Patrick v. Eells

The opinion of the court was delivered by Horton, C. J.: This was an application on the part of the plaintiff in error, as receiver of the Kansas rolling mill company, to be made a party defendant in an action pending in the district court of Wyandotte county, entitled Dan. P. [686] Eells and Wallace Pratt, as trustees, against the Kansas rolling mill company, to foreclose a mortgage upon a large amount of property belonging to the company, and for leave to file an answer alleging that the mortgages and bonds described in the petition were made without consideration, and for the purpose of defrauding the creditors of the company. The application was presented to the district court upon the records in the cases of Eells and Pratt, as trustees, against the Kansas rolling mill company; the Atchison, Topeka & Santa Fé railroad company against the rolling mill company; and certain affidavits filed by the trustees, alleging that on February 2, 1883, the trustees took possession of all the mortgaged property of the rolling mill company, with the consent of the corporation, under and for the purposes specified in the mortgage deed; that they were carefully, economically and successfully managing the affairs of the company; that there was no apparent or real danger of its property under their control being wasted, lost, or destroyed; that the mortgages and bonds referred to in the petition were executed in good faith; that the money which was derived therefrom was paid to and used by the rolling mill company in and about its business; that every holder of the bonds paid full value therefor; and that some of the bonds were held by stockholders, and others held by persons not stockholders. The application was denied by the court, and the motion for leave to file an answer overruled. It is contended on the' part of the receiver, that he had such an interest in the mortgaged property that he was not only entitled to be made a party, but that he was a necessary party to the foreclosure suit, a,nd that his application ought to have been granted as a matter of right. Sections 36 and 41 of the civil code are referred to. Not so. The ordinary rules applicable to granting leave to parties to file answers do not prevail in cases of receivers. A receiver of an insolvent corporation is the representative both of the creditors of the corporation and of its shareholders. He is uniformly regarded as an officer .of the court, exercising his functions in [687] the interest of neither plaintiff nor defendant, but for the common benefit of all parties in interest. “Being an officer of the court, the fund or property intrusted to his care is regarded as being in custodia legis for the benefit of whoever may eventually establish title thereto, the court itself having the care of the property by its receiver, who is merely its creature or officer, having no powers other than those conferred upon him by the order of his appointment, or such as are derived .from the established practice of courts of equity.” (High on Receivers, § 1.) Section 257 of the code also provides: “The receiver has, under the control of the court, power to bring and defend actions in his own name as receiver, . . . and generally to do such acts respecting the property as the court may authorize.” The court never granted leave to the receiver to intervene in the action of the trustees against the corporation, and neither the code nor the practice of courts of equity authorized him to file an answer in that case without first applying to the court and obtaining its consent. Therefore the point made that the court below should have permitted the receiver to come into the case and defend, is of no avail. That was a matter in the discretion of the court; the receiver is its officer. Perhaps the district court was convinced that the trustees were acting in good faith in carrying out the trust of the mortgage deed; that the foreclosure suit had been properly brought, and that the mortgage debts were just and valid. Perhaps, the court thought that a defense in the action would involve the estate in unnecessary and useless expense, and therefore deemed it just that the receiver should not proceed with its sanction. Again, it may be that the court saw a way to protect his interests and those of the creditors without permitting him to file the answer pending. In any event, the application of the receiver to be allowed to come in-and file his answer cannot be claimed as an absolute right. The motion was addressed to the discretion of the court; therefore, under the [688] circumstances of this case, we cannot interfere. (Savings Bank v. Simpson, 22 Kas. 414; Kerr on Receivers, 215; Swavey v. Dickon, 5 Sim. 629; 6 Ves. 287; Dan. Ch. Pr. 439; Dunlop v. Ins. Co., 74 N. Y. 145; Dunlop v. Ins. Co., 12 Hun, 627.) Under the established practice of courts of equity, as a general rule, the receiver must do no act which may involve the estate in expense, without the sanction of the court; and the right of a receiver to bring actions against persons not parties to the estate for which he is appointed, for the recovery of real or personal property, or for the collection of debts, is subject to the restriction that the sanction of the court must be previously obtained. Under the rules of chancery, even the receiver cannot defend an action which was brought against him, without the sanction of the judge. (Swavey v. Dickon, supra; 6 Ves. 287; Kerr on Receivers, supra; Dan. Ch. Pr., supra?) The ruling and order of the district court will be sustained. Valentine, J., concurring. Brewer, J.: I think the district court should have permitted the receiver to appear and answer, and yet I am not prepared to say that such an abuse of discretion is disclosed as justifies a reversal of its order.