State Central Saving Bank of Keokuk v. Fanning Ball-Bearing Chain Co.
| Decision Date | 17 December 1902 |
| Citation | 92 N.W. 712,118 Iowa 698 |
| Parties | STATE CENTRAL SAVINGS BANK OF KEOKUK v. FANNING BALLBEARING CHAIN COMPANY, Defendant; WILLIAM ANDRUS, C. F. MCFARLAND, JOHN C. FISHER, EDWARD S. ORR, J. W. HUISKAMP AND C. E. FANNING, Intervenors, and G. W. FANNING, Receiver, Appellants |
| Court | Iowa Supreme Court |
Appeal from Keokuk Superior Court.--HON. F. T. HUGHES, Judge.
THE Fanning Ball-Bearing Chain Company had been organized for the purpose of manufacturing bicycle chains so constructed that the links were fastened together by balls or cylinders revolving as they passed over the sprocket wheel, thereby lessening the friction, and had executed two promissory notes to plaintiff. These were not paid when due, and suit thereon was begun October 3, 1896, aided by a writ of attachment which was levied on all the company's property. October 5, 1896, C. E. Fanning filed a petition of intervention alleging that he was the inventor of the chain, and owned one-half of the company's stock, or seventy-five shares that the company had the prospect of selling its patents for more than its indebtedness; that it was doing a valuable business, and receiving orders for chains, which would be lost if the property remained in the hands of the sheriff, and its machinery, if allowed to remain idle, would deteriorate in value. He prayed that a receiver be appointed to take possession of the property, and continue the business of manufacturing and selling chains, to the end that the property of the company and the good will in its business might be preserved. Orr, Fisher, and McFarland, owners of forty-nine shares of stock, also intervened, with the request that a receiver be appointed "for the purpose of making an advantageous disposal of the property." G. W. Fanning presented his affidavit, from which it appeared that he was a director of the corporation, and the owner of one share of stock, and, for himself and other owners of twenty-five shares, requested the appointment of C. E. Fanning as receiver; suggesting his peculiar fitness because of having had entire charge of the plant. October 8, 1896, the court appointed G. W. Fanning receiver, with directions to take possession of the property and hold the same subject to the order of court. The receiver qualified, and October 15, 1896, filed an inventory, showing property of the corporation in his hands of the cost price of $ 4,820.77. He also stated that the electric motor had been taken by replevin from him, and that the rent of the building in which the property was housed fell due on that day; "that orders for chains are coming in, and the machinery idle; and that it is necessary to be permitted to obtain funds for the purpose of carrying on the business, and protecting the machinery, property, business, and good will" of the company,--and, to that end, prayed for authority to borrow $ 300. November 10, 1896, the court, with the consent of all parties, authorized the receiver to borrow this money "to pay out and procure power to run the machinery to finish and put on the market the manufactured product of the defendant company."
Previous to this, on October 21, 1896, Wm. Andrus had filed his petition, asking that the priority of his lien for rent be established; and C. F. McFarland had asked that a labor lien for $ 100 be allowed. On the 10th of November the plaintiff obtained judgment for $ 1,023.11, with interest and costs, together with an appropriate order with respect to the property attached. November 12th the receiver was given authority to employ counsel; December 11th, to sell a milling machine for $ 100, and hold proceeds subject to the future order of the court; July 3, 1897, to sell three other machines for $ 750, and hold proceeds, after paying cost of sale and shipment, as above. September 21, 1897, J. W. Huiscamp intervened, claiming that, as assignee of C. E. Fanning, he was entitled to the latter's labor claim of $ 100. Upon citation the receiver filed a detailed report, January 24, 1898, to the effect that he had received $ 2,307.63, and paid all out for expenses, save $ 8.04; that he still had property on hand of the value of $ 1,950.92, and bills receivable, good, $ 99.57, and, not good $ 137.21; that there were unpaid claims of $ 243.59 and receiver's unpaid salary of $ 1,075. A supplemental report was filed November 11, 1899, from which it appeared that he had received since the last report $ 180.61, and paid out $ 191.79. All parties filed exceptions to these reports, and after full hearing the superior court, on the 3d of July, 1901, ordered the receiver to pay into the hands of the clerk of court the sum of $ 1,000, with interest at the rate of six per cent. per annum from January 24, 1898, and $ 30 to be paid for services rendered by Jos. H. Anderson as attorney for the receiver; that the receiver's account, except in so far as involved in such order, stand approved, and that no compensation other than as therein involved be allowed; that certain suits and preferred claims be paid from the above amount, and the balance be applied on plaintiff's judgment; that the receiver deliver the property remaining in his hands to the city marshal, to be sold under special execution issued on plaintiff's judgment. To all of which the receiver and plaintiff excepted, and both appeal; the appeal of the receiver being first perfected.
