Smiley v. Sioux Beet Syrup Co.

Kirkpatrick, G. This cause is brought to this court upon appeal from a judgment of the district court for Dakota county. In order to obtain a correct understanding of the questions presented, it will be necessary to state briefly the history of the proceedings leading up to the judgment presented for review. Prior to December 23, 1903, the Sioux Beet Syrup Company was a duly incorporated company, having its place of business in Dakota county.- On that date, one C. D. Smiley, a stockholder of the corporation, on behalf of himself and all the other stockholders, filed a petition in the district court, asking the appointment of Andrew J. Cramper as receiver of the corporation. A waiver of notice of the application and a certified copy of — 582 — the minutes of the stockholders’ meeting held December 22. 1902, shoAving a request that a receiver be appointed, and that AndreAv J. Cramper be named as such receiver, Avere filed by the corporation. Acting on this application and the consent of the corporation, a receiver Avas appointed on the 24th day of ■ December, 1902. The receiver gave bond and took charge of the corporation. On December 4, 1902, about 20 days before the receiver was appointed, the corporation executed a mortgage upon all of its properly to secure its bonds which Avere to be issued in the sum of $35,000. In the mortgage given to secure these bonds, Abel Anderson, appellant herein, was named as trustee. Of the $35,000 in bonds provided for, about $17,000 were issued and disposed of, and the proceeds realized therefrom applied upon the indebtedness of the corporation. None of the bondholders were made parties to the proceedings for the appointment of a receiver. On .January 3, 1903. Smiley, plaintiff in the receivership proceedings, served notice on Anderson, trustee for the bondholders and appellant herein, that on January 12, 1903, he Avould apply to the district judge, at Pender, in Dakota county, for an order permitting the receiver to issue receiver’s certificates, which should be a lien superior to the mortgage. Anderson, trustee, appeared specially and challeneged the jurisdiction of the court, and objected to the issuance of the receiver’s certificates upon various grounds. On January 12, the day set for the hearing, these objections were overruled, and the receiver Avas authorized to issue certificates in the sum of $2,500 Avhich should be a lien upon the property of the corporation, superior to the mortgage. No further steps seem ever to have been taken under.the receivership as it then existed, but on February 17, 1903, Smiley, the plaintiff, served a second notice on the corporation that, on February 23, he Avould apply for the appointment of a receiver-. He thereupon filed a motion based on the petition filed in the first instance, asking that a receiver be appointed, and on the day fixed for the hearing AndreAv J. Cramper Avas appointed receiver. Neither — 583 — the trustee nor any other person representing tlie mortgage were made parties to this last proceeding, nor was any notice served upon the trustee or tbe bondholders. On July 1, 1903, the receiver filed Ms final report, showing Ms transactions, the sale and disposition of a large amount of the property of the corporation, and the incurring of a large amount of indebtedness for thg protection of the corporation property, attorneys’ fees, court costs, etc.; and showing- that he had issued receiver’s certificates in the sum of $2,307.31, which he' asked to have made liens upon th« property superior to the mortgage. Thereupon, appellant Anderson, by leave of court, filed a petition of intervention, setting up the mortgage; the amount of bonds which had been sold; that he had had no notice of the application for a receiver; that the petition upon which the receiver was appointed failed to state a cause of action, and that the receivership proceedings were void and of no effect as affecting the lien of the mortgage, for want of notice. No answer was filed to this petition of intervention, On the next day, July 2, a trial was had on the issues presented by the petition of intervention, resulting in s, judgment approving the final report of the receiver, ordering his discharge, and adjudging that the receiver’s certificates, amounting to $2,307.31, were valid liens upon 1 he property of the corporation superior to the lien of the mortgage; and the correctness of this judgment of the trial court is presented for determination by this proceeding. It is contended on the part of appellant: First,- that the petition for the appointment of a receiver did not state facts authorizing the court to make such appointment and, therefore, the appointment was void; secón d, that the holders of the bonds of the corporation were not made parties to the proceedings, and had no notice oí the application for the appointment of a receiver, and, therefore, their interests could not be affected by such pxoceedings; third, that in no event could the rights of th>. bondholders be made subject to the receiver’s certificates, even though the receiver had been regularly and lawfully appointed, These — 584 — questions, so far as necessary, will be considered in the order stated. Touching the first contention, the petition shows that plaintiff is a stockholder; that the manufacturing plant-belonging to the corporation is worth $65,000; that there is on hand belonging to the corporation something like $10,000 worth of merchandise; that a mortgage for $35,000 had been executed, and $17,000 