9 Del. Ch. 247 | New York Court of Chancery | 1911
The insolvent corporation was a public service corporation and a continuance of its operation was essential to a proper protection of the property of the company and the maintenance of its franchises. The receivers took charge and operated it, improved its physical condition, and so conserved it until the sale-under the foreclosure proceedings. Considering the matter as though the plant and property of the company had been in Delaware, operated for about one year by a Delaware receiver, conserved as a going concern by him, and its physical condition somewhat improved; and considering that subsequently in another suit by the trustee mortgagee the property and plant had all been sold to pay the bonds secured by the mortgage, and that the proceeds of the sale were grossly inadequate for the payment of the bonds, the question is: Has this Court power to diminish the fund due the lienors by the pa}unent of the allowances to the receiver for services rendered by himself and his counsel ?
Courts of equity have to a limited extent, and sparingly, exercised the power to make the expenses of a receiver of a public corporation a lien upon the property of the company, superior to prior liens. Makeel v. Hotchkiss, 190 Ill. 311, 315, 60 N. E. 524; Beckwith v. Carroll, 56 Ala. 12; Cake v. Mohun 164 U. S. 311. Such expenses should be charged first against income, but when that is insufficient, may be charged against the corpus. Knickerbocker v. McKindley Coal Co., 172 Ill. 535, 50 N. E. 330. Indeed, it seems clearly established now, that though receivers’ certificates for funds to operate the business of a corporation may be authorized for quasi public corporations, they should not be authorized for the purpose of private business corporations, if the certificates are given priority over mortgage liens for bondholders or otherwise. High on Receivers, 312b; Hanna v. State Trust Co., 70 Fed. 2, 30 L. R. A. 201; U. S. Investment Co. v. Portland Hospital, 40 Ore. 523, 67 Pac. 194, 56 L. R. A. 627. There are cases in which courts of standing have denied compensation to a receiver, when to do so would diminish the fund which would otherwise come to the holders of hens on the property administered by the receiver. In Lammon v. Giles, 3 Wash. T. 117, 13 Pac. 417, 420, an insol
“A mortgagee of personal property not more than sufficient to pay his debt, is the only one who needs to borrow trouble about its preservation. If one intersiere with it officiously under the plea that he has rights therein but inferior to those of the mortgagee which require the sequestration of the property, he ought to pay all th'e expenses of such interference if it turn out that the property is insufficient, after satisfying the mortgage, to do so.”
The Court also said that a receiver should not be appointed where the property was no more than sufficient to pay the mortgage debt. In Lane v. Washington Hotel Co., 190 Pa. St. 230, 42 Atl. 697, a receiver of a hotel was appointed and goods in it which were subject to the landlord’s lien for rent, were sold by the receiver. Held, that the landlord had a lien for rent on the fund raised by the sale, and it could not be reduced by any part of expense of the receivership. To the same effect was the case of Moore v. Lincoln Park, etc., Co., 196 Pa. St. 519, 46 Atl. 857, where the receiver of a steamboat company sold vessels of the company on which there were maritime liens fixed prior to the receivership, and it was held that the fund for the lien creditors could not be diminished for the payment of any part of the commissions of the receiver.
The case of Makeel v. Hotchkiss, 190 Ill. 311, 60 N. E. 524, was one where a receiver was appointed for a hotel in a suit concerning ownership of it, and the receiver was author
“Had it been made to appear that in making claim to the proceeds of the property realized by means of the receivership, they had availed themselves of any benefit resulting from such receivership, they might, no doubt, have been properly required to submit to an equitable apportionment of the costs in accordance with the benefit received.” Citing Espuella Land Co. v. Biddle, 11Tex. Civ. App. 262, 32 S. W. 582; Highley v. Deane, 168 Ill. 266, 48 N. E. 50, and Cutter v. Pollock, 7 N. D. 631, 76 N. W. 235
The case of Lembeck v. Jarvis, 68 N. J. Eq. 352, 356, 59 Atl. 565, is cited by the solicitor for the petitioner as an authority for the allowance asked for, but it is not. There, there was a receivership of an insolvent corporation and the whole of its assets were in fact converted into money by a sale by the receivers. The mortgage for bondholders was concededly greater than the value of the property and the general creditors had no real interest in the assets. This the Court said was apparent from the start of the proceedings, and it was regarded by the Court as practically a mortgagee's suit. The theory of the Court in making the allownace is thus stated:
“The allowance is made on the theory that the incumbrancers, who have had the advantage of this receivership, to have their pledge cared for, kept in shape for sale and sold to advantage, and have thus been saved similar expensive proceedings in a suit on their own behalf, ought in equity to pay for the advantages which they have received. The fund has been administered by this Court, through its officers for their benefit, and they acquired their incumbrances subject to the very condition which has occurred.
