Vila v. Grand Island Electric Light, Ice & Cold Storage Co.

Lobingier, C.

On December 6,1900, appellees filed in the district court for Hall county a petition mailing the Grand Island Electric Light, Ice & Cold Storage Company a defendant, alleging that it had, on June 18, previous, mortgaged its plant and other property to appellee Vila for $15,000; that $4,000 of this had been used for other purposes than paying off a prior mortgage as agreed; “that said defendant is now and will be wholly unable to pay the interest or any part thereof to become due on its said mortgage indebtedness on January 1, 1901; that defendant is also wholly without ability or means to pay any part of its floating indebtedness amounting to about the sum. of eighty-six hundred and sixty-two dollars ($8,662) and its creditors are threatening to attach the mortgaged property hereinbefore described”; that defendant had failed to keep its plant in repair as required by the mortgage; and that by the terms of the mortgage the noncompliance with its covenants entitled plaintiff to an appointment of a receiver. Another clause of the mortgage quoted in the petition authorizes such appointment “upon the commencement of suit to foreclose,” and the petition contained the following prayer: “Wherefore the plaintiffs pray that a receiver be appointed for defendant and the said receiver be given authority to do each and all of the things mentioned in said mortgage, to wit: To take possession of all the defendant’s property covered by said mortgage and to manage and operate the business and to collect its income and profits and to apply the same upon the expenses and charges for maintaining and' operating said business and paying the obligations secured by plaintiffs’ mortgage and for such other and further relief as to the court may seem meet and proper.”

On the next day the following answer was filed on behalf of the defendant:

“Now comes the above named defendant and for answer to the plaintiff’s petition admits the facts therein stated and consents to the appointment of a receiver in this action as prayed in the plaintiffs’ petition.”

On the same day a receiver was appointed to take charge of the “property, business and assets of the defendant” (part of which is enumerated), “and all other property of every kind or character, belonging to or pertaining to said defendant and its business.” By the terms off this order the receiver is directed, inter alia\} “to operate and carry on the business of the defendant.” The next order appearing in the record is dated March 5, 1901, and recites “that it is for the best interest of the parties hereto, of the said trust and all persons interested therein that the business of the said defendant, the Grand Island Electric Light, Ice & Gold Storage Company be speedily closed and the affairs thereof wound up as soon as possible.” In this order also the receiver is directed to notify all creditors of the defendant to file their claims. It does not appear in the record upon what this order is based or at whose instance it was obtained. On March 25, the several appellants filed individual petitions of intervention, alleging the recovery of judgments before a justice of the peace on claims for labor performed in defendant’s behalf. The aggregate amount of these claims was about $700, and each petitioner prayed that his claim should be given preference, and alleged that the property in the hands of the receiver included about $9,000 worth of personalty which was not covered by plaintiffs’ mortgage, and each prayed that he might share in the fund arising from the sale thereof. An order granting leave to intervene as prayed, was entered on the same day that these petitions were filed, and on the following day the receiver filed a report as to the condition of the business, in which he recommended a speedy sale of the entire property in Ms hands. Objections to this application to sell were filed by the interveners, and also by appellee Kinkel, a stockholder in the defendant corporation. These were overruled, and an order made requiring an inventory and appraisement of the property, in pursuance of which the appraisers fixed the valuation of the plant in the aggregate at $25,000. On May 6, a decree was rendered, in which demurrers to the several petitions of intervention were sustained, but the claims of the interveners, among others, were allowed, less the court costs of placing them in judgment. By this decree, the court also found that certain of the property in the receiver’s hands was personalty and was not covered by plaintiff’s mortgage, but it ¿Iso found “that all of the property, goods and franchises, real, personal or mixed, coming into the hands of the said receiver, save that which is herein specifically found to be personal property, is covered by the said plaintiff’s .mortgage.” The decree directed a sale, subject to the mortgage, of all property covered thereby, and a separate sale of the remaining personalty, and on June 8 the entire property was sold to G. H. Payne, trustee, president of appellee Payne-Knox Company, for $2,800 for the mortgaged property and $150 for the balance. This is about one-third of the floating debt alleged, as we have seen, to exist at the beginning of the suit. Objections to confirmation of the sale were filed by interveners, they having previously objected to the appraisement, but these were overruled and the sale confirmed on June 22. Interveners bring the cause here by appeal, attaching both the decree of May 6, directing a sale, and also the order of June 22, confirming the same. These orders are both made a part of the transcript which was filed here October 11, and a review of them brings before us also the question as to the validity of the order appointing the receiver (Seeds Dry-Plate Co. v. Heyn Photo-Supply Co., 57 Neb. 214, 216), for if this was invalid the subsequent proceedings, being based thereon, are necessarily so.

