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§ 869. Effect of appointment upon remedies of creditors.The rights of creditors of an insolvent corporation with respect to the appointment of a receiver upon their remedies against the corporation and its property are affected to a great extent by statutes governing civil proceedings and remedies.

Owing to differences between the provisions in different states there is a lack of harmony in the decisions.

The authorities generally agree, however, that if a creditor, by superior diligence, has acquired a lien by attachment or execution upon specific property, it is not defeated or impaired by the subsequent acquisition of the title of the corporation by the receiver.1 And where in the case of an insolvent corporation the receiver had been appointed pendente lite, not with a view to an equal distribution of the corporate funds, but merely to provide for the safety of the assets pending the litigation, it was held that such proceeding did not prevent the general creditors from enforcing their demands by suit. A lien acquired under a judgment obtained upon real estate after the appointment and possession of a receiver was upheld.2

$870. Lien of judgment affects only interest of corporation.—The lien acquired under a judgment against a corporation upon its real estate does not extend beyond the interest which the corporation held at the time of the appointment of the receiver, nor to the increased value of the property resulting from payments on the

Where an order directs the receiver of an insolvent corporation to sue stockholders and subscribers to the capital stock, the corporation may appeal from such order on behalf of its stockholders when the latter are not parties to the suit in which it is entered. Republic Life Ins. Co. v. Swigert (Ill.), 25 N. E. 680.

1 Hubbard v. Hamilton, 7 Metc. 340.

2 Ellicott v. U. S. Ins. Co., 7 Gill. 307. In re Vertical Tube Boiler Co., 14 N Y. S. 478 (May, 1891).

property made by the receiver. And where the receiver was appointed at the suit of mortgage bondholders of a railway company the income derived from the operation of the road by the receiver is regarded as a part of the mortgaged property for the purpose of being applied to paying the expenses of operating and managing the property as well as to the liens and trusts with which it is charged. And ordinary judg ment creditors of the company are not entitled to payment out of the income until such expenses and liens are satisfied.2

§ 871. Where supplies and materials are furnished.—If the cause of action upon which such judgment was obtained grew out of materials supplied for the necessary operation of the road and for the benefit of the mortgagees, such judgment when recovered against the receiver in a suit brought by leave of the court appointing him stands upon an equal footing with other claims for supplies and operating expenses, and may be paid either out of the gross income, in preference to bondholders, or out of the proceeds of foreclosure.3

1 Id.

Where an execution

2 Gilbert v. W. C. V. M. & G. S. R. Co., 33 Gratt, 645. against a corporation has been returned unsatisfied and the court has, pursuant to the statute (Gen. Laws, Minn. 1878 c. 76), appointed a receiver of all the property of the insolvent corporation in order to convert the same into money for the payment of its debts, a creditor of a corporation who recovers judgment against it after the property is thus taken in custodia legis, has no right to redeem real estate sold by the receiver under the direction of the court. Watkins v. Minnesota Thresher Manuf'g Co., 41 Minn. 150; 42 N. W. 862.

It is error to make the judgment of an action for personal injuries a lien on the earnings of the railroad in the hands of the receiver. Following Brown v. Brown, 71 Tex. 355; 9 S. W. 261. Brown v. Sullivan, 10 S. W. 288, 71 Tex. 470.

3 Turner v. J. B. & W. R. Co., 3 Biss. 527. A railroad company promised the owner of a saw mill near one of its switches, which was not used for receiving freight, that it would take up lumber for him at that point in certain quantities. A month later the road notified the mill owner that it would not receive any more lumber at the switch. The road subsequently passed into the hands of

§ 872. Statutory liens not defeated.--Claimants holding statutory liens 'upon the property of railroad companies for labor supplies and the like and those entitled by statute to an attachment against the rolling stock and personal property of the company may enforce their remedies under the statute, notwithstanding the appointment of a receiver. And having exhausted the prescribed remedies they are entitled to priority to the bondholders in payment out of the net income. The rights of the bondholders in such cases are subordinated by the statute to those of the attaching creditors.1 creditors the nature of whose claims entitle them to statutory liens against property in the hands of receivers appointed by federal courts may have them allowed with the same effect as if presented against a receiver in a court of the state where the statute is in force. Equitable liens are given effect to the same extent as those created by statute.

And

§ 873. Possession protected from attachment and execution. After a receiver is appointed and the right of possession of the property and assets of the corporation has become vested in him, though no actual possession of them may yet have been taken by him, they are deemed to be in custody of the law so as not to be

receivers. Held, that assuming the contract to be one that the company could not terminate at its pleasure, the claim for damages for its breach was not one entitling the mill owner to an allowance against the property in the hands of the receiver or out of the earnings of the road, in preference to the mortgage bondholders. Central Trust Co. v. Wabash, St. L. & P. Ry. Co., 32 F. 566.

