De Wolf v. Royal Trust Co.

Mr. Justice Windes delivered the opinion of the Court. Benjamin F. Smith, sole surviving partner of the firm of Hiram P. Smith & Co., filed his bill in the Circuit Court of Cook County against Mattie C. Smith, the administratrix of Hiram P. Smith, deceased, to wind up said partnership and for the appointment of a receiver. Appellee was appointed by said court receiver, and it qualified and entered upon its duties as such October 26, 1896. Later appellant filed two petitions, successively, asking to be made a party defendant, and the vacation of the order appointing the receiver, and for its discharge, which petitions were on hearing denied by the court. Again, on February 10, 1897, appellant filed another intervening petition, setting forth that on April 13, 1896, he made a lease to said firm of Smith & Co. of certain store rooms and basement, known as Nos. 113 to 119 West Van Buren street, Chicago, from May 1, 1896, to April 13, 1897, at the rate of $75 per month, payable in advance on the first day of each month of said term, commencing May 1, 1896; that said premises were and are the premises used and occupied by said Smith & Co. for carrying on all of its business; that there was due petitioner for rent of said premises from said Smith & Co., when said receiver took possession thereof, the sum of $135.54; that when said receiver was appointed, it immediately took possession of all of said premises, and continued to occupy and use the same under and by virtue of the terms of said lease,, and that on February 1, 1897, there became due to petitioner, according to the terms of said lease, for the month of February, 1897, for rent of said premises, the sum of $75, which still remains due and unpaid. Said petitioner asked that said sum of $135.54 be'allowed as a claim against said estate of Smith & Co., in favor of petitioner, as one of the general creditors, and that said sum of $75 be allowed against said receiver, and that it be paid, as part of the costs of administration of said estate, and prior to the claims of the general creditors. The receiver answered said petition, and it was heard by the court on the following stipulation and notice thereto attached: “ It is hereby stipulated by and between the parties to this suit, as follows, to wit: ‘ That the allegations in the said intervening petition of Wallace L. De Wolf contained, in reference to the amount of rent due October 1, A. D. 1896, to wit, the sum of one hundred thirty-five dollars and fifty-four cents ($135.54), are true as alleged in said intervening petition. It is further stipulated that all the facts in relation to the other matters alleged in said intervening petition are as follows, to wit: That at the time of the said appointment of the Eoyal Trust Company receiver herein, the business of H. P. Smith & Co., the insolvent estate in these proceedings mentioned, was holding and occupying premises known as Nos. 113, 115 and 119 West Van Burén street in the city of Chicago and State of Illinois, under lease bearing date April 13, A. D. 1896, by which lease the lessor therein mentioned, the said Wallace L. De Wolf, intervening petitioner herein, had let and leased the said premises to the said insolvent firm of Hiram P. Smith & Co. from the 1st day of May, A. D. 1896, until the 1st day of May, A. D. 1897, at a monthly rental, as per the terms of said lease, of seventy-five dollars ($75) per month, to be paid upon the first day of each month; that all of the business and assets of the said Hiram P. Smith & Co., at the time of the appointment of the receiver herein, were situate and carried on at the said premises. That at the time of the appointment of the receiver herein, the said receiver took possession of all of said premises mentioned in said lease under order of the court herein, and ever since said time has continued to occupy said premises under said lease, and on February 1, A. D. 1897, delivered to complainant a part of the said keys to said premises at the office of the intervening petitioner, and the balance of said keys to said premises it caused to be left at the office of intervening petitioner on February 3, A. D. 1897; that on January 22, A. D. 1897, it caused to be served upon the intervening petitioner a notice, which is hereto attached as ‘ Exhibit A,’ and made a part hereof. That the receiver has paid to the intervening petitioner the rent, as per the terms of said lease, from the said time it took possession of said premises up to February 1, A. D. 1897, since which time no rent has been paid for said premises; that the said leasehold estate was at the various times herein mentioned valuable to and available for the benefit of the creditors of said estate, and that the said receiver, at the time of its appointment herein, elected to take possession of said premises and occupy the same under the orders and direction of the court. The above embraces all that ever took place between the intervening petitioner and the receiver in relation to said matter, or between the agents of either of said parties. Dated February 16, 1897. Smith & Ellis, solicitors for Eoyal Trust Company, receiver. Firebaugh & Draper, solicitors for intervening petitioner.” “ Notice. In the Circuit Court of Cook