O'Mahoney v. . Belmont

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HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 140 The appointment of the receiver in this action, and the subsequent proceedings had in regard to the same, was an invasion of the rights of the parties, calculated to waste and deplete the alleged fund, and not demanded by the nature of the action or the circumstances of the case. The reasons for such a conclusion are entirely apparent. The action was in reality for money had and received by the defendants, and if any liability existed, it arose from the purchase of bills of exchange of the defendants which had been delivered, and it is claimed were lost. It was not a legal claim for any specific property or fund which belonged to the plaintiff, but in reality an ordinary action to recover money. There is no principle which sanctions the appointment of a receiver in such a case, and it is entirely without a precedent to uphold it. If it might in any sense be considered as a case coming within the law applicable to a receivership, then the money was entirely safe in the hands of the defendants. No question is made as to their pecuniary responsibility, nor did it appear in any way that the money was in jeopardy or liable to be lost while in their possession. Without some fact to establish that the alleged fund was in danger, there is no principle of law or any established practice which authorizes a party to invoke the aid of a court to apply this provisional remedy (see § 244, Code), and thus to transfer money from one person, with whom it is entirely safe, to a receiver. Where such a right exists it is usually called in exercise upon the application of one or more of the parties in interest. While the court may upon its own motion nominate a receiver *Page 143 where the case requires it, such a proceeding cannot according to the regular practice 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 propose a receiver, and it is contrary to the orderly and regular proceedings of a court of justice to allow a stranger to participate in a motion for such an appointment. (Attorney-General v. Day, 2 Mad., 246; Edwards on Receivers, 22.) The attorney for the receiver had no interest whatever in the controversy and was an entire stranger to the suit, and the parties. Nor had the receiver any connection with the attorneys in the case. Both of these persons, the receiver and his attorney, undertook to obtain control of the money in a most unaccountable and unjustifiable manner. The attorney who was employed by the receiver appeared without any authority whatever from the parties, participated in the proceedings without any solicitation or request of either of the parties; and against their remonstrance, resistance and determined opposition, the receiver was thrust into the office. Nor was this all. A fraud was perpetrated in procuring the order. While the motion had been suspended to enable the plaintiff to serve additional affidavits, and before counter affidavits could be procured, and in violation of an express stipulation, the order was entered and the receiver appointed. Such a transaction could not stand the test of a judicial scrutiny, and this with the other proceedings of the receiver was very properly reversed upon appeal. The counsel for the receiver insists that the counsel for the plaintiff and the attorney were in conflict with each other, as to the course to be pursued in regard to the appointment of a receiver, the attorney really urging the appointment, and the counsel opposing it. There is no sufficient evidence to warrant such a conclusion, and if it can be upheld, it must be upon the ground that the attorney was acting deceitfully and in direct opposition to his client's interest. This is not to be assumed, and is contradicted by the acts of the attorney and his letter, after the appointment was made, expressing his *Page 144 regret at the occurrence as well as the seeming want of professional courtesy, and stating facts showing that the order was made in opposition to the stipulations of the parties, and that nothing should be omitted to reinstate the defendants' attorneys in the case according to the stipulations and understanding. The receiver does not swear positively, but thinks the attorney spoke to him, and asked him to go and make the demand of the defendant Lucke, and one of the counsel testifies that the attorney stated in the receiver's presence that the money must not be paid over. The attorney was not called as a witness, and it may be fairly assumed, I think, that he would have been if he could have proved the fact claimed, as it was vital to the receiver. But even if there was any ground whatever for supposing that the attorney sanctioned the proceedings, I think there was no sufficient excuse for the action of the receiver. He was himself an attorney, had counsel from the beginning, and must have known that the manner in which the proceeding was conducted was entirely unauthorized, and would not be upheld upon appeal. He knew or should have known that the question would be fully tested, and when there was no emergency which demanded it, persisted in his efforts to obtain the money from the defendant Lucke, and compelled him to pay or abide the consequences of a failure to do so, upon pain of arrest and imprisonment. The other facts connected with the receiver's appointment, and his subsequent proceedings, are satisfactorily discussed in the opinions of the court at Special and General Term, and it is not necessary to refer to them at length. It is sufficiently apparent that the entry of the order under the circumstances, by the attorney employed by and with the concurrence of the receiver, was an abuse of the proceedings which cannot be disregarded, and for which he should be held responsible. It constituted him an intruder, and a trespasser upon the rights of the parties. As he assented to and participated in the transaction, there