Crump & Field v. First Nat. Bank

• Citation: 229 Ky. 526,17 S.W.2d 436
• Parties: CRUMP & FIELD v. FIRST NAT. BANK OF PIKEVILLE et al.
• Decision Date: 17 May 1929
• Court: Court of Appeals of Kentucky

17 S.W.2d 436

229 Ky. 526

CRUMP & FIELD v. FIRST NAT. BANK OF PIKEVILLE et al.

Court of Appeals of Kentucky

May 17, 1929

Appeal from Circuit Court, Pike County.

Equitable action by Crump & Field and others against the Elkhornseam Collieries Company and another, in which a receiver was appointed. The First National Bank of Pikeville and others loaned the receiver money. The fund in court was insufficient to pay all the receiver's expenses, and from a judgment against plaintiffs for part of the receiver's expenses plaintiffs Crump & Field appeal. Reversed, with directions.

Hager Prichard & Malin, of Ashland, for appellants.

Johnson & Hinton, of Pikeville, for appellees.

TINSLEY C.

This appeal presents but one question; that is, whether a receiver's expenses incurred in operating the business put into his hands should be charged against the plaintiffs in the action when the fund in court is insufficient therefor.

On May 15, 1924, the appellant, Crump & Field, obtained a judgment against Elkhornseam Collieries Company for the sum of $179.10. On September 16, 1924, it, together with the Elkhorn Wholesale Grocery Company, W. G. Andrews, George De Witt Shoe Company, Goodman Manufacturing Company. B. F. Goodrich Rubber Company, and Carson-Pierre-Scott Company, also creditors of Elkhornseam Collieries Company, instituted an equitable action in the Pike circuit court against it and J. P. Burton Coal Company for the purpose of enforcing their claims and demands, and to set aside and cancel on the ground of fraud and as a preferential conveyance, a mortgage for the sum of $15,000 executed by Elkhornseam Collieries Company to J. P. Burton Coal Company. In the petition the plaintiffs asked for the appointment of a receiver "to take charge and preserve the property and rights of the Elkhornseam Collieries Company subject to orders of the court." On October 6, 1924, the receiver, out of term time, filed a preliminary report, in which he stated to the court that, if he were authorized to make certain repairs to the property of the collieries company, and to pay the taxes then due thereon, and to borrow $3,500 with which to meet the first month's pay roll, and authorized to operate the mine, he could produce a profit of approximately $2,800 per month. He requested the court to grant him authority to borrow $5,522.83, for those purposes and to issue receiver's certificates in that sum and to operate the mines. On the same day the court entered an order authorizing the receiver to borrow the sum requested, and to issue certificates in that sum and to open and operate the mines. The receiver operated the mine for several months, during which time he incurred an indebtedness aggregating $11,833.78. Some months after the institution of the action, Chas. W. Freeman filed a petition to be made a party therein, setting up the fact that on April 24, 1922, Elkhornseam Collieries Company became indebted to him in the sum of $30,000, and to secure which it executed to him a mortgage on all of its property; that his debt was past due; and he sought the enforcement of his lien by a sale of all the property. The court directed a sale of the property, which brought $43,700. In determining the priority of liens, the court adjudged that the proceeds of sale be applied, first, to the payment of the costs of the action, including allowance to the receiver and his attorneys; taxes for the year 1925; the outstanding receiver's certificates and indebtedness incurred by the receiver, for which no certificates had been issued, to an aggregate amount of $11,833.78; second, to W. R. Elliott, for royalties under the terms of the lease held by the company, $3,600; third, to J. N. Craft on his claim arising under the Workman's Compensation Law in the sum of $819; fourth, claims of certain employees of the mining company to the amount of $6,071.89; and, fifth, to the mortgage lien of Chas. W. Freeman in the sum of $30,000, with interest from August 1, 1922. On appeal to this court that judgment was reversed. This court held that the proceeds arising from the sale of the coal company's property should be applied, first, to the payment of the costs of the action, including allowance to the receiver for his services in caring for and preserving the property during the pendency of the action, and a fee to his attorney; next, to the payment of receiver's certificates amounting to the sum of $5,187.70 issued for the payment of taxes, insurance, and royalties due the coal company's lessor; and then to the payment of Freeman's mortgage lien and interest. See Freeman v. Craft, 220 Ky. 15, 294 S.W. 822.

This distribution of the proceeds of sale left unpaid certain receiver's certificates and expenses incurred by receiver for which no certificates were issued, aggregating the sum of $7,215.14, expended by the receiver solely in operating the mine. For this sum the court rendered judgment against appellant and the others herein named, who joined with it, as plaintiffs, in instituting the receivership proceeding, and to reverse which this appeal is prosecuted.

Appellant contends that plaintiffs in a receivership suit are not liable for expenses or costs incurred, unless responsibility was imposed by the court as a condition to the appointment, or unless the court was without authority to appoint a receiver, or the appointment was wrongfully made. It relies upon the cases of Atlantic Trust Co. v. Chapman, 208 U.S. 360, 28 S.Ct. 406, 52 L.Ed. 528, 13 Ann.Cas. 1155; Booth v. Clark, 17 How. 322, 15 L.Ed. 164; Farmers' Loan & Trust Co. v. Oregon P. Co., 31 Or. 237, 48 P. 706, 38 L.R.A. 424, 65 Am.St.Rep. 822; Lembeck v. Jarvis Terminal Cold Storage Co., 68 N.J.Eq. 352, 59 A. 565. Appellees contend that, where a receiver has been appointed to take charge of private property which is finally determined to belong to another, or to be incumbered beyond the amount realized by the receiver, without the consent of and without notice to the successful claimant or holder of the equity, it is within the discretion of the court to tax the receiver's costs and expenses against the party or parties who caused the receiver to be appointed. They rely upon the cases of Ephraim v. Pacific Bank, 129 Cal. 589, 62 P. 177; German National Bank v. J. D. Best & Co., 32 Colo. 192, 75 P. 398; Frick v. Fritz, 124 Iowa 529, 100 N.W. 513; and numerous other cases cited in their brief.

The question seems to be a new one in this jurisdiction, and counsel have filed exhaustive briefs containing citations of, and excerpts from, numerous authorities from courts of last resort of other jurisdictions in support of their respective contentions.

The general rules applicable to the question presented are stated in 23 R.C.L. 106, 107, thus: "The courts of most jurisdictions are vested with large discretion in determining who shall pay the cost of receivership, and, according to the justice and equity of each case, may assess the costs of the receivership against the fund, against the applicant, or apportion them among the parties. It may be stated as a general rule, however, that where there is no question as to the legality or propriety of the appointment of the receiver, the receiver's compensation and expenses are payable from the funds in his hands, no part thereof being taxable against the party at whose instance the receiver was appointed. Many cases hold that the receiver is entitled to receive compensation for his services and reimbursement for his expenditures, in the first instance, from the funds which come into his possession, regardless of who is ultimately successful or is ultimately liable to pay them. Where a court has no power or authority to appoint a receiver in any event, or where, though the court has authority, the appointment is improperly made, there are numerous decisions to the effect that the receiver cannot have his compensation or expenses paid from the property in his hands, but must look to the party at whose instance he was appointed. * * *"

In the cases of Ephraim v. Pacific Bank, German National Bank v Best & Co., Frick v. Fritz, etc., supra, and in each of the 39 other cases from the courts of Oklahoma, Washington, Montana, Arkansas, Tennessee, Colorado, Iowa, New York, and Texas, cited and relied on by appellees, the court applied the rule that, where a receiver has taken property under an illegal or unauthorized appointment, he must look for his compensation to the parties at whose instance and for whose benefit...