U.S. Investment Corp. v. Portland Hospital

• Decision Date: 13 January 1902
• Citation: 40 Or. 523,67 P. 194
• Parties: UNITED STATES INVESTMENT CORP. et al. v. PORTLAND HOSPITAL et al.
• Court: Oregon Supreme Court

67 P. 194

40 Or. 523

UNITED STATES INVESTMENT CORP. et al. v. PORTLAND HOSPITAL et al.

Supreme Court of Oregon

January 13, 1902

Appeal from circuit court, Multnomah county; John B. Cleland, Judge.

Action by the United States Investment Corporation and another against the Portland Hospital and others. From a judgment in favor of plaintiffs, defendants appeal. Affirmed.

This is a suit to foreclose a mortgage executed in February, 1893, by E.H. Habighorst, as trustee for the Portland Hospital, and the Portland Hospital Guarantee Company, to the United States Investment Corporation, and a certain deed, intended as a mortgage, executed in March, 1893, by the same parties, to the Northwest Loan & Trust Company, and by the latter assigned to the plaintiff Blyth in trust for his coplaintiff. The mortgage and deed of trust were given to secure the payment of various notes, aggregating some $50,000 and interest. After they had been recorded, and on November 27 1894, a receiver of the property of the Portland Hospital was appointed ex parte, and before service of process in a suit brought against the hospital and the plaintiffs herein by J.D. Lee and others as trustees, ostensibly to have the title declared forfeited. The receiver was authorized to manage and conduct the hospital as it had been conducted by the corporation prior to his appointment, and he and his successors in office operated it until about the time this suit was begun, in January, 1899, during which time they contracted debts and incurred liabilities for labor and supplies amounting to about $10,000, which are unpaid. The receiver, who was made a party to this suit, answered setting up such debts, and asking that they be decreed to be a lien upon the property prior in right to plaintiffs' mortgage and deed of trust, which the court below denied, and hence this appeal.

W.Y. Masters and A. King Wilson, for appellants.

Geo. E. Chamberlain, for respondents.

BEAN C.J. (after stating the facts).

There are several reasons why the decree of the court below should be affirmed. In the first place, it is not alleged, nor is there any proof, that the court appointing the receivers authorized them to contract debts or incur liabilities to take precedence over prior vested liens, or that it ever made any order that the debts of the receiver should be so preferred, either before or after they were incurred. All that is contended in this regard is that the mere fact that the receivers were authorized to operate and conduct the hospital ipso facto gave preference to any debts they might thus contract over prior liens on the property. But this position finds no support in the authorities. The ordinary duties of a receiver are to protect and preserve the property pending the litigation; and all expenses incurred by him in so doing, as well as a reasonable compensation for his services, are payable out of the income of the property, if any, or, if not, out of the property itself. Beckwith v Carroll, 56 Ala. 12. But the duty to preserve the property by no means includes the right to create debts for other purposes. Before a receiver can incur such obligations he must be authorized by the court; and even then the debts created by him will not be preferred to prior liens unless such preference is given in the order authorizing him to incur the obligation, or in an order approving and ratifying the debts, and decreeing that they should be paramount liens. "The jurisdiction of the court to appoint receivers of property," says the supreme court of New York, "has for its primary object the care and custody of the property which is the subject of the receivership pending the determination of the questions involved in the litigation, and to enable the court, by placing the property under the control of its officer, to preserve it to answer to the final decree which may be made in the action. But the receiver cannot of his own motion contract debts chargeable upon the fund in litigation. The court must authorize expenditures on account of the property before they can be charged thereon; and while it may and does, in its discretion, allow expenses incurred by a receiver strictly for preservation to be charged upon the fund, although incurred without the prior sanction of the court, it is, nevertheless, the order of the court, and not the act of the receiver, which creates the charge, and upon which its validity depends." Vilas v. Page, 106 N.Y. 439, 13 N.E. 743. See, also, 3 Cook, Corp. (4th Ed.) §§ 876, 877; Wesson v. Chapman, 77 Hun, 144, 28 N.Y.Supp. 431; Cake v. Mohun, 164 U.S. 311, 17 Sup.Ct. 100, 41 L.Ed. 447; Lewis v. Steel Co., 183 Pa. 248, 38 A. 606. So we conclude that for this reason alone the receiver is not entitled to the relief prayed for in his answer.

But there is yet another reason why the decree should be affirmed. The suit in which the receiver was appointed was not one in which the court making the appointment had authority without the consent of prior lien creditors to decree that debts contracted by the receiver in carrying on the business of the defendant corporation should take precedence over prior contract liens. Where a court of chancery takes possession of a railroad or other similar property of public corporations, and operates the same through a receiver, debts contracted for labor, supplies, and other necessary purposes, before as well as after the appointment of the receiver, may be made a first lien upon the income, and, if that is not adequate, upon the corpus of the property. But this is an extraordinary power, exercised only in cases of railroad and other like corporations of a quasi public character charged with a public duty, and for reasons peculiar to that character of property. McCornack v. Railway Co., 34 Or. 543, 56 P. 518, 1022; Merriam v. Mining Co., 37 Or. 321, 56 P. 75, 58 P. 37, 60 P. 997; Green v. Railroad Co., 54 Am.St.Rep. 379, and note (s.c. 24 S.E. 814, 33 L.R.A. 806). But under none of the authorities is a court authorized to thus displace contract liens upon the property of individuals or private corporations. "Extensive as are the powers of a court of...