Brandt v. Allen

Robinson, J. — 1. receive: tody of prop-’ tíon o! equity: pleading. I. The first question we are called upon to determine is that of jurisdiction. The petition filed by the receiver is entitled and drawn as though it were a part of the original action brought to secure the appointment a receiver. The defendants insist that the court had no right to require them to appear in the summary manner which it did, and to order the delivery to the clerk of property which one of them claimed to own, for the reason that they were not parties to the original action. That was commenced by S. A. Robertson, a stockholder, as plain tiff. We think this proceeding must be regarded as auxiliary to the original action. It is not prosecuted by the original plaintiff, but by the receiver, to accomplish the purposes of the original action. The receiver is an officer of the court, subject to its control. Code, sec. 2905; McGowan v. Myers, 66 Iowa, 102; Cartwright's Case, 114 Mass. 238; High, Rec. secs. 144, 151; 2 Story, Eq. Jur. sec. 831. The application for the appointment of a receiver was based, in part at least, upon the alleged insolvency of the insurance company. When the receiver was appointed he became entitled to the .custody and control of all property of the company, and it was the duty of all officers of the company to surrender to him such • property belonging to the company as was in their possession or within their control. When officers of the company were charged with concealing its assets with the purpose of converting the same to their own use, it was the duty of the receiver to take steps to ascertain the facts, and, if necessary, to invoke the aid of the court in compelling a surrender of the assets. In this case defendants were officers of the company, accused of concealing and seeking to convert to their own use assets to the possession [54] of which the receiver was entitled. We are of the opinion that it was within the equitable jurisdiction of the court to require them to answer the petition of plaintiff, and to compel them to surrender all property to the possession of which the receiver was entitled. It is said that the note in controversy could have been secured by the receiver, if he was entitled to its possession, by an action at law ; hence that equitable proceedings were unnecessary. But grounds of equitable jurisdiction were shown. It appeared that defendants had, prior to the appointment of a receiver, possession and control of the property of the company by virtue of their official connection with it; that they had retained and concealed some of its assets ; that they were about to negotiate the note in suit, and convert its proceeds to their own use; and that they were insolvent. If these allegations of the petition'were true, an action at law would not have afforded adequate relief. The facts alleged in regard to the note were sufficient to require it to be placed in the hands of a receiver. Code, sec. 2903. Defendants had notice of the proceedings, appeared, filed their answer, offered testimony, and submitted to a hearing by the court. We conclude, therefore, that the objections of defendants to the jurisdiction of the court are not well founded. Levi v. Karrick, 13 Iowa, 352; High, Rec. sec. 144. 2. evidence/ II. Appellants insist that the evidence did not so clearly establish the right of the receiver to the note, “as to warrant its disposition without a trial, and without the institution of a plenary suit.” This proceeding, so far as it relates to the note in controversy, seems to have been adopted and treated by the court below as a provisional remedy authorized in part by section 2903 of the Code. Its primary object was to place the note within the control of the court until the question of its ownership could be determined. The court did not attempt to adjudicate the claims of the respective parties, but contented itself with finding that the receiver had a probable right to the note, and with making such orders as [55] were designed to protect that right until there should be a final determination of the questions at issue upon their merits. The evidence shows that during the year 1884, and at a time when, an investigation of the affairs of the Monarch Insurance Company under the direction of the auditor of state was impending, defendant Allen was president of the company. Fearing that the company would not pass the investigation, Allen transferred to the assets of the company, from his personal property, the note in controversy, another note for the same amount, and $12,000 in money. This property was accepted by the board of directors of the company. After the investigation was made by the auditor of state, to-wit, in April, 1885, the board of directors adopted a resolution directing the repayment of the money, and the delivery of th-e notes to Allen. It is claimed on behalf of defendants that Allen transferred the notes and money to the company in good faith, and for a proper purpose; and that, while the transfer created no legal obligation on the part of the company, yet it did create a moral obligation which the company had a right to discharge in the manner attempted; and that by the action of the board of directors Allen became the owner of the notes and money. It is said on behalf of plaintiff that to allow Allen to retain.the note in controversy would be to allow him to perpetrate a fraud on the stockholders and policy-holders and creditors of the company; that, notwithstanding the action of the board of directors, Allen treated the note as belonging to the company, and included it in the annual statement of its assets ; and that it should now be treated'as belonging to the company. Whether this claim of appellee can be sustained must depend upon all the facts of the case. It was not within the power of the board of directors of the company to cancel its moral obligations at the expense of its creditors, and, if this has been attempted, it cannot be sustained. But this question should be decided only after a full investigation of the facts. It is sufficient for us to say at this time that the showing made on behalf of plaintiff was [56] such as to authorize the • court to take control of the note. 3. practice': obrafsed'beiow. III. Appellants claim that the court erred in ordering them to deliver the note to the clerk. An examination of the record leads us to the conclusion that this objection is made for the first time in this court. The petition asked that the court require the defendants to deposit the note with the clerk pending the determination of the question of plaintiff’s right thereto. The objections made by the defendants went to the authority of the court to proceed in the manner, adopted,' and to the right of plaintiff to insist upon a surrender of the note by defendants; but no objection was interposed to the clerk as a custodian, if one was to be appointed. Therefore we will not disturb the order in question, but our decision as to this will not prevent the defendants from requiring further security on the part of the clerk for the discharge of the duties imposed by the order, upon the making of a proper showing for that purpose. “The cause will be remanded for further proceedings in harmony with this opinion. Affirmed.