worth of the bonds had been disposed of; that the proceeds of the bonds sold had been applied to the satisfaction of the debts of the corporation; that the corporation was indebted to some further amount, the exact amount not being disclosed; that the plant was insured for $45,000, and that to keep the insurance valid, the plant must he either operated or cared for; that the corporation had under contract a large amount of beets, and a large amount of syrup on hand that would perish unless taken care of; that some of the officers had abandoned the corporation, and the stockholders did not seem to be able to get any one to conduct the business, and at the meeting of the stockholders it was determined to be for the best interest of the corporation to apply for a receiver. It clearly appeared that the corporation was not insolvent, and that there was no disagreement of any kind among the stockholders. About all that did appear from the face of the petition was an apparent want of capacity on the part of the stockholders and officers to manage the business of the corporation. This does not present such a condition of affairs as would authorize a court of equity to appoint a receiver. There were no adversary proceedings pending. The stockholders, at their meeting, seem to have unanimously agreed that it would be a good thing to appoint a receiver, and they selected appellee Smiley as a proper person to make the application. The courts of the state are,not constituted and maintained at public expense for the purpose of conducting the business of private corporations, and mere incapacity of stockholders or officers of a corporation to manage its business in a successful manner is not enough to authorize the courts to take charge of such business, — 585 — Tn the case of Jones v. Bank, 10 Colo. 464, 17 Pac. 272, it was said: “To hold that courts of equity can entertain jurisdiction to appoint a receiver of property as the substantive ground and ultimate object and purpose of the1 suit, on the petition of tin1 owner of tin1 property to be controlled and protected, would be to make them the administrators of every estate where the owners thereof were incapable or unwilling to administer them themselves.” It is very clear, therefore, that the petition failed to slate fads sufficient to entitle plaintiff to the appointment of a receiver. But that question is not presented for review in this casi», and appellant was not a party to such proceeding's. Whether the action of the court in the appointment of a receiver was absolutely void and subject to collateral attack, such as that made in this case, is altogether another question, and one which we think is not necessary to a correct determination of the question presented by the record. The. second contention is that the bondholders were not made parties to the proceedings for the appointment of a receiver, and that, for this reason, their rights can not be prejudiced by anything the receiver did. This proposition seems to be sustained upon authority. Section 273 of the code provides: “Every receiver shall be considered the receiver of any party to the suit, and no others.” The bondholders represented by appellant in this case were not parties to this suit, and, clearly, under the statute quoted, the receiver appointed by the court was not their receiver. Tf he was not the receiver for the bondholders, it is difficult to see how their rights can be affected by what he did. They were in no way responsible for his appointment. They could not procure orders from the court directing the manner in which he should perform his duties, and it is clear their mortgage lien can not be made subject to his expenditures, not made at their instance and not incurred in any case in which they were parties. No notice was served upon them as required by the provisions of section 274 of the code, and we are of opinion that the order ap — 586 — pointing the receiver and all proceedings had thereafter are void, as affecting the rights of appellant and the bondholders whom he represents. 1. Petition: Sufiítciency. The question of whether a petition states a cause of action may he raised at any stage of the proceedings, up to the submission of the cause in this court upon appeal. 2. ^Receiver: Appointment. The appointment of a receiver in an equitable action is ordinarily an an cilio ry remedy, provisional in character, and incidental to the main object or purpose of the suit. Vila v. Grand Island Electric Light, Ice <& Cold Storage Go., 68 Neb. 233, followed. 3. Petition Insufficient. Petition iñ case at bar examined, and held not to state facts sufficient to authorize the court to appoint a receiver to care for, preserve and manage the property of the defendant corporation. Having reached a conclusion which disposes of the case, the question presented by the third contention of appellant need not be considered. It is therefore recommended that the judgment of the district court, allowing the report of the receiver and making his certificates a lien upon the property of the corporation superior to that of appellant as trastee of the bondholders, be reversed and set aside, and the cause remanded for further proceedings according to law. Dufeie and~LETTON, 00., concur. By the Court: For the reasons stated in the foregoing-opinion, the judgment of the district court, allowing the report of the receiver and making his certificates liens superior to the mortgage, is reversed, and the cause remanded for further proceedings in accordance with law, REVERSED.