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Argument for Petitioner.
ATLANTIC TRUST COMPANY v. CHAPMAN, RECEIVER
OF THE WOODBRIDGE CANAL AND IRRIGATION COMPANY. .
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE NINTH
No. 109. Argued January 15, 16, 1908.-Decided February 24, 1908.
A receiver, as soon as he is appointed and qualifies, comes under the sole
direction of the court and his engagements are those of the court, and the liabilities he incurs are chargeable upon the property and not against the parties at whose instance he was appointed and who have no authority
over him and cannot control his actions. While cases may arise in which it may be equitable to charge the parties at
whose instance a receiver is appointed with the expenses of the receivership, in the absence of special circumstances the general rule, which is applicable in this case, is that such expenses are a charge upon the property or fund without any personal liability therefor on the part of those parties; and the mere inadequacy of the fund to meet such expenses does not render a plaintiff who has not been guilty of any irregularity liable
therefor. 145 Fed. Rep. 820, reversed.
The facts are stated in the opinion.
Mr. Stanley W. Dexter, with whom Mr. Edward B. Whitney was on the brief, for petitioner:
The Circuit Court was without power to compel the complainant to pay the deficit of a receivership which was in all respects regular, after final judgment in complainant's favor.
There is no inherent power in any court to award costs, in the absence of statute, and where costs are authorized by statute, they follow the judgment and are taxed to the losing party, as was done in this case. Wallace v. Sheldon, 76 N. W. Rep. 418 (Nebraska); In re Commissioners, 20 App. Div. 271 (New York); In re City of Brooklyn, 148 N. Y. 107.
Priority is given to the compensation of receivers and their solicitors over receiver's certificates, and such allowances have
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Argument for Petitioner.
sometimes been called “costs of the proceeding to be paid out of the fund.” Petersburg Savings Co. v. Dellatorre, 70 Fed. Rep. 643; Radford v. Folsom, 55 Iowa, 276.
There is no suggestion, however, that they can be taxed against a successful party, and in the present case, the receiver and his solicitors have been paid.
The receiver's counsel has in prior arguments urged certain provisions of the California Code. It seems unnecessary for us to discuss these, since the equity practice of the Federal courts is uniform throughout the United States and does not in any respect follow that which prevails in the various localities. 1 Foster's Fed. Prac. (3d ed.), pp. 10-12, 120-121; Boyle v. Zacharie, 6 Pet. 648, 658; First National Bank v. Ewing, 103 Fed. Rep. 168, 194; Kirby v. Lake Shore R. R., 120 U. S. 130, 137; Goodyear Co. v. Dancel, 119 Fed. Rep. 692; Phinizy v. Augusta Railway Co., 98 Fed. Rep. 776. Even in common law actions costs are not governed by provisions of state legislation. United States v. Treadwell, 15 Fed. Rep. 532.
Prior to the decision of this case the only authority directly in point was that approved and followed by Judge Morrow. See Farmers' Loan & Trust Co. v. Oregon Pacific R. R. Co., 31 Oregon, 237, fully sustaining petitioner's contention.
The receiver is not the agent of the plaintiff in the litigation nor does the plaintiff have any control or authority over him. He is agent and executive officer of the court which takes possession of the property which is the subject of dispute, and controls and operates it for the use and benefit, not of either party to the controversy, but of whomsoever in the end may be concerned in its disposition. His acts and possession are the acts of the court and the parties to the litigation have no control over his actions nor any power to determine what liabilities he may incur. .
The receiver's employés must look to the property in the court's hands and the income therefrom for the payment of their compensation. Their wages are not costs of the litigation in any sense, and, though incurred during the pendency of the
Argument of Respondents.
suit, they are not incurred in the suit. They are not expenses of either side of the controversy and are not costs or fees which can be charged against the successful party to the litigation. Farmers' Loan & Trust Co. v. Oregon Pacific R. R. Co., 31 Or gon, 237. And see Booth v. Clark, 17 How. 322, 331; Davis v. Gray, 16 Wall. 203, 218; Fallbrook Irrigation District v. Bradley, 164 U. S. 112.
This court has always maintained the position that a receiver is an agent of the court and derives no authority from the act of the parties at whose suggestion or by whose consent he is appointed. Chicago Union Bank v. Kansas City Bank, 136 U. S. 223, 236; Quincy, Missouri & Pacific R. R. Co. v. Humphreys, 145 U. S. 82, 97. The lower Federal courts have maintained the same doctrine. Texas & St. Louis Ry. Co. v. Rust, 17 Fed. Rep. 275, 282; Central Trust Co. v. Wabash, St. Louis & Pacific Railway Co., 23 Fed. Rep. 863; New York, P. & 0 Ry. Co. v. New York, L. E. & W. Ry. Co., 58 Fed. Rep. 268, 278.