County, Illinois. Beniamin F. Smith, complainant, vs. Mattie C. Smith, administratrix. )Bill 163,009.. Bill 163,009.. To Wallace L. DeWolf: You are hereby notified that the undersigned will, on January 30, 1897, surrender to you the premises heretofore occupied by it as receiver for the late firm of Hiram P. Smith & Co., said premises being no longer required by said receiver in administering said estate. The premises in question are known as Eos. 113, 115 and 119 West Van Burén street, Chicago. On said January 30, 1897, the keys to said premises will be surrendered at your office. Dated January 22, 1897. Royal Trust Co., Receiver for Hiram P. Smith & Co. By Smith & Ellis, Attorneys.” Eo other evidence was introduced or heard by the court. The court allowed said claim of §135.54 to be paid with the general creditors of said estate, but disallowed the claim of §75 for rent of February, 1897, and found that the receiver vacated said premises prior to February 1, 1897, and surrendered the keys thereof to petitioner February 3, 1897; that the receiver in no way used or occupied said premises during February, 1897, or thereafter; that said receiver having failed to surrender said keys until February 3,1897, said petitioner was entitled to rent for said premises up to and including February 3, 1897, amounting to §7.25, and ordered said receiver to pay said petitioner that amount as a preferred creditor. From this last order appellant appealed. The first six assignments of error question the propriety of the orders appointing said receiver, appointing Smith & Ellis as solicitors for said receiver, denying the motion of petitioner to be made a party defendant, denying his petition asking the discharge of the receiver, and in allowing said Smith & Ellis $50 for their services as solicitors for said receiver; but inasmuch as no appeal was taken from any order of the court except that in disallowing petitioner’s claim for rent of §75, we can not and do not consider any of said alleged errors. The only remaining question is as to whether the court erred in refusing said claim of $75. In the case of Smith v. Goodman, 149 Ill. 80, where the question was as to the liability of an assignee under a voluntary assignment for the benefit of creditors, upon a lease to the insolvent made before the assignment, the court say: “ While the assignee stands as the representative of the debtor, the purpose for which he is invested with title to the insolvent’s property is that it may be collected and made available for the payment of the debts of the assignor. It might very well be that a term of years in land might be so burdened with the performance of conditions that it would be wholly valueless for any purpose of the trust. For that reason it has been uniformly held that the assignee may accept the assignment and enter upon the execution of the trpst without becoming the assignee Of the lease held by the insolvents, unless he elects so to do. (Citing cases.) And the assignee is entitled to a reasonable time in which to ascertain whether the leasehold estate can be made available for the benefit of creditors or not.” The court further states that no general rule can be laid down as to the effect of specific acts of the assignee in determining whether there has been an election to take the leasehold property as part of the assigned estate, and says that from an examination of the adjudged cases the general principle would seem to be “that the assignee will not be held to have accepted the lease, unless it be shown that he has done so expressly, or by unequivocal acts, inconsistent with the right of entry by the landlord, has indicated an election to appropriate the leasehold estate.” In Spencer v. Columbian Expos., 163 Ill. 126, it was contended that the receiver, notwithstanding the contract of the insolvent to pay a specified rent, was only bound to pay a reasonable compensation for the privileges it. enjoyed in occupying premises under order of the court appointing it; but the court held the receiver liable to pay at the rate contracted for by the insolvent for the time the premises were used by the receiver, being the full time of the insolvent’s contract. The receiver took possession and carried on the business of the insolvent, which the insolvent had been unable to continue, to the end of the contract, and received all the profits and benefits of such possession and continuance of the business. The court recognizes the same rule as applicable to a receiver, which,, in the Smith case, supra, is applied to an assignee, except the court says, that the right to elect whether he (the receiver) will perform the contract of the insolvent or not, is subject to the order of the court, and that it is so laid down by many authorities. On the same question, in case of Quincy, etc., Railroad Co. v. Humphreys, 145 U. S. 96, the court, quoting from Gaither v. Stockbridge, 67 Maryland, 224, said: “ The ordinary chancery receiver, such as we have in this case, is clothed with no estate in the property, but is a mere custodian of it for the court, and by special authority may become an officer of the court to effect a sale of the property, if that be deemed necessary for the benefit of the parties concerned. If the order of the court under which the receiver acts embraces the leasehold estate, it becomes his duty, of course, to take possession of it; but he does not,' by taking such possession, become assignee of the term in any proper- sense of the word. He holds that, as he would hold any other personal property involved, for and as the hand of the- court,, and not as assignee of the term.