Kirker v. Owings

98 F. 499, 39 C.C.A. 132, 1899 U.S. App. LEXIS 2752

• Court: Court of Appeals for the Sixth Circuit
• Decided: July 5, 1899
• Docket: No. 659
• Status: Published

Opinion

TAFT, Circuit Judge

(after stating the facts as above). The court below held the receiver personally liable for certain debts incurred by Win, because, without authority of the court, he bad sold at an inadequate price the property out of which the court might have realized a sufficient sum to have paid the receiver’s debts. The court entered a decree in favor of the receiver’s creditors, not only against the receiver, but also against (be surety upon his bond. It does not appear specifically that the surety was given any notice of the hearing, but it does appear that at the time the order was made the surety appeared and excepted to its validity. No pleadings were filed against the surety upon the bond, and no process issued against him. Three questions are presented on the record: First. Had the court power to make an order against the surety, of this summary character, in the cause in which (he bond had been given? Second. Was there evidence upon which the court was justified in directing that the receiver should pay the debts which lie had incurred, and which were unpaid? Third. Was it a defense to the receiver in the court below that his sale of the barges was authorized by the circuit court of West Virginia? These questions we shall now consider in their order.

1. The precedents do not justify the practice in equity of giving a summary decree against the surety on the bond of a receiver for the latter’s default, — at least, when such power is not reserved in the bond itself, by statute, or by rule of court. In Thurman v. Morgan, 79 Va. 367, a rule was issued by a court appointing the receiver against his administrator. An account was taken, and it appeared that S3,688 was due from the receiver. The report was confirmed, and a rule was issued against the administrator of the receiver and the sureties upon the receiver’s bond to show cause why a decree should not he entered against them for the sum found due. They appeared and moved to quash the rule, hut the motion was denied, and a decree entered against them for the sum of $3,-663.53, with interest and costs. The court of appeals held this to he erroneous, as there was in their hands no fund subject to the order of the court; that they could not he proceeded against except by an action on their bond in a common-law court, where they could make defense in a trial by jury. In the case of Atkinson v. Smith, 89 N C. 72, upon reference, it appeared that the receiver appointed in. the suit had not accounted for $268. The report was , confirmed. '"'Plaintiff then moved for judgment against the receiver and his surety for this amount upon the bond. The court refused this remedy, and an appeal was taken. The action of the court below was sustained by the supreme court, saying:

“The regular course of procedure, according to well-settled practice, in. eases like this, is to proceed against the receiver in the first instance, and, if he shall fail in the proper discharge of his duty within the scope of his bond, then to obtain leave of the court to sue upon his bond. It may be that in some cases the surety might, by order of the court, and upon reasonable notice, be brought into the action in which the receiver had been appointed, and proceeded against therein. But this is not the usual course pursued; nor is it to be encouraged, if, indeed, it could be sustained in any case.” 1'

In State v. Gibson, 21 Ark. 140-143, Chief Justice English states the proper course in cases like this to be that the interested party shall apply to the court for a rule against the receiver to render his account; that after the account is adjusted, and approved by the court, the receiver shall be ordered to pay the effects in his hands into court, or to the party entitled to them; that, if he fails to do so, he shall be subject to attachment as for contempt, and he and his sureties become liable to suit upon his bond. See, also, Weems v. Lathrop, 42 Tex. 207-213. The only exception to such a course of proceeding would seem to be where the surety has taken possession of some of the funds which came into the hands of the receiver under orders of the court. In the case of Seidenbach v. Denklespeil, 11 Lea, 297, it was held that because the surety on the receiver’s bond had in his hands $500, acquired from the receiver, which he knew to be part of the trust fund, the court had sufficient jurisdiction over him to make an order upon him for the restoration of that sum to the custody of the court. See, also, Bank v. Creditors, 86 N. C. 323; High, Rec. § 129; Gluck & B. Rec. (2d Ed.) p. 430, § 83.

