Columbian Insurance v. Stevens

Woodruff, J. The right of the defendants to have judgment for their costs in such an action as the present, brought against them for the recovery of money only, is absolute; as well by the law before, as by that since the code of procedure. There is no claim, nor ground of claim, that the allowance of costs in the action was discretionary. The liability of the receiver, in whom the alleged cause of action became vested after the summons herein was served, and by whom the action was prosecuted, is made, by section 321 of the code, the same as if he had caused himself to be made a party. The questions here are, therefore : 1. In an action by a receiver, for the collection of a money demand, instituted or carried on for the enhancement of the fund, for the benefit of those to whom it is ultimately to be paid, is the defendant entitled to costs to be paid to him immediately, or must he stand as a general creditor to await the final administration, and receive only, as the case may be, his distributive share of the fund, pro rata, with those for whose benefit he has been subjected to a groundless litigation % 2. Is the question stated addressed to the discretion of the court, in such sense that no appeal lies to this tribunal from the decision made below % It was conceded on the argument that the costs in question are chargeable upon, and are to be collected out of the fund ; this could not well be denied ; and yet in a case in which it does not appear by anything stated in the papers that there are other claims on the fund of any sort, except the interests of the stockholders of the company, it would seem to follow, as of course, that the receiver should have been directed to pay these costs. Such an order is the-appropriate mode of reaching funds in the receiver’s hands. He not being in form a party to the action, no execution could reach the property he holds; and being the [128] custodian of the fund as an officer of the court, he is subject to immediate direction to pay it to the party entitled. If it be assumed that the company was insolvent, and that the funds which the receiver holds or collects may not prove sufficient to satisfy all the creditors of the company, this does not, in my opinion, upon clear and just rules governing the subject, impair the defendant’s right to be paid in full; the fund being confessedly sufficient. The receiver is, pro hac vice, the representative of the company, its creditors and stockholders. The action is prosecuted for the increase of a fund which is to be paid to them. It is not according to any rule of justice or equity towards third parties, that actions like the present should be prosecuted by the company or such representative, otherwise than at the expense and risk of the fund which it is sought thereby to increase. In my opinion the right of the defendant to this protection and indemnity against groundless prosecution is clear; and it is not necessary to invoke section 317 of the code for its maintainance, further than to say that its provisions warrant the charge of the costs upon the defendants ; and that such charge should be absolute, and prior to the claims of those for whose benefit this action is prosecuted is the rules of equity. Whether section 317 imperatively entities the prevailing party to such priority of payment in all cases mentioned in that section, it is unnecessary in this case to decide. If the views thus expressed are in conformity with established rules relating to the subject, as they are in my judgment conformable to what is obviously just, then it was not a matter of discretion to refuse the order sought. The rule was applied by Chancellor Walworth to a case like the present, in which it did appear that the corporation was insolvent (Camp v. Receiver of Niagara Bank, 2 Paige, 283), where the receivers continued the prosecution of a suit at law which was at issue before their appointment. [129] In giving his opinion he says, “If the receivers did not think it for the interest of the creditors to run the risk of having the costs charged upon the fund, they should have-abandoned the suit, and then the petitioner would only have been entitled to a share ratably with the other creditors. The petitioner is entitled to his costs down to the time of the nonsuit, to be paid out of the funds in the hands of the receivers,”—and he made an order to that effect. In my opinion the scheme and principle proposed by the chapter of the code in relation to costs is, that where costs are allowed, they should be paid by the fund or a party who would be benefited by a counter judgment ; and I think that this case is not within any exception to the rule. To the suggestion that the statute (2 Rev. Stat., 470,. § 79), will not permit the reference sought, it must suffice-to say that it is not sought to give a preference to the defendants in the payment of a debt of the company as such; but only to require the fund to bear and pay an expense-incurred for its own benefit or increase. Nor is it any answer to say that defendants often fail to collect their costs of a successful defense when the plaintiff is insolvent, and that therefore the order made below works no unusual hardship. Where the plaintiff has funds, the defendant is always entitled to collect, and does collect his costs. Row the beneficial party plaintiff has funds. It may be' said that this rule places it in the power of the receivers to waste the whole of the assets in their hands', in groundless litigation, and successful defendants are-paid their costs while creditors may get nothing. On that subject I answer,—when the receiver’s accounts are passed, there will be abundant opportunity for creditors and others to inquire whether he has acted with due regard to their interests ; and the right to require that he personally pay costs which he ought not to have incurred is not confined to the parties to the action (Colvard v. Oliver, 7 Wend., 497). The question whether an unreasonable allowance was [130] or was not made to the defendant, is not before us, we must assume that the case called for the allowance made. The order appealed from should be reversed. All the judges concurred. Order reversed.