Decker v. . Gardner

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] Jurisdiction to appoint receivers of corporations is wholly statutory.

The power to declare a forfeiture of corporate franchises was originally in England vested in the courts of law, and was exercised in a proceeding brought by the attorney-general in the name of the sovereign.

The Court of Chancery never assumed jurisdiction in such cases until it was conferred by act of parliament.

It declined until the power was conferred by statute to sequestrate corporate property through the medium of a receiver, or to dissolve corporate bodies, or to restrain the usurpation of corporate powers. (A. A. on Corp. § 777; Slee v. Bloom, 5 Johns. Ch. 366-381; Atty.-Genl. v. Utica Ins. Co., 2 id. 389.)

The courts of this country followed the English system. (Atty.-Gen. v. Utica Ins. Co., supra; Atty.-Gen. v. Bank ofNiagara, Hopkins' Rep. 354.) And the jurisdiction in such cases is now a subject of statutory regulation in most if not all the states.

In 1825 the legislature of this state authorized the Court of Chancery to sequestrate the property of corporations against whom judgment at law had been obtained and execution was returned unsatisfied, and to appoint receivers of the same, and to decree the dissolution thereof in cases of insolvency. (Chap. 325, Laws of 1825.) The system then inaugurated was continued by the Revised Statutes and subsequent legislation, and is known generally under the head of proceedings against corporations in equity. (2 R.S. 462; Code C.P. ch. 15, title 2.) The receivers authorized by statute to be appointed upon the dissolution of the corporation are the representatives of the corporate body, and generally are vested with the title to the corporate property, and, for the purpose of administering thereon and winding up the affairs of the corporation, succeed to its powers and franchises.

In this state they are vested with all the real and personal estate of the corporation, and are made trustees of such estate for the benefit of the creditors and stockholders, and possess generally all the powers and authority conferred by law upon the assignees of insolvent debtors. (2 R.S. p. 464, § 42; p. 469, §§ 67, 68; Code C.P. § 1788.)

Receivers appointed pendente lite are, however, mere temporary officers of the court, and do not possess the powers of a permanent receiver unless specially conferred upon them by order of the court. (Code C.P. §§ 1788, 1789; Herring v. N.Y.,L.E. W.R.R. Co., 105 N.Y. 372, 375.) The Court of Chancery, however, possessed and exercised in many cases the power to appoint receivers pendente lite of property which was the subject-matter of litigation before the court. Such receivers possessed no legal powers. They were officers of the court merely, and their functions were limited to the care and preservation of the property committed to their charge, and they possessed no authority except such as the orders of the court conferred. (Pomeroy's Eq. Juris. Vol. 3, §§ 1331-1336; Herring v. N.Y., L.E. W.R.R. Co., supra; Keeney v. Home Ins. Co.,71 N.Y. 396.) This power of appointment of a receiver pendentelite was one incidental to the jurisdiction of the court. It did not depend upon statute, and was not affected by the character of the parties before it, whether an individual or a corporation, or by the nature of the property. (U.S. Trust Co. v. N.Y., W.S. B. Ry. Co., 101 N.Y. 478.) Its most common exercise was in foreclosure suits whenever, by reason of the insufficiency of the security, it became necessary to impound the rents and profits of the mortgaged property during the litigation in order that they might, after the decree and sale, be applied upon the debt for the security of the mortgage. (Hollenbeck v. Donnell, 94 N.Y. 342; Jones on Mortgages, § 1516.) This particular jurisdiction has been extended to and is frequently exercised upon the foreclosure of mortgages upon railroads, and receivers of such property are charged with the duty of the operation of the road pending the foreclosure suit, to the end that the value of the property which necessarily depends largely upon the continuance of its business may not be depreciated, and also to the end that its income may not be diverted to the payment and satisfaction of debts which are not liens upon the property.

While this class of receivers have many duties and powers peculiar to themselves, they are such only that flow from the nature and character of the property committed to their charge, and in their legal character and relation to the mortgagor they differ in no respect from the receiver of rents and profits of mortgaged property appointed in actions to foreclose mortgages against individuals.

They do not represent the corporation in its individual or personal character, nor supersede it in the exercise of its corporate powers except so far as the mortgaged property is concerned.