1 Poland v. Railroad Co., 52 Vt. 144. A creditor having a judgment for personal injuries against an insolvent railroad company, growing out of torts committed by it before the receivership, is a general creditor, and his judgment is not entitled to priority of satisfaction out of the earnings of the receivership, and a fortiori not out of the corpus of the estate. Central Trust Co. v. East

Tennessee, V. & G. R. Co., 30 F. 895.

2 Blair v. St. L. H. & C. R. Co., 19 F. 861.

liable to levy under attachment in favor of a creditor of the corporation.1

A statute regulating the winding up of the affairs of corporations by receivers, and providing that creditors shall have their remedies under such statute and prohibiting actions against the corporation after the appointment of a receiver, is constitutional, as it does not impair contracts or deprive any person of property without due process of law.2

On the same principle the receiver will be protected by the court from unlawful interference, and will be clothed with the necessary authority to defend the trust fund from unjust demands.3

Where by statute a receiver appointed for the purpose of winding up the affairs of insolvent corporations by the final order of appointment becomes entitled absolutely to all the property and effects of the corporation for the purpose of making final distribution among the creditors and shareholders, such order has the effect and operation of a decree in proceedings by creditors against ordinary trustees and executors for ratable distribution out of a particular trust fund.

1 Hogedon v. Bank, 1 Pin. (Wis.) 61. Compare, supra, §§ 869-871. 2 Leathers v. Bank, 40 Me. 386.

• While the locomotive engineers of a railroad company in the hands of a receiver cannot be compelled by the court having the road in custody to remain in the service of the receiver, neither they, nor the "Brotherhood" to which they belong, will be permitted to interfere with or disturb the receiver or his subordinates in the possession and operation of the property. Beers v. Wabash, St. L. & P. Ry. Co., 34 F. 244.

Taking property from the possession of a receiver, without leave of the court, is contempt of court, and is punishable as such. Moore v. Mercer Wire Co. (N. J.), 15 A. 737. Where a railroad which has been in the hands of a receiver appointed by the circuit court is sold, and the purchaser, as part of the consideration, covenants to discharge all existing debts and liabilities of the receivership, it is the duty of such court to protect the purchaser against all demands which are not just and proper demands against the receiver, and to that end to require all such demands to be presented to it for allowance. Jesup v. Wabash, St. L. & P. Ry. Co., 44 F. 663.

And those who have not been made parties originally in the proceedings under which the order of appointment was made may become parties and share equally in the distribution with those who have been made parties, by coming in afterwards.1

§ 874. Discretionary power with respect to doubtful and disputed claims.-A receiver is bound to act with the same good faith in allowing or contesting the claims of creditors as he exercises with respect to the interests of the corporation.2 He is under no obligation to interpose unconscientious defences; and yet he should allow no claim until so ordered by the judgment of a court of competent jurisdiction against which there is a legal and meritorious defence.*

It is too evident a proposition to need more than a mere statement that he has no authority to give a pref

1 In Re City of Buffalo, 10 Paige Ch. 378.

2 A large quantity of personal property belonging to the corporation, consist ing of horses, cattle, sheep, etc., was scattered about among various organizations, and the receiver made numerous attempts to recover it in specie, but found it impossible to identify the greater portion of it. He also found that the persons guilty of converting it were in most cases financially irresponsible. He finally compromised all claims for $75,000 in cash, and, though no special report was made thereof, there was no attempt to conceal his action, and it was a matter of common knowledge. The value of all the property embraced in compromise was probably much greater than the amount received, but it was in such condition that if the receiver had attempted to reclaim it vast expense would have been incurred. He acted on the advice of counsel, and with the approval of the law officers of the government. Held that his action. United States v. Late Corporation of Jesus Christ of Latter Day Saints (Utah), 21 P. 506. Holding also that where a receiver in compromising suits to recover property in the interest of the fund, relies entirely upon the suggestion and advice of his attorneys, in whom the court itself has full confidence, the receiver will be held blameless whether the attorneys acted in good faith or not.

3 Matter of Vanallen, 37 Barb. 255. A switchman claimed from the receivers of defendant company, compensation for injuries sustained in the line of his duty. The master reported, exonerating the company. Held, that it was just policy for the company to pay wages during recovery from the injuries. Missouri Pac. Ry. Co. v. Texas & P. Ry. Co., 33 F. 701.

4 Atty-Gen. v. Life Ins. Co., 4 Paige Ch. 224.

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