United States Trust Co. v. New York West Shore & Buffalo Railway Co. , 101 N.Y. 478 ( 1886 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The Code of Civil Procedure, which was in force when the proceedings in this action were taken, furnishes the general rule governing the allowance of commissions to receivers. It is found in section 3320, which provides as follows: "§ 3320. A receiver, except as otherwise specially 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 judge by whom he is appointed, allows." The judge at Special Term in substance held that this section governed the allowance of commissions in the case, and made an order fixing the commissions of the receivers at a gross sum, less than five per centum upon the sums received and disbursed. The order of the Special Term was affirmed by the General Term, and the only question presented on this appeal, is as to the application of section 3220 to the case of a receiverpendente lite, appointed in a foreclosure action, to foreclose a mortgage executed by a corporation. It is plain that the section is applicable to receivers appointed in foreclosure actions, where the mortgagor is an individual. But it is claimed that the case of a receiver appointed in a foreclosure action against a corporation, is taken out of the general rule of law by force of the second section of the act, chapter 378 of the Laws of 1883, and that by that section such a receiver is entitled to a fixed percentage upon receipts and disbursements, which the court is bound to allow, irrespective of any consideration of the character or value of the services rendered. The act of 1883 is entitled "An act in relation to receivers of corporations." The second section, upon which the appellants rely, is as follows: "§ 2. Every receiver shall be allowed to receive as compensation for his services as such receiver, five per cent for the first $100,000 actually received and paid out, and two and one-half per cent on all sums received and paid out in excess of the said $100,000." We have reached the conclusion that the appellants were not "receivers of corporations" within the meaning of the act of 1883, and shall content ourselves with a brief statement of the reasons for our judgment. The power of a Court of Chancery to appoint a receiverpendente lite, in foreclosure cases, is a part of its incidental jurisdiction, not depending upon any statute, and which it exercises, whenever by reason of the insufficiency of the security, or other reason, equity requires that the rents and profits of the mortgaged property, pending the litigation, should be impounded and retained, to be applied upon the debt, to be ascertained by the final judgment. (Hollenbeck v. Donnell,94 N.Y. 342.) The receiver by virtue of his appointment, takes possession of the mortgaged property and receives the rents and profits as the officer of the court, but the title to the property is not changed, but remains in the mortgagor until a sale under the decree in the action. (Keeney v. Home Ins.Co., 71 N.Y. 396.) This jurisdiction is not affected by the character of the mortgagor, whether an individual or a corporation. It rests upon grounds quite independent of the character of the parties to the instrument, or the nature of the mortgaged property. But it was held at an early day in this State, that the jurisdiction of chancery did not extend to the sequestration of the property of a corporation by means of a receiver, or to the winding up of its affairs, or to control or restrain the usurpation of franchises by corporate bodies, or by persons claiming without right to exercise corporate powers. (Attorney-General v. Utica Ins. Co., 2 Johns. Ch. 371;Attorney-General v. Bk. of Niagara, Hopk. 354.) The refusal of the Court of Chancery to entertain jurisdiction of corporate bodies, at the instance of creditors, or to wind up their affairs in case of insolvency, led to the enactment by the legislature in 1825, of the act chapter 325 of the laws of that year, entitled "An act to prevent fraudulent bankruptcies of incorporated companies, and to facilitate proceedings against them," etc. By this act jurisdiction was conferred upon the Court of Chancery to sequestrate the property of a corporation, upon the application of a judgment creditor, after the return of an execution unsatisfied, and to appoint a receiver of its property (§ 15), and in case of an incorporated bank, which had become insolvent, or had violated its charter, it authorized the Court of Chancery, upon the petition of the attorney-general, or of a creditor, to proceed by injunction and to appoint a receiver of the property of the bank, and to distribute the same among its creditors (§ 17). The provisions of the act of 1825, enlarged and extended, were incorporated into the Revised Statutes, in the article entitled, "Of proceedings against corporations in equity" (2 R.S. 462), and a complete statutory system was enacted for the winding up of the affairs of a corporation against which an execution had been returned unsatisfied, at the instance of the creditor in the execution, and for similar proceedings against insolvent banking or other specified corporations, at the instance of the attorney-general, or any creditor or stockholder (§§ 36, 39, 40, 41). The court was authorized to appoint receivers of the corporate property. Their powers and duties are specified in the statute in great detail, and it is declared that receivers so appointed shall