“In this case not one dollar of compensation is allowed out of the fund to the receiver or his counsel which was not earned in the care and sale of the mortgaged property.”
A different principle is applicable where, notwithstanding the evident inadequacy of security for the bonds of the company, the trustee for the bondholders, instead of submitting to a full administration of the mortgaged property of the company by the receiver, instituted its own suit to foreclose the mortgage, and pursuant thereto a judicial sale is made and the property purchased for the bondholders. All that the receiver of the Chester County Electric Company did was to conserve the mortgaged property and somewhat improve its condition. But the mortgagee was not a party to, and did not consent to, the receivership, so far as appears, and therefore is entitled to have the mortgaged property undiminished by the costs and expenses of the receivership, except as to so much of such expenses as directly benefited it. Vice Chancellor Stevenson said in the above case:
“Where the insolvency receiver has had other assets besides those found to be subject to the mortgage, the effort, of course, should be to make each class, the incumbrancers and the general creditors, pay for the services of which it derived the benefit.”
Where, as here, it appears that a receiver has been appointed for an insolvent corporation, and the receiver has rendered services in caring for the property of the company, keeping it in operation (especially if it be a public service corporation), and improving its condition, and the whole of the plant of the company is afterwards sold in a foreclosure suit brought by the trustee under a mortgage to secure bonds of the company, the general receiver and his counsel will be enti
Where the general receiver has assets other than the mortgaged property sufficient to properly compensate him and his counsel, there should be an apportionment of such between the general creditors and incumbrancers, each class paying for the services of which it derived the benefit. Lembeck v. Jarvis, 68 N. J. Eq. 352, 59 Atl. 565, 566; Frick v. Fritz, 124 Iowa 529, 100 N. W. 513.
Where the general receiver sells the mortgaged premises, and sells, not the equity over the lien, but the property itself,life is acting for the general creditors and stockholders as well as the mortgagee, and for the benefit of whoever may be finally adjudged to be entitled to the fund in his hand. Lembeck v. Jarvis, supra. So there should be a separation, if it can be done with approximate certainty and fairness, of the service rendered to each class, and each should pay for the services proportionate to the benefit derived by each. Where, however, the receiver does not sell the mortgaged property, but it is sold in a separate proceeding by the mortgagee, then the consideration is as to the value of the services of the receiver to the mortgagee. A different situation is presented when the receivership is terminated because of the invalidity or impropriety of the original appointment, and in such case the decisions are conflicting as to' the responsibility for the costs and expenses of the receivership.
It is clear, then, that where there are valid liens upon the property of which a receiver takes possession, the mere fact of his appointment, or even of.an order of court authorizing the receiver to conduct a business, do not of themselves give to obligations which he might incur a preference over the prior liens. The security for valid liens should not be impaired. If the security is sufficient so that there is no margin of value in the property for the general creditors, the court may hesitate to appoint a receiver on application of general creditors, or to continue the receivership after lienors have an opportunity to
The services of A. D. Harrington, Esq., were not beneficial to the bondholders. As counsel for the receiver he successfully resisted an application made to have the Chester County Electric Company adjudicated bankrupt, and this was his chief and probably sole service to the receiver. But this was done without authority of the Delaware Court, which appointed the receiver, and the service does not seem to have been a benefit to the bondholders. The payment for this service should not be put upon the bondholders.
The services rendered to William M. Hope as Delaware receiver by A. B. Magee, Esq., consisted largely in his assistance to the effort of Elisha W. Meloney, one of the bondholders, to prevent a confirmation of the sale made by William M. Hope, receiver, as one of the defendants, and not as receiver, by order of this Court in this cause. It does not seem right that the bondholders, for whom the mortgaged property was purchased, 'should be called on to pay for legal services rendered to their opponent. This difficulty is referred to in Lembeck v. Jarvis, supra, as embarrassing to the Court.
The bondholders have availed themselves of the services of the receiver in the care of the plant, the physical condition of which was somewhat improved. It was eight months from the time the Delaware receiver was appointed and took charge of the mortgaged plant until the bondholders asked the trustee
It is proper the costs of the cause in which the receiver was appointed, amounting to $59.78, should be paid, for if the receivership was beneficial to the bondholders, the costs of the cause in which the receiver was appointed should be paid from the proceeds of the corpus of the estate administered. Manifestly Receiver Hope should be repaid moneys expended, amounting to $20, as stated in the petition.
The authorities have been examined and discussed in this opinion, because the matter here raised is now decided for the first time in this State, so far as the reports show.
Let an order be entered accordingly.