Burton v. R.G. Peters Salt & Lumber Co.

• Decision Date: 13 May 1911
• Citation: 190 F. 262
• Parties: BURTON v. R. G. PETERS SALT & LUMBER CO. et al. (STEARNS SALT & LUMBER CO., Intervener).
• Court: U.S. District Court — Western District of Michigan

190 F. 262

BURTON v. R. G. PETERS SALT & LUMBER CO. et al. (STEARNS SALT & LUMBER CO., Intervener).

United States Circuit Court, W.D. Michigan, Southern Division.

May 13, 1911

Norris & McPherson, for intervener.

Kleinhans & Knappen, for receiver.

DENISON District Judge.

The intervener asks an order directing the receiver to perform the contract made by the Peters Company with the intervener before the receivership. The effect of the performance will be to give the intervener a preference over other creditors of the Peters Company. The intervener sets up no special equity entitling it to such preference, and rests its demand on the proposition that the receiver herein must be considered as the agent of the parties bound to carry out their contracts as in the case of the receivership of a solvent partnership, since if it is of a character to bar the ordinary rights of the creditors, it has no sufficient basis for existence. It is clear that the present receivership is not of the first suggested character, and, hence, we are driven to consider the alternative. From this point of view petitioner alleges that there was no jurisdiction on the face of the pleadings, when the receiver was appointed, and that if jurisdiction appeared, it was collusively conferred.

1. Jurisdiction. It is a familiar rule that the assets of an insolvent corporation (i.e., one which cannot pay its debts as they mature) are a trust fund belonging primarily to its creditors; and it necessarily follows that the administration and distribution of such trust fund is a matter of general equitable cognizance.

The prima facie power of a court of equity to proceed in such cases, is subject to two limitations, and two only, so far as material in this case: First, it cannot proceed until the remedy at law is exhausted or obstructed; and, second, it cannot, unless it is enforcing an equitable lien, take away from the board of directors of a corporation, against the will of the board, the management of the company's affairs and the lawful disposition of its property, so long as the corporation is a 'going concern,' or, as sometimes said, so long as it has not 'yielded up dominion' over its affairs; and it is only another way of stating this latter limitation to say that the trust fund rule does not actively attach until the company's affairs reach this stage. Both these limitations, however, fail to reach or destroy the underlying, perhaps latent, general equitable jurisdiction; they are all impediments or obstacles to the exercise of that jurisdiction.

It seems to follow, upon the general principles involved, that the debtor corporation can waive the existence of either of these impediments and can consent that the latent and general jurisdiction shall be exercised. Whatever might otherwise be thought, I consider that this question, in its broadest aspect, is foreclosed by the ruling of Circuit Judge (now Mr. Justice) Lurton, in Horn v. P.M.R.R. Co. (C.C.) 151 F. 626, 633. Several of the same Supreme Court cases relied upon by petitioner here are there cited in support of Judge Lurton's conclusion.

I find no distinction in the remark that in that case the defendant debtor 'confessed its utter insolvency.' The record shows that the insolvency charged in that case was of the same character as that here charged, viz., a present inability to pay debts coupled...