be "vested with all the estate, real and personal, of such corporation," and they are declared to be "trustees of such estate, for the benefit of the creditors of such corporation, and its stockholders." (2 R.S. 469, §§ 67, 68.) The system inaugurated by the act of 1825, and incorporated into the Revised Statutes, has been continued by the Codes, and for fifty years prior to the act of 1883, had been the statutory system of procedure for the winding up of the affairs of insolvent corporations, through receivers appointed by the court, not by virtue of its inherent jurisdiction, but under statutory authority, the statute which authorized their appointment, also prescribing with great minuteness their powers and duties. The immediate point in controversy is, whether the act of 1883, was an additional regulation prescribing the rights and duties of receivers of insolvent corporations, or has a wider scope, embracing all receivers of a corporation or of corporate property, however appointed, or for whatever purpose the appointment may have been made. We think the limited construction of the statute is the true one, and that the general language of the second section, prescribing the fees of receivers, must, in view of the context, be construed as relating only to receivers of insolvent corporations. The act is made up mainly from the provisions of chapter 537 of the Laws of 1880, and the subsequent amendments of 1881 and 1882 (Laws of 1881, Chap. 639; Laws of 1882, Chap. 331), and those acts expressly related to receivers of insolvent corporations. The first section is new, and in substance is a legislative enactment of the Supreme Court rule No. 81, and prescribes that an application for the appointment of a receiver of a corporation, shall be made in the judicial district in which the principal business office of the corporation is located, or in a county adjoining such district. This section makes no reference to the nature of the proceeding in which the application is made. But a reference to the ninth section shows that proceedings against insolvent corporations only were in contemplation. The ninth section declares that all applications to the court, contemplated by the act, shall be made in the judicial district where the principal office of the "insolvent corporation" was located. The other sections provide for orders and proceedings of various kinds. If the nature of the proceeding to which the act relates is left indefinite by any of the other sections, the obscurity is removed by the ninth section, which shows that the legislature was dealing with insolvent corporations, and that the orders to be made, were in proceedings against such corporations only. The second section is the one prescribing the fees. The third section provides that the order appointing the receiver shall designate the place of deposit of the funds of the corporation, and that they shall not be deposited elsewhere, except upon the order of the court, on notice to the attorney-general. The application for an order changing the place of deposit must, according to the ninth section, be made in the judicial district where the principal office of the "insolvent corporation" is located. The third section, therefore, relates to a proceeding against an insolvent corporation, for it is only in such a proceeding, as appears by the ninth section, that an order is contemplated. The fourth section makes it the duty of the receiver of an insurance, banking or railroad corporation to make and file periodical accounts every six months, prohibits his paying to any attorney or counsel, any costs, fees or allowances, until the amounts shall have been stated and approved by the court "by an order duly entered," and requires notice of the presentation of any such accounts, to be given to the attorney-general, who is also required to examine the books and accounts of the receiver at least once every twelve months, provisions very appropriate to a receivership for winding up the affairs of a corporation. It is not questioned that the remaining sections of the act, from five to ten, both inclusive, relate exclusively to proceedings against insolvent corporations. We think the preceding sections relate to the same subject. It is a matter of public notoriety that the act of 1883 was passed, in view of the scandals which had been set afloat, in respect to the administration of the affairs of insolvent corporations through receivers. Omitting the second section, it is, we think, reasonably clear that the object of the act was to supplement the existing legislation, in respect to the winding up of the affairs of insolvent corporations, and to provide further restrictions and safe-guards against the misuse or depletion of corporate funds in the hands of the receivers. The second section deals with a subject germane to the purpose of the act, and fixes the compensation of the receiver, and when it used the language, "every receiver," it is by the ordinary rules of interpretation and construction of statutes, to be restrained to the particular subject with which the legislature was dealing, and to which the section in question had an appropriate application. (See Smith v. People, 47 N.Y. 330; People v. McClave, 99 id. 83.)

The conclusion is that the act of 1883, including the second section, relates exclusively to receivers of corporations, appointed in proceedings in insolvency.

The order should therefore be affirmed.

All concur.

Order affirmed.