In the English court of chancery the obligation taken by way of security from a receiver for the faithful performance of his duty is not a common-law bond, but is a recognizance. The court of chancery requires the receiver to account, and finds the amount due from him, and orders him to pay the same into court. Upon his failure so to do, he may be proceeded against by attachment, or the parties in interest may apply to the court for leave to sue upon his recognizance. When that leave is granted, the next step is to proceed by writ of scire facias, in the name of the master of the rolls and the senior vice chancellor, or the recognizee named in the recognizance, against the recognizors, who are the receiver and his sureties. This scire facias is a judicial writ founded upon a record, and requires the person against whom it is brought to show cause why he should not pay the debt of record. It is suable in a common-law court. The scire facias is accordingly sued out in the office of the petty bag, on the common-law side of the court of chancery, and is made returnable to some common-law court, — either the court of queen’s bench or common pleas or exchequer of pleas, — and in that court, if a defense is made, the issue is tried to a jury. In such proceeding the penalty of the recognizance was the debt, for which execution would go, should the issue raised upon the writ be determined in favor oil the recognizees. Therefore, where the amount of the default of the receiver did not equal the penalty of the recognizance, it was for the advantage of the cognizors, who were sureties, to apply to the court of chancery, out of which general leave had been given to sue, and in which the recognizance had been taken, to stay further proceedings at law on the recognizance upon payment by the cognizors of the exact amount found due by tbe chancellor from the receiver. This explains why questions with reference to sureties upon receiver’s recognizances, and the amount due from them, are so frequently adjudicated in a court of chancery in the cause in which the recognizance was given. A full description of the projKir course in the collection of debts due from tbe receiver upon his recognizance may be found in 2 Daniell, Ch. Prac. (6 th Am. Ed., from 6th Eng. Ed.) *1757-*1764. See, also, Thurlow v. Thurlow, 4 Jur. 982, where Lord Langdell, the master of the rolls, says:

“That the usual course where the party applying was an adult, as in this case, was to apply for leave to put the recognizance in suit, and not for a reference to the master to inquire whether it would he proper to do so; and that notice of the application must he personally served on tlie parties who were liable.”

In Walker v. Wild, 1 Madd. 528, the receiver absconded without passing Ms accounts, though he was duly summoned. Upon application to the master of the rolls, bis recognizances were extracted from the record, and an action was brought against the sureties; and in that case a surety, after action brought, applied to the court to restrain all proceedings in the action at law, yielding to the order to pay into the Bank of England the sum found by the master to be due from the receiver in installments. In Dawson v. Raynes, 2 Russ. 466, the sureties of the receiver did not delay until leave was given to sue them on the recognizance, but applied to the court to be allowed to pay in what was due from the receiver, without interest; and tlie question was whether the sureties were liable for interest. The case was certified to the court of king’s bench upon the question whether the sureties in recognizance were bound to pay interest on the trust money which came into the receiver’s hands, or any part thereof. ’The judges certified that, if there had been any breach of the condition of the recognizance, the penalty was the debt at law, and the question of interest did not arise. But the court held that under the peculiar circumstances of the case, and the delay in the prosecution against the receiver, the sureties might be relieved from a suit at law by paying the amount due from the receiver, without interest. In Ludgater v. Channell, 3 Macn. & G. 175, it was held that, upon the death of a receiver without settlement of his accounts, a recognizance might be ordered to be put in suit against his real and personal representatives and against the sureties; and this is the same rule where the receiver absconds. A similar course was taken with reference to the recognizance of a committee in Re Lockey, 1 Phil. Ch. 509.

It has been suggested that there is a close analogy between tbe power of the court in enforcing receiver’s bonds, and that in respect of injunction bonds; and the language of Mr. Justice Bradley in Russell v. Farley, 105 U. S. 433, 26 L. Ed. 1060, has been referred to as justifying summary action by the court taking the injunction bond against the sureties. Russell v. Farley was an appeal in equity, by the respondent below, from that part of a decree dismissing a bill for an injunction which found that no damages were due defendant on the injunction bond. It was held that, as the court had inherent power to impose terms and take security from the party complainant before granting him a preliminary injunction, it had, as incident to such power, the right to modify those terms by declining to per- ■ mit such security to be enforced. Incidentally the learned justice' discussed the question whether the court of equity taking security in the form of a bond might itself assess the damages. The power had been denied by Chief Justice Taney in a dictum in Bein v. Heath, 12 How. 168, 179, 13 L. Ed. 989, and by Mr. Justice Curtis, on the circuit, in Merryfield v. Jones, 2 Curt. 806, Fed. Cas. No. 9,486, in a case where the point was in judgment. After referring to these authorities, Mr. Justice Bradley proceeded (page 445, 105 U. S., and page 1064, 26 L. Ed.):

“Other eases are referred to by the counsel of the appellants to sustain their position; but, upon a careful examination, we are not satisfied that they furnish any good authority for disaffirming the power of the court having possession of the case, in the absence of any statute to the contrary, to have the damages assessed under its own direction. This is the ordinary course in the court of chancery in England, by whose practice the courts of the United States are governed, and seems to be in accordance with sound principle. The imposition of terms and conditions upon the parties before the court is an incident to its jurisdiction over the case; and, having possession of the principal case, it is fitting that it should have power to dispose of the incidents arising therein, and thus do complete justice, and put an end to further litigation. We are inclined to think that the court has the power, and that it is an inherent power, which does not depend on any provision in the bond that the party shall abide by such order as the court may make as to1 damages (which is the usual formula in England) nor on the existence of an express law or rule of court (as adopted in some of the states) that the damages may be ascertained by reference or otherwise, as the court may direct; this being a mere appendage to the principal provision requiring a bond to be taken, and not conferring the power to take one, or to deal with it after it has been taken. But, whilst the court may have (we do not now undertake to decide that it has) the power to assess the damages, yet, if it has that power, it is in its discretion to exercise it, or to leave the parties to an action at law. No doubt, in many cases the latter course would be the more suitable and convenient one.”

