Zechiel v. Firemen's Fund Ins. Co.

• Decision Date: 12 October 1932
• Docket Number: No. 4704.,4704.
• Parties: ZECHIEL et al. v. FIREMEN'S FUND INS. CO.
• Court: U.S. Court of Appeals — Seventh Circuit

61 F.2d 27 (1932)

ZECHIEL et al. v. FIREMEN'S FUND INS. CO.

No. 4704.

Circuit Court of Appeals, Seventh Circuit.

July 15, 1932.

Rehearing Denied October 12, 1932.

William W. Hammond, C. Severin Buschmann, Leo M. Gardner, and Chester L. Zechiel, all of Indianapolis, Ind., for appellant.

Burke G. Slaymaker, of Indianapolis, Ind. (Slaymaker, Merrell & Locke, of Indianapolis, Ind., of counsel), for appellee.

Before ALSCHULER and EVANS, Circuit Judges, and WILKERSON, District Judge.

EVANS, Circuit Judge (after stating the facts as above).

The two questions determinative of the appeal are:

(1) Does the complaint state the facts upon which appellee relies for its attack upon the order appointing the receiver?

(2) May a defendant in an action brought against him by a receiver of a copartnership, upon leave of the court which appointed the receiver in another action at the instance of a contract creditor, challenge the validity of the receiver's appointment?

Both of these questions we answer in the negative.

(1) The complaint in the instant case does not disclose the facts upon which appellee relies to support its demurrer. The court can not assume from the statement that "he was appointed as receiver * * * in an action by Lewis Meier & Company, a corporate creditor, against said Edward Traugott and Harry Sussman, * * *" that Lewis Meier & Company was a simple contract creditor rather than a lien or judgment creditor. For in construing the above allegation, we are required to look also to the first clause of the sentence which reads that he "is the duly qualified and acting receiver of the partnership assets of Edward Traugott & Company, * * *." Reading the two clauses together, the court must, as against a demurrer, construe them to mean that Lewis Meier & Company was such a creditor as could institute the receivership proceedings against the partnership. Among the numerous decisions which have passed upon and construed language similar to that before us, is the case of Spinney v. Hall et al., 49 Ind. App. 502, 97 N. E. 571, 572. There the court said:

"It appears from the complaint that the Newton circuit court appointed appellees * * * as receivers of the Goodland Bank. It was a court of general jurisdiction, and, in the absence of a showing to the contrary, we must indulge the presumption that the proceedings were regular; that it had jurisdiction of the subject-matter, and of the parties in interest. Roberts v. Leutzke, 39 Ind. App. 577, 78 N. E. 635; American, etc., Ins. Co. v. Mason, 159 Ind. 15, 64 N. E. 525; Runner v. Scott, 150 Ind. 441, 50 N. E. 479; Boyer v. Robertson, 149 Ind. 74, 48 N. E. 7; Davis v. Taylor, 140 Ind. 439, 39 N. E. 551; Nichols v. State, 127 Ind. 406, 26 N. E. 839. This presumption in favor of the order of the court appointing said receivers, and it further appearing that they duly qualified and as such receivers commenced this action, was a sufficient showing that all the proceedings in that case leading up to their appointment were regular."

Other decisions to the same effect are: Robertson v. Perkins, 129 U. S. 233, 9 S. Ct. 279, 280, 32 L. Ed. 686; Commonwealth v. Chase, 127 Mass. 7, 13; Lethbridge v. City of New York, 59 N. Y. Super. Ct. 486, 15 N. Y. S. 562; Rockwell v. Merwin, 45 N. Y. 166, 167; Bowden v. Jacksonville Electric Co., 51 Fla. 152, 41 So. 400, 7 Ann. Cas. 859; Edwardson v. Garnhart, 56 Mo. at page 86; Albright v. Baltimore & O. R. Co., 22 F.(2d) 832 (D. C.); 19 Corpus Juris, at page 833.

In Robertson v. Perkins, supra, the rule is stated thus:

"The allegation of the complaint in this case is, that the plaintiff `duly made and filed due and timely protest in writing,' and `duly appealed to the secretary of the treasury,' and 'that ninety days have not elapsed since the decision of the secretary of the treasury on the aforesaid appeal.' * * * In Lorillard v. Clyde, 86 N. Y. 384, the complaint alleged that, in pursuance of a certain agreement, a corporation `was duly organized under the laws of this state.' It was contended, on a demurrer to the complaint, that the agreement was illegal, because * * *. But the court held that the allegation that a corporation was `duly organized under the laws of this state,' pursuant to the agreement, imported that the requisite number of persons united for that purpose; that it must be assumed that the corporation was regularly organized; and that it was unnecessary for the plaintiff to show in his complaint the precise steps taken to accomplish that result. The word `duly' means 'in a proper way, or regularly, or according to law.'"

(2) Inasmuch as counsel for appellant have conceded, or at least written their briefs on the assumption, that the Lewis Meier & Company was a simple contract creditor which brought its action to obtain a judgment and which, before judgment, secured the appointment of appellant as receiver of the partnership, it is deemed advisable to also dispose of the second question. By so doing we may avoid the possibility of a second appeal.

