action to secure further compensation, not founded upon the bond, the plaintiff must prove malice and the lack of probable cause. Section 4-403, Oregon Code 1930, provides that a plaintiff shall be entitled to a writ of attachment upon filing his affidavit and an undertaking to the effect "the plaintiff will pay all costs that may be adjudged to the defendant, and all damages which he may sustain by reason of the attachment, if the same be wrongful or without sufficient cause * * *." The second of the two above cases, which also was a common law action, was dismissed for like reasons, the court holding that no liability existed in the absence of proof of malice and want of probable cause. Section 6-402, Oregon Code 1930, provides that before the allowance of a writ of injunction "the court or judge shall require of the plaintiff an undertaking * * * to the effect that he will pay all costs and disbursements that may be decreed to the defendant, and such damages, not exceeding an amount therein specified, as he may sustain by reason of the injunction if the same be wrongful or without sufficient cause." Our code contains no provision for the exaction of a bond from one who applies for a receivership.

The defendants contend that the reasoning employed by the two above cases is equally applicable to our present problem, whereas the plaintiff insists that where the writ which appointed the receiver is subsequently declared void the receiver and the party who petitioned for the appointment are both liable to the injured individual as trespassers ab initio.

In further support of their position, the defendants have called to our attention Riner v. Ramey-Milburn Co.,166 Ark. 221 (265 S.W. 963). In that case the complaint alleged that one Sevick owned a large quantity of property which he conveyed to the plaintiff; that later the defendants sued Sevick on divers account and alleged that Sevick's conveyance to the plaintiff was fraudulent; that they obtained the appointment of a receiver of Sevick's property, including that which Sevick had conveyed to the plaintiffs; that the receiver went into possession; that this plaintiff filed an answer in that suit; and that subsequently upon the trial the court found that its action in appointing the receiver was unwarranted. The action of the lower court in sustaining a demurrer to the complaint was affirmed on appeal; we quote from the decision thus:

"To be sure, in those jurisdictions where the statute requires the execution of a bond, by the party applying for a receiver, to pay all damages growing out of the wrongful appointment of such receiver, such damages are recoverable in an action on the bond, and it is not necessary in such cases to prove that the action in which the receiver was appointed, and the appointment of the receiver, was malicious, and without probable cause. [Cites cases.]

"But in jurisdictions like ours, where there is no such statute, and where there is no law forbidding the appointment of a receiver without bond, and where the matter of the appointment of such a receiver depends entirely upon the discretion of the court, judge, or chancellor, there can be no liability for damages growing out of the appointment of a receiver, in the absence of allegations and proof to the effect that the appointment was sought and obtained maliciously, or without probable cause. In the absence of a statute requiring the party applying for a receiver to pay damages growing out of a wrongful appointment, the action against a party wrongfully procuring the appointment of a receiver is likened to that accruing on the dissolution of an improperly procured injunction."

But see K.C. Oil Co. v. Harvest Oil Gas Co., 80 Okla. 61 (194 P. 228), and Wagoner Oil Gas Co. v. Marlow, 137 Okla. 116 (278 P. 294), in both of which the court declared that a recovery could be had without proof of malice and the absence of probable cause, even though the statutes of Oklahoma made no provision for the execution of a bond to indemnify the defendant in the event the receivership was found to be unwarranted. The authority ofRiner v. Ramey-Milburn Co., supra, is seriously impaired by its later holding in Bank of Shirley v. Bonds, 178 Ark. 1079 (13 S.W.2d 816), where the court again had before it the question of the allowance of damages to one who had been injured by a wrongful receivership, but who had not succeeded in proving malice and the absence or probable cause. The court sustained the allowance of recovery, justifying its action, thus: "The court found in the instant case, upon testimony that justified the finding, that no ground or necessity existed for the appointment of the receiver, which was tantamount to finding that the appointment was obtained without probable cause, and inferably with malice."

The plaintiff calls to our attention Thornton-Thomas Co. v.Bretherton, 32 Mont. 80 (80 P. 10). The complaint in that action alleged that the application for the appointment of the receiver was made maliciously and without probable cause. While the Supreme Court did not so declare, nevertheless, it seems from its statement concerning the evidence that the allegation just mentioned was possibly supported by proof. But the court in sustaining the recovery held that the aforementioned allegations of the complaint were "surplusage." After an extensive review of the authorities, it expressed itself thus:

"Under the authorities, John D. Thomas, Bretherton, and the receiver were trespassers ab initio, and their acts particularly described in the complaint cannot be justified. The plaintiff does not demand as damages interest, prospective profits, or exemplary damages, and the allegations of the complaint concerning the extent of the business of the company, or the conduct of said trespassers tending to show fraud, oppression, or malice, must be treated as surplusage."