The corporation is not dissolved by the order appointing the receiver (Kincaid v. Divinelle, 59 N.Y. 553; Pringle v.Woolworth, 90 id. 502), and it is clear that in an ordinary foreclosure suit no attack is made upon its corporate existence, and hence no judgment that can be entered in the action will affect its corporate life.

In every respect except the possession and management of the mortgaged property the corporation is free and unfettered to exercise its franchise. (Beach on Receivers, § 335.) Accordingly it has been held that after the appointment of a receiver and the sale of mortgaged property it was competent and lawful for stockholders to elect directors. (State v. Merchant, 37 Ohio St. 251 .) That in an action under a statute against a corporation to recover for building a fence it was not a defense that at the time of doing the work the railroad was in the possession of a receiver appointed by a Federal Court in a foreclosure suit. (O. M.R. Co. v. Russell, 115 Ill. 52.) That the fact that a railroad was in the possession of a receiver was no defense to the settlement of an account for taxes against the corporation. (P. R.R.R. Co. v. Commonwealth, 104 Pa. 80.) In U.S. TrustCo. v. N.Y., W.S. B.R. Co., (101 N.Y. 478), the distinction between statutory receivers of corporations and receivers of mortgaged property was fully discussed and it was held that section 2 of chapter 378, Laws of 1883, had no application to the latter class.

In Pringle v. Woolworth (90 N.Y. 502), it was held that the plaintiff was not debarred from maintaining an action against an insurance company by the appointment of a receiver.

The question under discussion was substantially decided inArnold v. Suffolk Bank (27 Barb. 424), and it was there held, in accord with the views here stated, that a receiver of a bank could not be joined as a defendant in an action against the bank on a money demand. In that case as here the cause of action arose before the receiver's appointment, and it was said by the court "that the mere fact that A. is the receiver of B. whether they be natural or artificial persons, will not justify a creditor of B. in bringing A. as a party into every suit against B. when the rights and remedies of the plaintiff end with B." A similar ruling was made in Fleischauer v. Dittenhoefer, (17 J. S. 311). The respondent has cited but two cases to sustain the judgment. (Pickersgill v. Myers, 99 Penn. 602; Combs v.Smith, 78 Mo. 32.) In the Pennsylvania case the corporation was dissolved and the receiver appointed after dissolution. In the Missouri case, while the facts in reference to the appointment of a receiver are not stated, enough appears in the opinion of the court to indicate that the defendant was a statutory receiver. In that view the case is in harmony with the general current of authorities, but if the facts were otherwise it would not have our approval.

The defendant in this case was appointed by the Circuit Court in pursuance of its powers as a Court of Chancery. His functions were confined to the care and preservation of the mortgaged property, and his appointment gave him temporary management of the railroad under the direction of the court, nothing more.

The mortgage covered all the railroad property, real and personal, and hence all property of the corporation was placed in his possession.

He was authorized to operate the road, protect his title and possession, to defend all suits brought against him or the railroad company, to intervene in any suits or proceedings then pending, and was invested with the authority and powers usually conferred upon receivers in like cases according to the course and practice of the courts of the United States sitting in equity. By the same order the corporation was enjoined from interfering with said receiver in the possession and management of the railroad property.

He did not represent the corporation or supersede it in the exercise of its powers, except in relation to the possession and management of the property committed to his charge.

Nothwithstanding his appointment the corporation was clothed with its franchise and still existed. It could still exercise its power so it did not interfere with the management of the railroad. It could do many corporate acts and it could do all things necessary to preserve its legal existence.

It could sue and be sued, and was liable for its acts and upon its contracts and covenants the same as if the receiver had not been appointed.

With the particular cause of action set out in the complaint the defendant had no connection, and it could in no possible way be charged upon the property in the receiver's possession. (Met.Trust Co. v. Tonawanda R.R. Co., 103 N.Y. 245; Raht v.Attrill, 106 id. 423.) For it the corporation was alone liable, and there was no legal obstacle to an action against it, and a judgment, if recovered, was collectable out of its available assets.

It follows from these views that the defendant was not a proper party to the suit, and that the action was not maintainable against him.

The judgment should be reversed.

All concur, except HAIGHT, J., not voting.

Judgment reversed.