Farmers' Loan & Trust Co. v. Central R.R. of Iowa

• Decision Date: 27 October 1880
• Citation: 7 F. 537
• Parties: FARMERS' L. & T. CO. v. CENTRAL RAILROAD OF IOWA.
• Court: United States Circuit Court, District of Iowa

7 F. 537

FARMERS' L. & T. CO. v. CENTRAL RAILROAD OF IOWA.

United States Circuit Court, D. Iowa.

October 27, 1880

T Brown, for motion.

W. H Gleason, contra.

LOVE D. J.

This case is now before the court upon a motion by H. L. Morrill late receiver, and the Central Railroad Company of Iowa, to rescind an order made at the May term, 1880, granting permission to Mahala Clear, as next friend of Edward Sloan, to sue said receiver, Morrill, for personal injuries received by said Edward Sloan during the receivership of said Morrill.

The order granting leave was made after Receiver Morrill had been discharged, and subsequent to the final decree of May 20, 1879, by which the railway property, and all funds in the custody of the court, had been turned over to the new railway company, called the Central Iowa Railroad Company. This motion raises a very difficult and embarrassing question. It is this: When, in a foreclosure suit, a receiver appointed by the court has been discharged, and the property, by the order of the court, turned over to the purchaser, how are unsatisfied claims against the receiver, upon torts committed and contracts made by him, to be prosecuted and satisfied? Who are to be made defendants to actions upon such claims? How are such cases to be tried? What is the nature of the judgment or decree to be entered, and how is satisfaction to be obtained?

So long as the receiver is in office, and the fund or property is under the control of the court, there is no difficulty, for the court will, in all proper cases, permit actions to be brought against the receiver, and will order satisfaction to be made out of the fund or property. But it is obvious that such actions are, strictly speaking, rather in the nature of proceedings in rem than in personam.

No receiver could be made individually liable in a personal action upon a contract made in his official capacity, or for torts committed by his subordinates. If receivers could be exposed to such individual responsibility, no prudent many would accept such trusts in cases where vast numbers of subordinates must needs be employed, exposing him to the hazard of ruinous liabilities for their misconduct. In this respect receivers are like public officers, who are not individually responsible upon their official contracts, nor for torts committed by their subordinates, but only for torts committed by themselves, or contracts in which they assume to bind themselves personally.

It is therefore obvious that suits against receivers are really and substantially suits against the fund or property of which they are the custodians. They represent the property or fund. If judgment be obtained against them, the court orders it to be satisfied out of the fund or property. This view will be made evident by the supposition that the receiver should be removed or discharged, while the property or fund should remain in the custody of the court. In such case, it cannot be doubted that the court would entertain an intervening petition in the nature of a proceeding in rem against the fund or property at the suit of any one entitled to a lien upon it, or having a claim in law or equity to satisfaction out of it.

Doubtless, in such case, the court would have power to appoint counsel to represent the fund or property in the litigation concerning it, and would require notice to parties interested in its sale or distribution. But what would be the remedy of the claimant if the court should discharge the receiver, and place the fund or property beyond its control, by turning it over, without reservation, to a purchaser? I confess that if the fund or property should be turned over to a purchaser without reservation, I am at a loss to see what the remedy of the claimant would be-- as, for example, the railroad company-- in this case. How could he found a personal action of tort or contract against a party who would be a stranger to the tort or contract? How could he count upon or prove the tort or contract against a party who never committed the one nor made the other?

It has been suggested by an eminent judge that the receiver might be treated as the agent of the defendant railway company, and the action thus maintained directly against the company. But it seems to me that this position is untenable. There is not the slightest analogy between the relation of a receiver to the railway company and the raltion of an agent to his principal. An agent acts and contracts for, and in the name of, his principal, and by his authority. He is appointed by his principal, and he is subject to his principal's control. The principal can dissolve the relation between them, and annul the agent's authority at his will and pleasure. Hence, the principal is liable and the agent is not liable. Hence, the action should be against the...