How, though this language was not necessary to the cause, it is so weighty that we have felt justified in regarding it as defining the proper practice in respect to injunction bonds in the federal courts. Leslie v. Brown, 32 C. C. A. 556, 90 Fed. 171.. But can we extend the practice by analogy to receiver’s bonds in cases like the present, in which no power was reserved to the court, on the face of the bond, to assess the damages? We think not. The security tendered by a receiver stands, we think, upon a somewhat different footing from that of a party seeking an injunction. The receiver is invited by a court to assist in the discharge of the duties of the court, and, while he is required to give bond, it is not exacted as a condition of granting him, as a party, any extraordinary relief. The plenary power of the court of equity to assess the damages in an injunction bond seems, in the view of Mr. Justice Bradley, shown by the language quoted above, and also by the earlier part of the opinion, to arise by necessary implication from the attitude of the complainant towards the court in obtaining preliminary and summary relief, and is found by him to have been exercised by the English courts of chancery for many years, blow, we have seen that no such power has been exercised by the English court of chancery in respect to receiver’s recognizances, which are even more formal obligations than mere bonds. The difference in the English practice as to receiver’s recognizances and bonds in injunction suits itself sustains the view that they are not entirely analogous. We do not mean to hold that a court may not adopt such a rule, or so frame a receiver’s bond, as to reserve to itself the power to assess damages against the receiver and his sureties. Indeed, we are inclined to think this within the court’s power. A statute permitting such an assessment of damages on a receiver’s bond has been held constitutional in Mississippi. Bank v. Duncan, 52 Miss. 740. All that it is necessary for us here to decide, and all we do decide, is that when the court only takes from a receiver an ordinary common-law bond, with sureties conditioned for the faithful discharge of his duties and a compliance with the orders of the court, the sureties are entitled, in view of all the precedents, to regard their obligation as one which can only be enforced in a court of law. The decree of the court below, in so far as it adjudged a recovery against the surety, was erroneous. This conclusion renders it unnecessary to consider the objection tha.t no pleadings or process issued against the surety. Bo far as the receiver is concerned, the objection lias no weight; for it is clear that he had full notice of the proceedings, for he appeared and testified, and made no objection to the form of the order of reference until after decree.

2. The second question for our consideration is whether there was evidence justifying the court in ordering the receiver, personally, to pay the debts which he had incurred as receiver, and which were unpaid by him. The evideuce shows that these debts were incurred in the performance of a towing contract made by the towboat company before its assignment, by which it purchased nine barges and a fiat from Roberts, Bparks & Co. for $10,800, and proposed to pay for the same by carrying iron ore for the vendor at the rate of 50 cents a ton, 20 cents thereof to be applied upon the purchase price; that the towboat company liad itself 'thus earned and applied on the purchase price $2,665; that the receiver continued the performance of the contract, and paid the same creditor on the boats $2,248, reducing the amount due on the barges to $4,897; that, in order to earn this credit, the receiver incurred debts, which he was unable to pay, of $1,300; and that he then sold the barges to Roberts, Sparks & Co. for $50, without the authority of the court. It further appears that in his first report he brought to the attention of the court, and submitted to the court, whether Roberts, Sparks & Co. did uot owe to his trust considerably more than $1,300, because of the loss of one of the barges and a flat through their negligence. It is very clear that, so long as the court had in its custody the barges on which Roberts, Sparks & Co. claimed a vendor’s lien, the court had within its power to adjust the equities between them, on the one hand, and the towboat company and the receiver, on the other, and that, if his report is to be accepted as true against him, there was a claim against Roberts, Sparks & Co. which ought to have reduced the lien of that company upon the remainder of the barges by an amount sufficient to pay the receiver’s debts. Again, the master reports that it was not made to appear to the court below by the receiver that 20 cents a ton of all freight was to apply on the purchase price of the barges. This would have given the court below the right, in adjusting the equities on the barges, to require that, out of the earnings credited, the debts incurred in making them should be paid. More than this, the court might very well have found, from the evidence, that, considering the amount agreed to be paid for the barges, and the amount which had been paid on them, $50 was an altogether inadequate price for the interest which the towboat company and the receiver had in them. The receiver’s sales of the barges without the authority of the court below were acts which might properly be taken to color his proceedings, and throw upon him the burden of explaining the tremendous loss of value sustained in the barges. The receiver, after the disastrous season of 1897, reported to the court that he had property of the value of $5,000 in his custody. This included the steamer Spring-hill, which sold for $1,200, and the barges. In view of his reports, a private sale for $50 needed explanation, and his failure to explain amply justified the court below in finding that there was at least enough due from the receiver to require him personally to pay his unpaid debts as receiver. That the power of a court of equity to make such an order upon the receiver is plenary, can hardly be denied. It is amply sustained by the following cases: French v. Harness Co., 184 Pa. St. 161, 39 Atl. 63; Vanderbilt v. Railroad Co., 43 N. J. Eq. 669-686, 12 Atl. 188; Hinckley v. Railroad Co., 100 U. S. 153, 25 L. Ed. 591; In re Union Bank of Jersey City, 37 N. J. Eq. 420; High, Rec. c. 19; Gluck & B. Rec. § 81; Carr’s Adm’r v. Morris, 85 Va. 21, 6 S. E. 613; Clapp v. Clapp, 49 Hun, 195, 1 N. Y. Supp. 919.