Plaintiff also cites K.C. Oil Co. v. Harvest Oil Gas Co., supra, wherein the trial court granted the plaintiff a judgment for $2,000 damages against a defendant who, as plaintiff, had wrongfully secured the appointment of a receiver. Although the evidence possibly was capable of supporting a finding that the application for the receivership was the result of a desire to improperly secure possession of the involved property, the court clearly stated that it was unnecessary to allege malice and the absence of probable cause, thus:

"Persons who wrongfully procure the appointment of a receiver, become, after the appointment is judicially declared void, trespassers ab initio, and liable for the damages caused by their wrongful acts. It is not necessary, in order to recover damages for wrongfully procuring the appointment of a receiver, to show that the appointment was procured maliciously, and without probable cause. In an action for damages for wrongfully securing the appointment of a receiver, the general rules as to burden of proof and admissibility of evidence in civil actions apply. Plaintiff is entitled to all damages which he may sustain by reason of such appointment, and in determining the measure of damages it is proper to consider the injury to plaintiff's possession during the period of the receivership, the amount of good and collectable accounts lost by reason of the receivership, and the value of the services of counsel employed to procure the vacation of the order appointing the receiver."

The above language is quoted with approval in Wagoner Oil Gas Co. v. Marlow, supra.

The plaintiff also calls to our attention Bowman v. Hazen,69 Kan. 682 (77 P. 589), wherein the order appointing the receiver extended the receiver's authority over not only the property involved in the litigation but also over an additional parcel. The receivership was subsequently vacated as being wrongful. Recovery was sustained although the proof did not indicate malice. In Cecil v. Cecil's Ex'rs Trustees, 188 Ky. 700 (223 S.W. 1092), the court, without demanding proof of malice and the absence of probable cause, sustained the right to recover rents and profits from a receiver who had acted under a void appointment. In Haverly v. Elliott, 39 Neb. 201 (57 N.W. 1010), which was an action upon the undertaking, the court said: "The judgment of the court that this receiver was wrongfully appointed put Mr. Haverly and the receiver in the position of trespassers." See also Joslin v. Williams, 76 Neb. 594 (107 N.W. 837, 112 N.W. 343). In Strum v. Blair, 182 Ill. App. 413, the court, after quoting from the statute which made provision for an indemnity bond upon the application for a receivership, held:

"Counsel for plaintiff in error insists that the section quoted only applies in cases where bond is given, as required by that section. That is a mistake. The giving of the bond does not create the liability as to the principal. It merely secures the payment of the damages. It is the wrongful procurement of the appointment of the receiver that creates the liability. High on Receivers (4th Ed.) sec. 10, likens the appointment of receivers to injunction proceedings, and our Supreme Court, in Kohlsaat v.Crate, 144 Ill. 14 [32 N.E. 481], holds that liability for solicitor's fees on dissolution for injunction arises from the wrongful suing out of the injunction and not from the giving of the bond, and is recoverable from the complainant whether bond is given or not, and regardless of the amount of the bond, if one is given. The Liquid Carbonic Acid Mfg. Co. v. Convert, 186 Ill. 334 [57 N.E. 1129], and Smith v. Michigan Buggy Co., 175 Ill. 619 [51 N.E. 569, 67 Am. St. Rep. 242], are not in point under the facts in this case. In the Convert case, supra, no receiver was appointed, the application therefor being successfully resisted, and the Smith case, supra, was for malicious prosecution. In the case at bar, the liability does not depend on whether the prosecution of the foreclosure case was malicious or not. The receiver was in fact appointed and the order therefor afterwards revoked on motion."

The above seem to be the only cases which are capable of assisting directly in the solution of the problem before us. We believe that a distinction of consequence exists between the situation developed by a wrongful attachment or injunction and that brought about by a wrongful receivership. When it develops that the writ under which the receiver has taken possession is void, he is left without warrant for the acts which now appear as trespasses. It is our conclusion that an action of this character may be maintained even though the plaintiff is unable to submit proof of malice. When it develops that the appointment is void and inflicted injury upon the individual who was deprived of his property, the action is maintainable. As previously indicated, this court in Naybergerv. McDonald et al., supra, held the receivership void.

It is next contended that since the circuit court did not vacate the order which appointed Guild as receiver, and since McKinney never appealed from that order, the present action could not be maintained. Defendant maintains that this constitutes an unwarranted collateral attack upon the order which appointed Guild. However, in Nayberger v. McDonald, as we have already pointed out, our decision held that the order for the receivership was "absolutely void * * * a mere nullity." Our decision pointed out that the order for the receivership disregarded the statutory limitations upon the court's authority to appoint a receiver. In fact, Mrs. Nichols' attack upon the order was a collateral one itself. We have, however, again examined the issue and remain satisfied with the conclusion expressed in our above decision.

It is evident from the authorities above cited that the conduct of these defendants was that of trespassers and that they are liable accordingly. It likewise follows from the foregoing that the judgment of the circuit court was in error. We deem it unnecessary to express an opinion concerning the other matters argued in the briefs. The judgment of the circuit court will be reversed.

BEAN, C.J., RAND and KELLY, JJ., concur.