The only pledge that the court made, or could lawfully make. was that the fund in court would be impressed with a paramount lien in favor of the receiver's creditors, and that it would enforce such lien against the property and parties as a condition of releasing the property. Taft, J., 58 Fed. Rep. 15. See also Beach on Receivers, $ 416; Meyer v. Johnson, 53 Alabama, 237, 348, 349; Turner v. Peoria &c., 95 Illinois, 134, 145; Kneeland v. American Loan Co., 136 U. S. 89, 98.
Mr. Edgar C. Chapman, respondent, in person:
The Circuit Court has power to compel petitioner to pay the deficit of the receivership.
In railroad receiverships (and the case at bar is similar) it has been uniformly held that the courts have the power to decree reimbursement to the receiver out of the income of the property and if that is not sufficient then out of the corpus, before payment of the mortgage debt is allowed.
The theory upon which courts have thus proceeded is that
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Argument of Respondent.
the court has pledged its faith to the payment of the expenses of the receivership. As the court has no property of its own with which to operate the railroads, it must, in order to keep faith with those whom it employs, redeem its pledge by either resorting to the fund brought into court or else to the party at whose instance and upon whose showing it was induced to undertake the management of the property. This power is inherent. It does not depend upon consent or arise from contract. Alderson on Receivers, $ 332.
If a court has the power to redeem some of its pledges by resorting to the fund in its possession for that purpose, it has also the power to redeem all of its pledges by resorting to the party that induced it to appoint the receiver, assuming that such party is able to respond.
Property cannot be administered by the court and kept a "going concern,” without expense.
The court must not knowingly order expenses to be incurred that it has no intention of seeing paid.
When the court places a receiver in charge of property on representations made to it by a complainant, with orders to contract such indebtedness as appears needful, it is to be presumed that reliance shall be placed upon the court for the payment of this indebtedness.
Ordinarily the fund is sufficient to protect the court and its officers and employés, and the court is not compelled to proceed further. And this is why there is a dearth of decisions on the precise question presented by the case at bar, namely, the power of the court to look beyond the property administered upon where it fails, or proves insufficient to the complainant to make up the deficiency.
That the court has this power in a proper case, and the case at bar is such an one, there is no doubt. See Knickerbocker v. McKindley C. & M. Co., 67 Ill. App. 295; Pacific Bank v. Madera Fruit Co., 124 California. 525; Ephraim v. Pacific Bank, 129 California, 589; also cases cited by Judge Ross in Chapman v. Atlantic Trust Co., 119 Fed. Rep. 270. Farmers' Loan
& Trust Co. v. Oregon Pacific R. R. Co., 31 Oregon, 237, discussed and distinguished.
MR. JUSTICE HARLAN delivered the opinion of the court.
The principal question in this case—now before us upon writ of certiorari for the review of a final order of the Circuit Court of Appeals for the Ninth Circuit-is stated by counsel to be this: Is a complainant, who has in good faith prosecuted à suit upon a good cause of action, and upon whose applica tion the court has properly appointed a receiver, and who obtains à decree fully establishing his rights, nevertheless personally responsible for a deficiency caused by the failure of the property which is the subject of the suit to bring enough to cover the allowances made by the court to the receiver and his counsel, and the expenses which the receiver, without special request of the complainant in any instance, had incurred?
The Woodbridge Canal and Irrigation Company, a corporation of California, executed July 17, 1891, a mortgage conveying all its property and franchises to the Atlantic Trust Company, a New York corporation, in trust to secure certain bonds, with interest coupons attached, issued by the mortgagor company for the purpose of raising money to fully complete and equip its canal and headworks, and of paying its indebtedness then existing or to be subsequently incurred. The bonds were made payable with interest semi-annually at the office of the Trust Company in the city of New York.
In the event of default in the payment of semi-annual interest on the bonds for six months, or of any tax or assessment for the same period, the trustee and its successors were authorized, on the written request of the majority of the holders of the outstanding bonds, or, if the principal of the bonds. shall be due, upon the request of the holders of outstanding bonds, to take actual possession of the mortgaged property. and by themselves or agents hold, use and enjoy