Apellants contend that there was no “suit actually commenced and pending” as required by section 267 of the Code before a receiver may be appointed. This requirement is jurisdictional. “The order appointing a receiver was void, for the reason that it was made when there was no suit pending.” Cooley, J., in Merchants’ & Manufacturers’ Nat. Bank of Detroit v. Kent Circuit Judge, 43 Mich. 292, 296.

“No authority is given by the statutes of this state to its courts, Or to judges thereof in vacation, .to make such an appointment, except in a pending suit, nor does it inhere in any of them under their general jurisdiction as courts of equity.” State v. Ross, 122 Mo. 435, 456; Cf. In re Brant, 96 Fed. 257, where the authorities are collated.

Moreover, the suit which must be “actually commenced and pending” as a condition precedent to an appointment of a receiver, must be one in which the main relief sought is independent of the receivership. The latter is a purely ancillary remedy.

“It is not the office of a court of equity to appoint receivers as a mode of granting ultimate relief. They are appointed as a measure ancillary to the enforcement of some recognized equitable right.” Baldwin, J., in Barber v. International Company of Mexico, 73 Conn. 587, 593.

“Unless, possibly, in cases provided for by the statute, the appointment of a receiver can only be made in aid of the main action; although such appointment may be a part of the relief sought by the complaint.” State v. Union Nat. Bank of Muncie, 145 Ind. 537, 550.

“The appointment is not the ultimate end and object of the suit, but is merely a provisional remedy or auxiliary proceeding.” State v. Ross, 122 Mo. 435, 456.

Tested by these authorities, we are unable to say there was “a suit actually commenced and pending” when the receiver in this case was appointed. It is true that a petition had been filed the day previous, but this would not constitute such a suit, unless it set forth grounds instituting an actual controversy and demanding substantial relief beyond the mere appointment of a receiver.

In State v. Ross, 122 Mo. 435, a corporation filed a petition alleging that its plant was heavily incumbered, -and praying for the appointment of a receiver, with a prayer, as here, for general relief. A receiver was appointed, hut upon application to the supreme court a writ of prohibition was granted, and the court said (p. 457) : “The filing of that petition no more instituted an actual controversy between contending suitors in court, than would the filing of a copy of the Lord’s Prayer. It laid no foundation whatever for the exercise of the jurisdiction of the court to appoint a receiver, unless some ground for the exercise of that jurisdiction can be found other than an actual, pending controversy in the court which undertook its exercise.”

The petition in this case contains no prayer for specific relief other than the appointment of a receiver. Some of its allegations, indeed, resemble those of an ordinary petition to foreclose a mortgage. But no such relief is asked, and, waiving the question whether a decree of foreclosure may be rendered under a prayer for general relief, we have searched this petition in vain for averments which declare plaintiff’s right to a foreclosure. The mortgage itself is not attached to or made a part of the petition, and while some of its provisions are quoted, they are confined to such as show the holder’s right to a receiver; they set forth no default which would entitle him to foreclose. The petition conclusively shows not only that the principal debt is not due, but that not even the first coupon had matured at the time the proceeding v-as begun. The petition merely alleges that the mortgagor will be finable to meet this when the coupon shall fall due — nearly a month later. Not even the appointment of a receiver Avill be made on anticipated grounds. Chadron Banking Co. v. Mahoney, 43 Neb. 214. Much less will a decree of foreclosure be rendered. And not only does the petition fail to state facts Avhich authorize a foreclosure, but the conduct of plaintiffs indicates that they never intended to seek such relief. No attempt has been made anywhere in the progress of the litigation to obtain a decree of foreclosure, and the defendant’s property Avas finally purchased by the president of the corporate plaintiff under a decree Avhich expressly directed the sale subject to and not by virtue of the mortgage.

Nor can this petition be upheld as one for the dissolution of the corporate defendant. It contains no prayer that the corporation be dissolved, but, on the contrary, asks that a receiver be appointed, and that he apply the income “for maintaining and operating said businéss.” The idea of a dissolution does not appear to have, been entertained until March 5, — three months after the filing of the petition— Avhen the order Avas made reciting that it was for the best interest's of the parties that the affairs of the corporation be wound up.

But even had the petition contained a specific prayer for dissolution, this would not have supplied a sufficient basis for the appointment of a receiver.

“A court of equity has no inherent power as such to appoint a receiver over an insolvent corporation.” Smith, Receivers (3d ed.), sec. 288.

“The general jurisdiction of equity over corporate bodies does not extend to the power of dissolving the corporation, or of winding up its affairs and sequestrating the corporate property and effects, in the absence of express statutory authority. And courts of equity will not, ordinarily, by virtue of their general equitable jurisdiction, or of their visitatorial powers over corporate bodies, sequestrate the effects of the corporation, or take the management of its affairs from the hands of its own officers and entrust it to the control of a receiver of the court, upon the application either of creditors or shareholders.” High, Receivers (3d ed.), sec. 288.

