In re Independent Machine & Tool Corp.

WARD, Circuit Judge. October 3, 1917, a petition in involuntary bankruptcy was filed against the Independent Machine & Tool Corporation, Incorporated, and on the same day the petitioning creditors applied to the court for the appointment of a receiver, without giving any bond. An order on consent, was made appointing Bertha Rem [485] Imigli temporary receiver, reciting that the appointment was necessary to preserve the assets. October 9 the alleged bankrupt demanded a jury trial. December 22, the jury having found that the alleged bankrupt was solvent, Judge Mantón entered an order dismissing the petition, with costs, and directing the temporary receiver to turn over to the alleged bankrupt all its property in her possession, except so much as might be necessary to pay obligations incurred by her in performing die duties of the receivership. This is a petition to revise the order. The temporary receiver had come into possession of $812.56, had disbursed $178, owed $415, and was ready to pay over the balance of $219.56, without asking for any compensation, to the alleged bankrupt, who claimed that she should be required to turn over all the moneys that had come into her hands. 11, 2] Receivers should not be appointed, unless it is “absolutely necessary, for the preservation of estates, to take charge of the property of bankrupts after the filing of the petition until it is dismissed or the trustee is qualified.” Section 2 (3) of the Bankruptcy Act (Act: July 1, 1898, c. 541, 30 Stat. 545 [Comp. St. 1916, § 9586]); In re Oakland 1 Lumber Co., 174 Fed. 634, 98 C. C. A. 388. This was the ground upon which the temporary receiver was appointed in this case. Section 3(e) (Cor.ip. St. 1916, § 9587) provides an effectual protection for an alleged bankrupt as follows: "Sec. 3. * * ® (e) Whenever si petition is filed by any person for the purpose of having another adjudged si bankrupt, and an application is. made to take charge of and hold the property of the alleged bankrupt, or any part of the same, prior to. the adjudication and pending a hearing’ on the petition, ills' petitioner pr applicant shall file in the same court a bond with at least two good and sufficient sureties who shall reside within the jurisdiction of said • •oil!-;-, to be approved by the court or a judge thereof, in such sum as the rcui.'t shall direct, conditioned for the pajmont, in case such petition is dismissed, to the respondent, his or her personal representatives, all costs, expenses, and damages occasioned by such seizure, taking-, and detention of file pi-operty of the alleged bankrupt. ‘•if such petition be dismissed by the court or withdrawn by the petitioner, tiie respondent or respondents shall be allowed all costs, counsel fees, expenses, and damages occasioned by such seizure, taking, or detention of such property. Counsel fees, costs, expenses., and damages shall be lived and a i'owed. by the court, and paid by the obligors in such bond.” If the alleged bankrupt, inscead of opposing or moving to vacate such an order, consents to the appointment of a receiver without bond, he cannot object if the petition be dismissed to the payment of necessary disbursements out of the funds in the receiver’s custody. The provision of the act, being for his benefit, may be waived. As it consented fa this case to the entry of the order made, it cannot complain either that a receiver was appointed or that she was appointed without bond. Borne authorities are cited which hold that in ordinary civil suits the receiver’s rights depend upon whether the appointment was rightly made, and that if it is vacated he cannot look to the party whose property was wrongfully taken for his expenses or compensation. We think they do not apply. The Bankruptcy Act provides a system for insuring the equal distribution of a bankrupt’s assets among his creditors. Tlie specific case of an appointment continuing until the petition be dis [486] missed is covered. ~ It expressly contemplates that the status quo in some cases where the person proceeded against has not been and may never be adjudicated must be maintained. The claims of creditors might be utterly defeated, unless the assets were taken out of the alleged bankrupt’s possession. An appointment in such case cannot be described as unauthorized, or its propriety be made to depend upon the^subsequent adjudication of the alleged bankrupt. The expense of the appointment should be imposed upon the petitioning creditors in the first instance (In re Lacov, 142 Fed. 960, 74 C. C. A. 130); but the receiver, who is acting as an officer of the court, should not be chargeable with expenses necessarily incurred in the performance of his duties. It cannot here be said, as it may be in ordinary civil actions, that the taking of a man’s property from him is wrongful, unless finally adjudicated to be rightful, because the act expressly provides for a necessary taking, even if the petition be ultimately dismissed and the receivership vacated. Nevertheless the appointment and the taking are to carry out the purposes of the Bankruptcy Act, and are rightfxtl, whether the allégcd bankrupt be subsequently found to be solvent or insolvent. The order is affirmed.