is no sufficient reason why he should not be held accountable for *Page 145 his acts. He had full notice that the order of appointment was not to be entered until the defendants had an opportunity to be heard at a subsequent day, agreed upon by the attorneys, and the conclusion is irresistible, that it was done before the time stipulated, with his knowledge and approval. He also knew that the parties to the suit did not desire that a receiver should be appointed, and in view of this fact, against their protest and active opposition he struggled to procure, and voluntarily consented to take the position. Instead of applying to those interested for counsel, he chose to rely upon an entire stranger to the proceedings. It would be an unusual precedent to hold that a receiver thus appointed without the intervention of the parties, with his own connivance, and under the peculiar circumstances disclosed in this case, had any special right to ask the protection of the court, in sustaining and giving countenance to his proceedings the same as if they were regularly and properly conducted, and were legal and valid. Such a practice would lead to the most serious results, and as in the case before us the moneys belonging to the parties might be lost, frittered away, and misappropriated, by the payment of large fees and legal expenses which were entirely unauthorized, to the detriment of individuals and the fund. Fraud vitiates all contracts, and a judgment or order thus obtained binds neither the court nor the parties. It avoids even all judicial acts. (Kerr on Fraud and Mistake, 293, 294.) The receiver having obtained control of the moneys, when it was entirely unnecessary to protect them, and in opposition to the wishes of the parties in interest, and by means which cannot be justified or excused thus subjected them to large charges and expenses, there is no reason why he should not be held to a strict accountability, or that he should be allowed for any of the expenses incurred. The charges presented on the accounting before the referee are fully considered in the opinions before referred to, and concurring mainly in the views expressed as to most of them, I think do not require any remarks. The only one which *Page 146 demands any particular comment, is the sum of $2,500, alleged to have been paid to the plaintiff's attorney by an order of the court made on the twentieth of July, and entered upon the twenty-ninth of the same month. The money was paid on the day when the order was entered, as the receipt shows, and the notice of appeal from the order is dated June twenty-first, probably intended for July twenty-first, the day after the order was granted. The court reversed the order, and although there is no proof that the notice of appeal was served upon the receiver, or when it was served if served at all, it is at least a reasonable inference that the receiver had knowledge, in view of what had already transpired, that an appeal would be taken, and was at liberty to apply to the court for instructions as to his duty. (Curtis v. Leavitt, 10 How., 481; Matter of Van Allen, 37 Barb., 225.) He should have done so, if there was any doubt as to the proper course to pursue, and would have been justified in awaiting further action instead of paying the money on the very same day upon which the order was entered. He could have refused payment, and if an attempt was made to enforce it, he could have resisted such an attempt upon the ground that the order was appealed from, and might perhaps be reversed. This he failed to do, and thus did not take the proper measures to protect himself and the fund against such an order. It is also a sufficient answer to this claim, that the fund was subjected to the operation of the order in question by the original wrongful act of the receiver and his counsel, so far as the defendants are concerned. But for this, no order would have been made, directing payment in the preliminary stages of the suit, before the litigation was fairly under way, of a large and exorbitant amount to the plaintiff's attorney, and the money received would not have been subjected to the illegal charges of the party who was unsuccessful, and therefore not entitled to any costs or counsel fees. There is no ground for claiming that the application of the attorney for the plaintiff, for the amount paid to him, was a ratification of the entry of the order of appointment. Even *Page 147 if the order was wrong of itself, and against the attorney's wishes, I think the attorney had a right to accept the condition of the case as it actually was. The same remarks are applicable to the sum paid to the defendants' attorneys, with the qualification, however, that the money belonged to the defendants, whom they represented. The position that the receiver cannot be called to account if the order is void, is not well taken; it is enough to say that the receiver claimed to act, and did act, as such; he was a receiver de facto, for the time being, and cannot avail himself of an irregular or void appointment under which he has acted, procured by his own instrumentality, and thus escape an accounting for the moneys which came into his hands. The other points which are urged by the receiver do not require especial consideration. This case presents the peculiar aspect of a party intruding himself into a position without the concurrence or assent of those who had a right to be heard and consulted, and by his own wrongful act obtaining possession of and controlling moneys belonging to others. Courts of justice cannot give countenance to such proceedings, or protect the party from its consequences. He must also be held responsible for the conduct of those who co-operated with him in producing the result. The order of the General Term affirming the order of the Special Term was right, and must be affirmed with costs. All concur. Order affirmed. Opinion on appeal from order affirming order directing receiver to pay over moneys.