-” ’ And again, quoting from Sunflower Oil Co. v. Wilson, 142 U. S. 322, the court said: “ The receiver did not simply, by-virtue of his appointment, become liable upon the covenants- and agreements of the railway company,” .citing cases. “Upon taking possession of the property, he was entitled to a reasonable time to elect whether he would adopt this contract and make it his own, or whether he would insist upon the inability of the company to pay, and return the property in good order and condition, paying, of course, the stipulated rental for it so long as he used it.” * * * The. court proceeds: “ Tested by this rule, we are of opinion that these receivers did not become bound by an election, or by reason of any act of their own, or by any order of the court. The court did not bind’itself or its receivers eo instanti, by the mere act of taking possession. Reasonable time had necessarily to be taken to ascertain the situation of affairs.” See also U. S. Trust Co. v. Wabash W. Ry. Co., 150 U. S. 287; and Morrison v. Blackall, 68 Ill. App. 512. In the latter case the extent of the landlord’s contention was that the receiver was liable for the time he actually occupied at the rate fixed by the lease, the receiver having conducted the business of the insolvent in the leased premises for nearly two years, and the unexpired term of the insolvent’s lease was about two years more. That it is the general rule that a receiver is always subject to the order of the court appointing him, and can make no contracts but with the sanction of the court, is plain. High on Eeceivers, § 390a, states the law in these words : “ All contracts . made by him, the receiver, are subject to modification by the court, and persons contracting with him are chargeable with notice of his limited powers in this regard, and deal with him at the risk of their contracts not being approved by the court.” Beach on Eeceivers, Sec. 257, states the same principle in these words: “ Neither can he, the receiver, enter into contracts without the approval of the court. Although as receiver he may enter into negotiations and make such agreements as would be binding upon him as an individual, yet, in order to affect the funds in his hands, his acts must be ratified by the court. This rule is so well established that it has beep decided that all persons contracting with a receiver arc chargeable with knowledge of his inability to contract, and enter into contracts with him at their peril, and that the court has unquestioned power to modify or even vacate his agreements.” In Bispham’s Equity, Sec. 580, it is stated, speaking of receivers: “ His first duty may be said to be to take possession of the estate in the room and place of the owner thereof; and under the supervision of the court to manage the property so as to transfer the same, and if possible, to make it profitable for those who may ultimately be declared the owners thereof. The powers of a receiver are limited. All his actions are under the immediate control of the court, and in order to a safe custody of the estate he must continually apply to the court for its advice and sanction.” We therefore conclude that without the sanction of the court the receiver may not elect to bind the estate of the insolvent on a lease, by his own independent action. It appears from this record that while the receiver occupied the demised premises, such occupancy was of advantage to the estate and was under the orders of the court, but it nowhere appears that he elected to take the lease as an asset of the estate, or that the sanction of the court went further than to approve of the action of the receiver in retaining the demised premises so long ■ as such detention was of advantage to the estate. It was equitable that the receiver should pay for the premises rent at the rate specified in the lease for the time he actually occupied the same, which was done. If the landlord had desired to hold the receiver for the full term of the lease, he should have promptly applied to the court when the receiver took possession of the demised premises, when the court, if it was thought it would be of advantage to the estate that the receiver hold the demised premises for the full term of the lease, could so direct, and then the liability of the receiver would be unquestioned; or if- that was not deemed to be advantageous to the estate, the court could have directed the receiver to give possession to the landlord. It is too late, under the circumstances shown in this case, for the landlord, he having taken no action toward determining his relations to the receiver, to now claim that the receiver is liable for rent according to the terms of the lease, simply because the receiver took possession of the same and occupied, under the orders of the court, for a time sufficient to allow him to wind up the business of the insolvent firm. The order and decree of the Circuit Court is affirmed.