Cox v. Snow

• Citation: 273 P. 933,47 Idaho 229
• Decision Date: 14 January 1929
• Docket Number: 5343
• Parties: JAMES W. COX, Appellant, v. EDWIN SNOW, Receiver of the Idaho Copper Company, and IDAHO COPPER COMPANY, a Corporation, Respondents
• Court: Idaho Supreme Court

273 P. 933

47 Idaho 229

JAMES W. COX, Appellant, v. EDWIN SNOW, Receiver of the Idaho Copper Company, and IDAHO COPPER COMPANY, a Corporation, Respondents

No. 5343

Supreme Court of Idaho

January 14, 1929

RECEIVERS-DUTIES-RECEIVER'S CERTIFICATES-ISSUANCE-PRIOR UNSECURED CLAIMS-SALE OF RECEIVERSHIP PROPERTY-DISCRETION OF COURT.

1. Findings and judgment, in action under C. S., secs. 7305- 7307, on agreed statement of facts, to determine right of receiver to issue receiver's certificates, control in case of conflict as against order providing for the issuance thereof.

2. Generally, court has power to authorize the issuance of receiver's certificates.

3. A "receiver's certificate" is a promise to pay a definite sum from the receivership fund, and under exceptional circumstances may be made a first lien on receivership property, priority, however, not always being a feature of such certificates.

4. Fundamentally, courts have as much power to issue receiver's certificates in a case of a strictly private enterprise as in the case of a quasi-public one, though they have not assumed the same right to displace vested interests in case of private enterprises as in case of railroads.

5. Court has authority to defer sale of property in hands of receiver for a reasonable time to pay the debts of the company.

6. When property is taken over by receiver, it is his duty to gather and collect the assets and report fund to court for distribution.

7. Question as to whether sale of receivership property should be made, and the terms thereof, are matters for the determination of the receivership court acting under its discretionary powers.

8. Where a receivership involves a sale, the receivership should be wound up and the sale had at the earliest practicable moment within discretion of receivership court.

9. Receivership court had authority to authorize issuance of receiver's certificates for the purpose of paying unsecured debts of corporation contracted prior to receivership in order to prevent immediate sale of assets at a serious sacrifice.

10. Propriety of issuing receiver's certificates for purpose of paying unsecured debts contracted prior to receivership for the purpose of preventing immediate sale of assets at a sacrifice is largely discretionary with receiver and trial court.

11. Receiver's certificates issued for the purpose of paying unsecured debts of corporation contracted prior to receivership had, as between each other and as against other claims, the same priority as claims paid by certificates would have if remaining unpaid.

APPEAL from the District Court of the Seventh Judicial District for Adams County. Hon. B. S. Varian, Judge.

Action on agreed statement of facts to determine the right of a receiver to issue receiver's certificates. Judgment ordered modified, and so modified affirmed.

Judgment affirmed. No costs allowed.

Charles P. McCarthy, for Appellant.

The issuance and sale of receiver's certificates by the receiver of a private business are not authorized except to accomplish the preservation and protection of the property in the custody of the receiver. (2 Tardy's Smith on Receivers, 2d ed., sec. 553, pp. 1596, 1598; 8 Fletcher on Corporations, pp. 8949, 8950.)

Preservation and protection of the property within the meaning of the rule just above mentioned, mean protection from physical destruction, injury, deterioration, and loss through sale for taxes, or through forfeiture. (Raht v. Attrill, 106 N.Y. 423, 60 Am. Rep. 456, 13 N.E. 282; In re Canal Iron Works Co., 3 Ch. Div. 411-427, cited in Raht, etc. supra.)

Certificates issued in payment of debts incurred before the appointment of the receiver are not issued for the preservation and protection of the property within the rule above mentioned. (Bernard v. Union Trust Co., 159 F. 620 at 623, 86 C. C. A. 610, 16 L. R. A., N. S., 1118.)

Karl Paine, for Respondent Edwin Snow, Receiver.

The power of a court of equity to authorize the issuance of receiver's certificates in the case of a private corporation is settled by the decisions of this court. (Hewitt v. Walters, 21 Idaho 1, Ann. Cas. 1913C, 35 and note 39, 119 P. 705.)

The power to issue receiver's certificates rests in the discretion of the court, and its exercise will ordinarily not be reviewed by an appellate tribunal. (Vandalia v. St Louis etc. R. Co., 209 Ill. 73, 70 N.E. 662; Rutherford v. Pennsylvania Midland R. Co., 178 Pa. 38, 35 A. 926.)

