Gardner v. Caldwell

• Citation: 40 P. 590,16 Mont. 221
• Parties: GARDNER v. CALDWELL, Sheriff, et al.
• Decision Date: 03 June 1895
• Court: Montana Supreme Court

40 P. 590

16 Mont. 221

GARDNER v. CALDWELL, Sheriff, et al.

Supreme Court of Montana

June 3, 1895

Appeal from district court, Gallatin county; F. K. Armstrong, Judge.

Action by E. M. Gardner, receiver of the Gallatin Canal Company against White Caldwell, sheriff, and another, to enjoin the sheriff from selling, and defendant Marlow from trying to enforce a judgment against, the property of said company. From a judgment overruling a demurrer to the complaint, and awarding an injunction, defendants appeal. Affirmed.

Massena Bullard, for appellants.

Hartman & Hartman, for respondent.

HUNT J. (after stating the facts).

The issue tendered by the pleadings may be briefly stated as follows: Where, in an equitable action, a receiver has been appointed, pendente lite, by a court of competent jurisdiction, to take charge of the property and affairs including rights of way, franchises, and assets of a corporation, and has taken charge and is in possession of all such property, can a judgment creditor of the corporation who instituted his action and obtained his judgment in a court of co-ordinate jurisdiction in another district in the state, subsequent to the appointment of such receiver, and subsequent to the taking of possession by such receiver, levy an execution upon the property of the corporation in the hands of the receiver, or upon any interest that such corporation may have in such property in the receiver's hands? Under established and familiar principles governing the functions of receivers in charge of property in litigation the receiver is to be regarded as the officer of the district court of Gallatin county, which, in the exercise of its chancery powers, appointed him. He stands as an indifferent person, clothed with the power of receiving and preserving the property and assets involved in the suit wherein he was appointed, for the benefit of whoever may finally be declared to be entitled to them. The principle upon which the court proceeded is based upon that of securing the subject-matter of the litigation to whoever may ultimately own it and be lawfully entitled to the possession of it. To effectually carry out this object, the court itself has, by its order appointing a receiver, declared that it was inequitable that either party should have possession or control of the Gallatin Canal, or any other property of the Gallatin Canal Company, and the rents, issues, and profits thereof, pending the litigation of the case referred to in the complaint. Without changing the title, but in the exercise of what is regarded as a branch of the extraordinary powers of a court of equity, the court may be said to have taken possession of the property, and deprived the corporation of its possession, and, through the receiver, assumed the entire control and custody thereof, and retains the same until, by formal adjudication, there is a determination of the rights of the parties interested. But the appellants claim a right to levy upon and sell the property of the corporation, even though it be in the receiver's hands, arguing that, while they may not have a right to dispossess the receiver, yet they may sell the canal, and thus establish a lien thereon, which need not interfere with any future act of the receiver, who would only proceed having due regard for the judgment creditors' rights. Just how appellant proposes to proceed to execute his plan without interfering with the receiver we cannot tell; nor can we satisfactorily reconcile his position with the reason of the established rules of equitable jurisdiction, which forbid generally any interference with the possession of the receiver, not only upon grounds of convenience, but of danger of defeating the object of placing the fund or property custodia legis, by having the property wrested from the receiver's possession at the instance of any particular creditor, or so incumbered as to impair its value in his hands as a fund for final distribution in any judgment to be rendered in the original suit.

The earliest case to which the court have access and the leading authority laying down the doctrine that where a receiver has been put in possession of an estate, or, to be more accurate, where the court has once taken possession of an estate, or, to be more accurate, where the court has once taken possession by putting a receiver upon the estate, is Angel v. Smith, 9 Ves. 335, decided in 1804. Ejectment was brought without leave of court. Lord Eldon said: "It is clearly a contempt of this court to disturb sequestrators; and the party cannot claim, though by an adverse title, in any other way than by coming to be examined pro interesse suo. Consider the consequence. How are sequestrators to defend their possession against an ejectment? The court of king's bench have decided that where a sequestration is awarded to collect money to pay a demand in equity, if it is not executed, that is, if the sequestrators do not take possession, and a judgment creditor takes out execution, notwithstanding the sequestration awarded there may be a levy under the execution; intimating that, if the sequestration is executed, the other, though prior, must come here." The writ of sequestration referred to by the lord chancellor was issued to seize the personal estate and profits of the real estate of a defendant, and to detain them subject to the order of the court. It was intended to enforce the performance of the decree of the court where a defendant absconded. Bl. Comm, bk. 3, p. 444. It was argued before Lord Eldon, as appears by the report above referred to, that there was no difference between the position of a receiver and that of sequestrators, who were the officers of the court. Lord Eldon held that he had no doubt that, where sequestrators were in possession under the process of the court for the purpose of raising a duty, their possession could not be disturbed, even by an adverse title, without leave, "upon this principle: that the possesion of the sequestrators is the possession of the court." "As to receivers, I am very sure, though I cannot refer to the case, that the same rule has obtained wherever a receiver has been put upon the estate. I am also very confident that I have heard that motion for leave to bring an ejectment against the receiver more than once, since I have sat here. The register also apprehends such motions have been made. There may be inconvenience in that, but the inconvenience the other way is enormous. If it is necessary to ask leave, the court must have credit for never refusing it where it ought to be granted; and, if so, very great purposes of convenience may be answered by putting the party to ask it."

We find this general principle sustained in the case of Atlas Bank v. Nahant Bank (Mass. 1839; Shaw, C.J.) 23 Pick. 480, where it was held in the case of an attachment by an individual creditor of the assets of a bank, made after the filing of the bill asking for an injunction on the bank, on the appointment of the receivers, that the transfer of the property to the receivers necessarily removed the property from all future liability to attachment at the suit of an individual creditor; that the proceedings had relation to the time of the filing of the bill.

In Hubbard v. Bank, 7 Metc. (Mass.) 340, in distinguishing between the case of an attachment before and one made after proceedings were instituted, praying for an injunction and the appointment of receivers, the court say: "In the latter case the attachment is ineffectual. The property is in other hands, and beyond the process of an attachment."

In Noe v. Gibson (1839) 7 Paige, 513, Chancellor Walworth said: "It is well settled that after a receiver has been appointed, and has taken the rightful possession of the property, it is a contempt of court for a third person to attempt to deprive him of that possession by force, or even by a suit or other proceeding against him without the permission of the court by whom the receiver was appointed;" and declared that this principle was applicable to every other interference with the possession of a receiver, sequestrator, committee, or custodian who holds the property as the officer of the court, as his possession is in law the possession of the court itself.

The supreme court of the United States, in Wiswall v Sampson (1852) 14 How. 52, decided that, when a receiver had been appointed, his possession is that of the court, and any attempt to disturb it without the leave of the court first obtained will be a contempt on the part of the person making it. As peculiarly applicable to the contention of the appellants in the case at bar, we quote the following language from the opinion of Justice Nelson: "It has been argued that a sale of the premises on execution and purchase occasioned no interference with the possession of the receivers, and hence no contempt of the authority of the court, and that the sale, therefore, in such a case, should be upheld. But, conceding the proceedings did not disturb the possession of the receiver, the argument does not meet the objection. The property is a fund in court, to abide the event of the litigation, and to be applied to the payment of the judgment creditor, who has filed his bill to remove impediments in the way of his execution. If he has succeeded in establishing his right to the application of any portion of the fund, it is the duty of the court to see that such application is made. And, in order to effect this, the court must administer it independently of any rights acquired by third persons pending the litigation. Otherwise, the whole fund may have passed out of his hands before the final decree, and the litigation become fruitless. It is true, in administering the fund the court will take care that the rights of...