Affirmed.
J. H. Anderson, D. F. Miller and H. Scott Howell & Son for appellant Fanning, receiver.
James C. Davis and Hollingsworth & Blood for appellant State Central Savings Bank of Keokuk.
Hollingsworth & Blood for appellees Andrus, McFarland, Orr and Fisher.
J. F. Smith for appellee Huiscamp.
The proposal of the Fannings that a receiver be appointed for the purpose of continuing business met with opposition from the other stockholders of the company, who alleged that the plant had been operated at a loss, and demanded the appointment of a disinterested person to effect a sale of the property. The court, in selecting G. W. Fanning, evidently adopted the view of the objectors; for, in doing so, C. E. Fanning, the only person, as the evidence shows, competent to manufacture the bicycle chains, was rejected, and the appointee merely directed to take "charge of all the property of any kind, the books, papers, patent rights of the corporation, and hold the same subject to the direction of this court." The extent of a receiver's authority is always to be measured by the order of appointment, and such subsequent directions as may from time to time be given. He must stand indifferent as between the parties, though appointed on the application of one of them, and prudently preserve and protect the property intrusted to him as an officer of the court. The property is in custodia legis, and the receiver acts for the court, as its creature or officer, having no powers save those conferred upon him by its orders, or reasonably to be implied therefrom. Bank of Montreal v. Chicayo C. & W. R. Co., 48 Iowa 518; Booth v. Clark, 58 U.S. 322, 17 HOW 322 (15 L.Ed. 164); Davis v. Gray, 83 U.S. 203, 16 Wall. 203 (21 L.Ed. 447); Attorney General v. Insurance Co. 89 N.Y. 94; Bishop, Equity (3d Ed.) par. 580.
Indeed, the receiver has been aptly termed the arm or hand of the court, by which it seizes property in controversy, and preserves it for the benefit of whomsoever shall ultimately become entitled thereto. 20 Am. & Eng. Enc. Law (1st Ed.) 158. The primary object is the preservation of the property, and every person undertaking the duties of a receivership must be assumed to appreciate the main and controlling purpose to be subserved in his selection. It is no injustice to him, then, that the object of his appointment be kept in mind in adjusting his accounts, and that courts, after seizing the property of litigants, will not approve of its dissipation in useless expenses, or shut their eyes to its loss through the negligence or mismanagement of its officers. Not every act within the letter of an order can be sanctioned, nor everything done without the direction of the court condemned. The tests to be applied are: (1) Was the act under investigation within the authority conferred by an order of court? (2) If so, was it performed with reference to the preservation of the estate, as a man of ordinary sagacity and prudence would have performed it under like circumstances? (3) If without authority, was it beneficial to the estate? These principles are so elementary that authorities need scarcely be cited. But see Yetzer v. Applegate, 85 Iowa 121, 52 N.W. 118; Kaiser v. Kellar, 21 Iowa 95; Beach, Receivers section 229, 301; 20 Am. & Eng. Enc. Law (1st Ed.) 120; Carr's Adm'r. v. Morris, (Va.) 85 Va. 21, 6 S.E. 613.
The property, though temporarily in the keeping of the court, is sheltered by the same rights of ownership as before seized. It "does not sit as a bandit dividing booty," as was remarked by the court of appeals of New York in Attorney General v. Insurance Co., 91 N.Y. 57 (43 Am. Rep. 648). Its duty is to see that the property is conserved with the same care as is exacted from trustees generally. The same degree of diligence should be exacted from the receiver in keeping down expenses and shielding the property from unjust exactions as a prudent man would exert in protecting and realizing from his own property. Any other rule would be inconsistent with the high responsibility involved in devesting owners of possession for the purpose of a safer administration and more just distribution by the court. See Speiser v. Bank. (Wis.) 110 Wis. 506, 86 N.W. 243; Henry v. Henry, (Ala.) 103 Ala. 582, 15 So. 916.
II. With those general rules in view, let us turn to the report of this receiver. Upon his own application, he was directed to...
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