No fixed and inflexible rule can be laid down for the government of the court in all cases. Each case will necessarily have its own peculiarities which must, to a greater or less extent, influence the court when it comes to act. The propriety of every expenditure is to be judged by the necessity for making it in order to preserve the value of the property in the hands of the receiver. (Rochester Trust etc. Co. v. Rochester etc. R. Co., 29 Misc. 222, 60 N.Y.S. 409.)

Johnson & Nixon, for Respondent Idaho Copper Company.

A court of equity has power to authorize the issuance and sale of receiver's certificates for the purpose of paying indebtedness incurred prior to the appointment of the receiver, even though there had been no action on the part of the Board of Directors of the Corporation. (8 Fletcher on Corporations, pp. 8947, 8949; 8 Thompson on Corporations, 3d ed., p. 514, sec. 6356; also, p. 517.)

GIVENS, J. Budge, C. J., Taylor and Wm. E. Lee, JJ., and Hartson, D. J., concur.

OPINION

GIVENS, J.

This action was instituted on facts stipulated under C. S., secs. 7305-7307, providing for the submission of a controversy without action, to determine: the right of the receiver, one of the respondents, to issue receiver's certificates for the purpose of paying unsecured debts of the corporation contracted prior to the receivership; the extent of the lien of such certificates; and their relative priority.

The respondent is an Idaho mining corporation, owning property in Adams county, Idaho, and ninety-nine and one-half per cent of the capital stock of the Idaho Copper Corporation which has mining claims in Adams county, Idaho, and in Baker county, Oregon. It is stipulated that the receiver's report shows claims have been filed for debts incurred prior to the receivership, some of which have been approved, and that substantially the balance are ready for approval, and that the directors of the Idaho Copper Company consented to the issuance of the receiver's certificates sought.

It is further stipulated that a sale by the receiver of the assets of the company at this time "would necessarily result in obtaining therefor less than the true value thereof and could only be made at a serious sacrifice"; that there are at present outstanding and unpaid certificates issued for the expenses of the receivership. The receiver, it is stipulated, asked for the issuance of not to exceed $ 100,000 in certificates to pay the prior indebtedness above referred to and the court granted such authority.

The proposed certificates, as to character and priority, were to be issued in accordance with the order of the court which was as follows:

"Said receiver's certificates shall be a lien upon the property and assets of said receivership estate, but subject and subordinate to the lien of any receiver's certificates that have been or may be issued by said receiver under and by virtue of an order of this Court dated March 10, 1928, for the purpose of meeting the expenses of said receivership, and any receiver's certificates that may hereafter be authorized for like purposes, and subject and subordinate generally to the expenses of said receivership, and subject and subordinate also to the lien of any mortgage or other valid lien now of record upon the receivership property or any part thereof if any such there be.

"The receiver's certificates issued under the terms of this order for the payment of creditor's claims shall, irrespective of the date of their issuance, be of equal rank and without priority of one over another and be payable out of the income of said property or the proceeds of the sale thereof if sold and shall be payable on or before two years from the date hereof. Said receiver's certificates shall be substantially in the form hereto attached."

As to priorities, the stipulation, findings and judgment differ from the order in that, in the question as to priorities submitted in the stipulation, and in the findings and judgment, the lien of the certificates sought is made subject and subordinate "only" to the receiver's expenses and the prior recorded mortgages and liens. The findings and judgment control as against the order if there is any difference; hence the court determined the relative position of the lien of these certificates and the lien of any of those claims mentioned in the stipulation, findings and judgment, and as against all other liens not mentioned it would appear the court construed the word "only" as including on the one hand those mentioned, and excluding on the other hand all other kinds.

The general rule is that receiver's certificates may be authorized. (Central Trust Co. v. H. B. Mehring Co., 154 Md. 477, 141 A. 111; High on Receivers, 4th ed., secs. 312b, 398c; Clark on Receivers, sec. 565; Tardy's Smith on Receivers, 2d ed., sec. 541; 34 Cyc. 296; note in 128 Am. St. 102.) A receiver's certificate is a promise to pay a definite sum from the receivership fund, and, under exceptional circumstances, may be made a first lien on the receivership property. This priority, however, is not always a feature of such certificates.

Where the receivership involves a railroad, and possibly other public utilities, receiver's certificates having priority over existing secured claims have been used for preserving the...