3. But it is said that the receiver is protected from any liability, because, in carrying out the towing contract, and in the sale of the barges, he was acting under the order of the court of primary jurisdiction, — the circuit court of the United States for the district of West Virginia. We cannot yield to this argument. It is true that the bill which was filed in the circuit court of West Virginia was the original bill, and that the bill filed in the court below was for the purpose of assisting the administration of the trust in the circuit court of West Virginia; but the property which the receiver took possession of, and with respect to which these debts were incurred, was in the jurisdiction of the circuit court for the district of Tennessee, and the receiver applied to that court for orders with respect to that property because it was within the territorial jurisdiction of that court. He accepted an appointment as receiver of that property from that court, and his first allegiance in respect to that property, therefore, was to that court.. When the circuit court of the Eastern district of Tennessee had taken possession of the property, and the receiver was holding the property as its receiver, the property was beyond the jurisdiction of the circuit court of West Virginia to control by its own orders. The comity which public policy requires to be preserved between courts dealing with the same general trust might have led the court below to make an order carrying out the order of the court of West Virginia to sell the barges at private sale, but for the fact: that the barges proposed to be sold were the only property out of which the court could hope to pay the debts which it had authorized the receiver to incur. f The court below had an obligation to the creditors who, on the pledge of the court’s faith, had advanced money to its officer, and this was higher than the obligation of comity to concur in the order made by the court of West Virginia.1 That court was far removed from the locus in quo, and much less likely to be advised of the exact situation and the proper policy in the sale of the barges than the court of Tennessee where the property was. But the receiver did not think it necessary to advise the court below that such an order had been made until the barges were sold. The court below went as far as comity required when it directed its clerk to certify the order upon the receiver to the West Virginia court before execution should issue thereon. Thus, the receiver was given (>0 days in which to procure-from the court of original jurisdiction the means with which to pay the expenses which he liad incurred by order of both courts, and which he had deprived himself of ttie means of paying by an order of the court of West Virginia without authority from the court below. As the circuit court of West Virginia did not sec fit to direct the payment out of (lie funds which it had to meet these obligations, the circuit court for Tennessee had no recourse, save to the per-_ sonal liability of the receiver. It is a mistake to suppose that where an original crediiors’ bill is filed against a, debtor having property in a number of states, and so-called ancillary bills are tiled in other courts of different territorial jurisdiction, the courts exercising the so-called ancillary jurisdiction are compelled to make the same orders as those which are made in the court exercising the original jurisdiction. The whole relation of the two courts is merely one of comity, and when the court of ancillary jurisdiction has authorized its officer to incur debts owing to residents within its jurisdiction, and has impliedly pledged the faith of the court to their payment, it may and ought to exercise a jurisdiction independent of that of the original jurisdiction to secure payment of its debts of administration out of the property within its custody. An order of the court of original jurisdiction which in effect prevents fins, it may properly disregard. Undoubtedly, it is necessary that in the management of large properties, extending through various districts, as a unit, there should he one court to determine the general policy thereof; and comity requires that all the other courts should yield on such matters to the opinion of the court of originsd jurisdiction. But this does not prevent each court, in respect of claims against a receiver which are purely local in their character, from protecting persons who, on the faith of the court’s credit, have advanced money or goods or rendered service to the trust. In such a case comity must yield to justice and right. RTo case has been cited to us, at all applicable to this case, from which a different conclusion can be drawn. The order of the court below should have been in a different form. It should have directed that the receiver pay the debts incurred by him, mentioned in the order, and that in default thereof he should stand committed for contempt, and that the creditors should have leave to bring suit upon his bond against him and his surety.^' The decree of the court below is accordingly re versed,_ with directions' to enter an order in the form above stated against the receiver. All the costs of this appeal will be taxed against the receiver.