In disposing of this question, it becomes necessary to examine the Indiana Statute (Burns' Ind. Stats. 1926, § 1300) and the decisions of the appellate courts of Indiana thereon. The parties agree that the Marion Superior Court was a court of general equity jurisdiction — a court whose original jurisdiction was concurrent with the Circuit Court of said county.

Disposition of this second question turns upon the determination of two further questions: (a) Is the order appointing a receiver of an individual by an Indiana court of equity upon an action of a simple contract creditor absolutely void? (b) Does the fact that the debtor defendants composed a copartnership differentiate the case?

The legal question presented is one of jurisdiction.

It is, as it must be, under the authorities, assumed that orders appointing receivers upon the application of a simple contract creditor, no other facts appearing, are erroneously entered and will be vacated and set aside on appeal. Lion Bonding & Surety Co. v. Karatz, 262 U. S. 77, 85, 43 S. Ct. 480, 483, 67 L. Ed. 871; Davis v. Hayden, 238 F. 734 (C. C. A. 4); Hogsett v. Thompson, 258 Pa. 85, 101 A. 941; Slow v. Ohio Valley Roofing Co., 198 Ind. 190, 152 N. E. 820; State v. Union Nat. Bank of Muncie, 145 Ind. 537, 44 N. E. 585, 57 Am. St. Rep. 209.

In the case of Lion Bonding & Surety Co. v. Karatz, supra, the Supreme Court said:

"In the Karatz Case (C. C. A.) 280 F. 532 the motion to dismiss the bill for a receiver should have been granted. There was want of equity, for it was brought by an unsecured simple contract creditor."

This observation applies to receivers of corporations as well as to receivers of individuals.

In the case of corporations, however, the courts have quite generally held that the debtor corporation may waive the taking of the judgment and the return of an execution thereon unsatisfied. In re Metropolitan Railway Receivership, 208 U. S. 90, 109, 28 S. Ct. 219, 52 L. Ed. 403; Hollins v. Brierfield Coal & Iron Co., 150 U. S. 371, 380, 14 S. Ct. 127, 37 L. Ed. 1113; Brown, B. & Co. v. Lake Superior Iron Co., 134 U. S. 530, 10 S. Ct. 604, 33 L. Ed. 1021; Pusey & Jones Co. v. Hanssen, 261 U. S. 491, 43 S. Ct. 454, 67 L. Ed. 763; First Nat. Bank of Medford v. Stewart Fruit Co., 17 F.(2d) 621 (D. C.); McAtamney v. Commonwealth Hotel Const. Corp., 296 F. 500, 505 (D. C.); Enos v. New York & O. R. Co. (C. C.) 103 F. 47; Maxwell v. McDaniels, 184 F. 311 (C. C. A. 4). For a somewhat limited application of this statement, see Harkin v. Brundage, 276 U. S. 36, at page 52, 48 S. Ct. 268, 72 L. Ed. 457.

The Supreme Court in Re Metropolitan Railway Receivership, 208 U. S. 90, 109, 28 S. Ct. 219, 224, 52 L. Ed. 403, said:

"It is also objected that the circuit court had no jurisdiction because the complainants were not judgment creditors, but were simply creditors at large of the defendant railways. The objection was not taken before the circuit court by any of the parties to the suit, but was waived by the defendant consenting to the appointment of the receivers, and admitting all the facts averred in the bill. * * * That the complainant has not exhausted its remedy at law — for example, not having obtained any judgment or issued any execution thereon — is a defense in an equity suit which may be waived, as is stated in the opinion in the above case, and, when waived, the case stands as though the objection never existed. In the case in the circuit court the consent of the defendant to the appointment of receivers, without setting up the defense that the complainants were not judgment creditors who had issued an execution which was returned unsatisfied, in whole or in part, amounted to a waiver of that defense."

No good reason can be observed (save one that goes to the form rather than to the substance of equity jurisdiction) for distinguishing between individuals and corporations so far as the effect of their consent to the appointment of a receiver goes. Nevertheless there are numerous cases based either upon judicial precedent or local state statutes which make the distinction between these two entities. Such cases hold orders appointing receivers of individuals at the instance of unsecured creditors even though the debtor consents to be erroneous. Davis v. Hayden, 238 F. 734 (C. C. A. 4); Hogsett et al. v. Thompson, 258 Pa. 85, 101 A. 941; Maxwell v. McDaniels (C. C. A.) 184 F. 311; First Nat. Bank of Medford, Or., v. Stewart Fruit Co. (D. C.) 17 F.(2d) 621; State v. Union Nat. Bank of Muncie, 145 Ind. 537, 44 N. E. 585, 57 Am. St. Rep. 209; Steinbrenner Rubber Co. et al. v. Duncan, 86 Ind. App. 218, 155 N. E. 625. Other Indiana cases differentiating between the appointment of a receiver for a corporation and for an individual and denying the power of appointment in the case of an individual are: Slow v. Ohio Valley Roofing Co., 198 Ind. 190, 152 N. E. 820; State v. Superior Court of Marion County, 195 Ind....