Our legislature has enacted statutes which authorize the appointment of receivers for winding up the affairs of particular corporations, as in the case of banks, but none of these apply to such a corporation as the defendant below. This receivership must be sustained, if at all, by the general statutory provisions relating to the appointment of receivers or by the general rules of equity jurisdiction.

“In the absence of a statutory enlargement of equity jurisdiction, a receiver of a corporation will not be appointed unless the same relief would be given, when claimed in an action against an unincorporated association of natural persons.” Barber v. International Company of Mexico, 73 Conn. 587, 593.

Our statute on this subject is similar to that of Iowa.

In Wallace v. Pierce-Wallace Publishing Co., 101 Ia. 313, 323, it was observed : “We have heretofore held that this section^* does not authorize the dissolution of the corporation by a court of equity, nor the placing of its property in the hands of a receiver which practically .accomplishes the same purpose.”

We have not overlooked Ponca Mill Co. v. Mikesell, 55 Neb. 98, bnt we find nothing there to change our conclusions. It was an action by a stockholder to establish and foreclose a lien upon corporate property, and by the same order which granted him this relief a receiver was appointed on the ground that the majority stockholders were mismanaging the corporate business and misappropriating corporate property. It follows Haywood v. Lincoln Lumber Co., 64 Wis. 639, which was an action to foreclose a mortgage executed by the corporation. In both cases, therefore, the plaintiffs were seeking to enforce liens, and the receivership was not, as here, the sole apparent purpose of the proceeding. In both cases grounds for the appointment of a receiver existed independent of the fact that the defendant was a corporation.

But if we were permitted to overlook the fact that no main action was pending when this receiver was appointed, we would still be unable to uphold the order of appointment and the subsequent proceedings thereunder, because it resulted in the sequestration of property by the receiver to which, in no view of the case, was he entitled. petition merely prayed that he be authorized to take possession of the “property covered by said mortgage,” and this would have been the limit of his rightful possession even had the petition sought and set forth grounds for a foreclosure. But the order of appointment gave him possession of “all other property of every kind or character, belonging to or pertaining to said defendant and its business.” There never was an application to extend the receivership to other property and this part of the order, at least, was void on its face. Plaintiffs were not entitled in any event to a receivership of property in which they had no definite interest. Smith v. Wells, 20 How. Pr. (N. Y.) 158.

The case at bar strongly resembles State v. Union Nat. Bank of Muncie, 145 Ind. 537, where a similar course was followed by the trial court, and .upon appeal it was observed (p. 551): “In the case before us, the plaintiff had no judgment or other general lien against the defendant’s property. His only lien was that of his chattel mortgage: and without a suit to foreclose that mortgage he had no right to a receiver even for the property covered by that mortgage. Still less was there a right, to a receiver for property not covered by plaintiff’s chattel mortgage. The rights of judgment creditors could not thus be cut out by one who liad no judgment or Other lien upon the defendant’s property. Prom any point of view, therefore, it must be apparent that the court had no jurisdiction to appoint a receiver in this case.”

In the case at bar the trial court distinctly recognized that there was property in the hands of the receiver not included in the mortgage, for it directed a sale of this apart from the other. But upon what possible, theory had plaintiff a right to seek or obtain the appointment of a receiver of this nonmortgaged property?

Moreover, while the court ordered a sale of some of the personalty without subjecting it to the mortgage, the record shows that other property of that class was not sold in this way, for the decree expressly recites, as we have seen, “that all of the property * * * real, personal or mixed * * * save that which is herein specifically found to be personal property, is covered by the said plaintiff’s mortgage.” Hoav much personal property was thus included in the mortgage, we have no means of knowing, for that instrument is exceedingly comprehensive in its terms and purports to include “all and every description of personal and mixed property.”

But the decree plainly shows that some of the personal property Avas treated as covered by the mortgage, and sold subject thereto. And the result of this must necessarily have been to reduce the assets from which interveners might satisfy their claims.

We do not agree with counsel for appellants that the labor claims of interveners constitute a preferential lien on the assets of the corporation. For, as we interpret the rule in Fosdick v. Schall, 99 U. S. 235, 25 L. ed. 339, it merely upholds the discretionary power of the court which appoints a receiver to impose as terms of the appointment the prior payment of such claims as these. The doctrine is more fully elaborated in Farmers’ Loan & Trust Co. v. Kansas City, W. & N. W. R. Co., 53 Fed. 182. But while these intereveners may have had no liens other than those afforded by their judgments, they were certainly entitled to share as general creditors in every dollar that could be realized from the corporate assets not clearly appropriated to some higher claim.

