Standley v. Hendrie & Bolthoff Manufacturing Co.

Mr. Justice Goddard delivered the opinion of the court. It will be observed that the original action, in which the order complained of was made, is in the nature of a creditor’s bill, and was brought under section 497, Mills’ Ann. Stats., wherein the appointment of a receiver is expressly authorized. The controlling question presented for our consideration, therefore, is whether the court below, in exercising the special jurisdiction conferred upon it by this statute, had authority through its receiver, to operate during the pendency of the suit, the mines and mining property of defendant corporation, and to provide for the payment of the expenses so incurred by the issuance of receiver’s certificates that should become a first and paramount lien on the property in his hands, So [337] much of the statute as is pertinent to this inquiry reads as follows: “ Courts of equity shall have full power, on good cause shown, to dissolve or close up the business of any corporation, to appoint a receiver therefor, who shall have authority by the name of the receiver of such corporation (giving the name), to sue in all courts, and to do all things necessary to closing up its affairs as commanded by the decree of the court.” It is strenuously insisted by counsel for appellees that under and by virtue of this provision, the receiver being clothed with power to do all things necessary to close up the affairs of the company, as commanded by the decree of the court, and the court having determined that the doing of such work and the issuance of receiver’s certificates in payment therefor was necessary.to that end, its judgment is conclusive as to such necessity and the power of the receiver in the premises. We do not think that such is the purport or intent of the statute, but that it contemplates only the doing of those things which are necessary to the closing up of the affairs of the insolvent corporation; and that while, by the appointment of a receiver, he becomes eo instanti vested with the legal title and right of possession of all the property of the corporation, both real and personal, for the purpose of subjecting the same to the claims of its creditors, he has no power, nor can the court clothe him with the power, to continue or carry on the business of the corporation. In other words, the statute, while conferring upon courts of equity, power and authority they would not otherwise possess to decree the dissolution of a corporation at the suit of an individual, and to that end authorizes the taking charge of its property through a receiver for the purpose of closing up its affairs, it does not confer upon the court any other or greater powers in the administration of such trust than it can exercise in other cases where, in the exercise of its equity jurisdiction, it may appoint a receiver to administer the affairs of an insolvent private business corporation, during pending litigation. The well settled rule applicable in the latter class of cases, recognized and approved [338] by this court in the recent case of The International Trust Company v. The United Coal Company, ante, p. 246, is that a court of equity has not the power to authorize a receiver to incur indebtedness for carrying on the business, and to make the same a first and paramount lien upon the corpus of the property in his hands; but only such expenses as are necessary to its care and custody, and expenses of realization and preservation which may be incurred under the order of the court, can be so made a paramount lien. Chief Justice Campbell, who delivered the opinion of the court, after a thorough and exhaustive review of all the cases upon this subject, said: “ After a careful consideration of all the authorities cited, we are of opinion that, in administering the affairs of an ordinary insolvent private business corporation for which a receiver has been appointed, a court of equity has not the power to authorize the receiver to incur indebtedness for carrying on the business and to make the same a first and paramount lien upon the corpus of the property superior to that of prior lien holders without their consent. While it may, in a proper action, and with the proper parties present, through the instrumentality of a receiver carry on the business of private corporations or individuals temporarily, and incur obligations therefor that may be made a paramount lien on the corpus of the property, such obligations must have been contracted for, and must relate strictly to, the preservation of the status of the property at the time of the appointment of the receiver.” The facts disclosed in the case at bar emphasize the necessity of strictly enforcing this wholesome and just rule. At the time the original action was instituted, the appellants had, under decrees of foreclosure of their respective liens, purchased the entire mining property of the company, and the only interest which the company then had was an equity of redemption; and at the time the receiver made his application for leave to issue the certificates in question, on January 20, 1898, and consequently when the order and decree complained of was made, the time for the redemption by the defendant company from such sales had expired; and it had [339] no interest or title in the premises to which the liens sought to be created thereby could attach. And it also appears that the indebtedness for which the receiver was authorized to issue his certificates was not essential to the preservation of, but had been incurred in operating, the mine, against the protests and over the objections of appellants ; the 11,000 being for its future preservation, which under the condition of the title would be solely for the benefit of appellants themselves. In these circumstances the decree complained of was clearly unwarranted, and no reason exists upon which it can be upheld. It should therefore be reversed, and it is so ordered. Reversed.