Now, this mortgage, though purporting to cover personalty, was never filed as a chattel mortgage and was, therefore, in respect to chattels, “void as against the creditor of the mortgagor.” Compiled Statutes, ch. 32, sec. 14 (Annotated Statutes 5963). These interveners were judgment creditors, and therefore within the letter of the rule laid down by this court in Farmers’ & Merchants’ Bank of York v. Anthony, 39 Neb. 343, 348. Whether it was necessary that their judgments should have antedated the mortgage, we do not here decide, for the record discloses that in any event the receiver took possssion of and sold, by virtue of the decree complained of, property Avhich confessedly Avas not covered by the mortgage.

We see no escape then from the conclusion that the order appointing this receiver was made Avithout jurisdiction and that the subsequent proceedings thereunder Avere invalid.

We are cited to Commonwealth Mutual Fire Ins. Co. v. Hayden, 60 Neb. 636, and Hawkins v. Glenn, 131 U. S. 319, in support of the contention that appellant Kinkel, as a stockholder, Avas bound by the court’s order as regards the defendant corporation. The cases referred to simply announce the rule that a stockholder is concluded by a decree compelling the enforcement of a corporate duty. But there was certainly no duty on the part of the corporate defendant below to consent to the appointment of a receiver. Nor was it or any other party bound by an order Avhich the, court had no jurisdiction to make. It is a familiar rule that consent never confers jurisdiction over 'the subject-matter. This applies in the case of receiver-ships as completely as elsewhere.

“Consent of the parties before the court will not avail to secure resort to the remedy in a case otherwise improper, or if the rights of other persons will be affected adversely or put in danger of violation.” Beach, Receivers, sec. 150.

This case has some of the features of Merchants’ & Manufacturers’ Nat. Bank of Detroit v. Kent Circuit Judge, 43 Mich. 292, where Cooley, J., said (p. 298) : “We do not enlarge upon this aspect of tire case, as it is not necessary here; but it must be manifest that the parties were creating a trust by means of the mortgage and of a consent order which could not stand the test of the law. * * * It resembles very closely an attempt by circuitous methods to avoid a legal principle.”

In this case the consent of those now complaining was never sought dr obtained. Although the petition distinctly averred that there were creditors who “are threatening to attach,” and although the statute expressly requires that notice of an application for a receiver shall be given “to all parties to be affected thereby” (Code of Civil Procedure, sec. 267), none of the interveners now holding judgments against the corporate defendant were notified, or given an opportunity to be heard as to the order appointing the receiver.

Under these circumstances, the mere fact that they did not except to the order should not prevent a review of it here. And in any event these objections being jurisdictional, may be raised even in the appellate court for the first time. City of Lansing v. Chicago, M. & St. P. R. Co., 85 Ia. 215; Orcutt v. Hanson, 71 Ia. 514.

There are other questions presented in appellants’ brief, but as their solution is not necessary to a determination of the case, we will not further prolong the limits of this opinion. We recommend that the decree of May 6, and the order of June 22, confirming the sale, be reversed, and that the order appointing the receiver be vacated.

Hastings and Kirkpatrick, CC., concur. 1. Petition: No Cause of Action: Appellate Court. The question of whether a petition states a cause of action or discloses grounds sufficient for the granting of equitable relief, may he raised at any stage of the proceedings in the appellate court, up to and including the filing of a motion for a rehearing. 2. Prayer for General Equitable Relief. A prayer for general equitable relief, coupled with that of one for specific relief, can not be extended so as to warrant the granting of relief not embraced within and comprehended by the allegations of fact contained in the pleading. 3. Appointment of a Receiver: Is Ancillary Remedy. The appointment of a receiver in an equitable action is ordinarily an ancillary remedy, provisional in character, and incidental to the main object or purpose of the suit. ,jb.Jurisdiction to Appoint a Receiver. Save in certain classes of suits 'in equity which constitute weill-reeognized exceptions, the jurisdiction of courts of equity does not warrant the appointment of a receiver to take charge of and administer the property and business of a corporation in an independent action, where that is the main object and purpose of the suit and the sole and only relief asked for. 5. Defective Petition. Petition in the case at bar examined, construed, and held .defective in substance, and insufficient to support the orders of the court appointing a receiver to take charge of and sequestrate 'the property and business of the defendant corporation, directing a sale thereof, and the confirmation of the sale made under such orders. 6. Jurisdiction of Equity Courts Over Corporation. In the absence of statutory authority, courts of equity do not possess jurisdiction over corporate bodies to the extent of," on the application of private parties, appointing a receiver, sequestrating the property and business and selling the same through the instrumentality of such receiver, and thereby wind u£ the affairs and terminate the business and indirectly dissolve the corporation.

By the Court: For the reasons stated in the foregoing opinion, the decree of May 6, 1901, and the order of confirmation of June 22, 1901, are reversed, and the order appointing the receiver is vacated.

Re v EkSDD.

* Code, sec. 2903.