Opinion
01-09-1892
SORCHAN v. MAYO et al.
Wm. Brinkerhoff and Mr. Fielder, for complainant. R. V. Lindubury, for defendants.
Suit by one Sorchan, as executor, etc., of James A. Lachaise, against Wiliam C. Mayo and others, to foreclose a mortgage. On defendants' exceptions to master's report. Sustained.
Wm. Brinkerhoff and Mr. Fielder, for complainant.
R. V. Lindubury, for defendants.
PITNEY, V. C. The single exception taken and pressed is that the master failed to credit on account of the mortgage indebtedness the amount of moneys in the hands of a receiver of the mortgaged premises appointed by this court, said moneys being rents collected by him during his receivership, and which he has failed, upon demand, to pay over.
The first point taken by the complainant is that the order of reference did not permit the master to make any such credit. This, however, is mere matter of procedure; and, as the whole matter is within the power of the court, the exception was argued upon its merits. The circumstances which either appear of record, or were, very properly, admitted by the counsel of complainant at the argument, are as follows: The complainant is a nonresident, and some time prior to July 27, 1887, he handed the bond and mortgage which is the foundation of his suit to one George E. Sibley, an attorney of New York, living at Elizabeth, N. J., with directions, presumably, to put it in course of foreclosure; and Mr. Sibley handed the same for foreclosure to the complainant's solicitor herein, who proceeded to file the bill on the 27th of July, 1887. Subpoenas were issued, returnable in August, and appear to have been served upon most of the defendants. On the 10th of September the solicitor of complainant presented to the court a petition for the appointment of a receiver, verified by Mr. Sibley in an affidavit which did not disclose his character of agent for complainant. Upon that petition an order to show cause why a receiver should not be appointed was made, and on the return of that order, and upon the nomination of the complainant, Sibleyhimself was appointed receiver, and entered upon the performance of his duty, after having given bond. He also instructed the complainant's solicitor in the conduct of the suit from that time until some time in 1889, when the solicitor became suspicious of him, set about to find the complainant himself, whom he had never seen or heard from except through Sibley, and along time was occupied in the search before he succeeded in finding him. For some reason, not fully explained, no order of reference was taken until September, 1891, although the answers filed were not of such a character as to cause such delay. On the 28th of March, 1891,3 1/2 years after the receiver's appointment,—Mr. E. Ellery Anderson, counsellor at law, of New York, alleging himself to be the agent of the complainant, presented his petition to this court, entitled in the cause, in which he alleged that the receiver had been collecting the rents, but had neglected to pay the taxes, and had failed and refused to render any account of the moneys received by him, and prayed that an order might be made upon him to render such an account, and for further relief. On that petition an order was made that Sibley show cause on the 6th of April why he should not render an account. On the return of that order, another order was made reciting the previous proceedings, and directing Sibley "to render an account. On the 9th of May another petition was pesented by Mr. Anderson, praying for an attachment against Sibley for contempt, and on that petition, on the 9th of May, an attachment was issued directed to the sheriff of the county of Union, who returned that by virtue of it he had taken Sibley into custody, and accepted bail in the sum of $500 for his appearance at the chancery chambers in Jersey City on the 8th of June, 1891. On the 9th of June, Sibley filed an account by which he admitted gross receipts of rents amounting to $2,255, and claimed credits for disbursements amounting to $935.07, leaving a balance in his hands of $1,319.93, from which he claimed a commission of 5 per cent., being $112.75, leaving a net balance of $1,207.18 in his hands. On the 12th of June it was ordered that the matter be referred to a special master to take and state an account of the amount received by the receiver, and what should be allowed for his services, etc. It does not appear that any proceedings have been had upon that order. On the 26th of October a further petition was presented by Mr. Anderson, reciting the previous proceedings against the receiver; setting out that he was an improper person to act as such, and that he was in contempt of the court; and praying that he should further account for receipts and disbursements since the date of his former account, and that he be removed from the office of receiver, and that a new receiver be appointed in his place, and that he be ordered to pay such new receiver the moneys in his hands. On that petition an order was made that Sibley pay the amount in his hands to the clerk of the court, and on the 16th of November a new receiver was appointed. On the 16th of November a further order was made to show cause why Sibley should not be adjudged guilty of contempt, and be committed to jail. No proceedings appear to have been had thereunder.
It was admitted at the hearing that the sureties on Mr. Sibley's bond were probably worthless, and that the moneys collected by him in his hands would be lost. Under these circumstances, the exceptant contends that the loss should fall upon the mortgagee, at whose instance, and upon whose nomination, the defaulting receiver was appointed. On the other hand, it is contended by the complainant that the well-settled rule is that a mortgagee in such case is not responsible for the default of the receiver, although he was appointed on his motion and nomination; and such seems to be the rule laid down in the text-books. Mr. Maddock (in 2 Madd. Ch. Pr. p. 235) says: "Where a receiver is appointed at the instance of a mortgagee the master generally appoints such a person as the mortgagee proposes, unless there is a personal objection to the man; but if such receiver embezzles or otherwise wastes the rents and profits, the loss, it seems, will fail upon the mortgagor, for the receiver is considered as an officer of the court." And Mr. Kerr (in Kerr, Rec. p. 164) says: "A receiver appointed by the court, being appointed on behalf and for the benefit of all persons interested, parties to the suit, if a loss arises from the default of a receiver appointed by the court, the estate must bear it as between the parties to the suit." To the same effect is 2 Daniel, Ch. Pr. pp. 740, 741. These authorities all rely upon the single case of Hutchinson v. Massareene, 2 Ball & B. 55, except that Mr. Maddock cites in addition the case of Rigge v. Bowater, 3 Brown, Ch. 365. The American treatises follow the English. High, Rec. § 270. And in Beach on Receivers, § 303. the rule is laid down that, "inasmuch as the receiver is the officer of the court, and in possession for the benefit of all parties, and not for the plaintiff, at whose instance he was appointed, it follows that the plaintiff should not be held responsible for losses which result from his wrongful acts or negligence, there being no participation therein or fraud on the part of the plaintiff;" citing cases in the courts of this country. But when we cometo examine the cases cited by the English authors, we do not find them to support the text to its full extent. The whole of the case of Rigge v. Bowater is this: "The lord chancellor intimated his opinion (without deciding the case) that, if a receiver be appointed by the court, (upon the application of a mortgagee or other incumbrancer,) and he afterwards embezzle or otherwise waste the rents and profits, the loss must fall on the mortgagor." But Mr. Eden, in his note to that case, shows that such rule does not always prevail; and it appears that Hutchinson v. Massareene, instead of holding that the loss in that case fell upon the estate, holds precisely the contrary. In Carter v. Barnadiston, 1 P. Wms. 505, at page 518, it was held, on the authority of Anonymous, Salk. 153, that "where onedevises land to his executors until his debts are paid, then with remainder over, and the executors misapply the profits, they shall hold only until they might have paid the debts by the profits, and after that the land is to be discharged, and the executors only remain liable." And the case in 2 Ball & B. was that Lord Massareene conveyed land to a trustee nominated by his creditors, in trust to receive the rents of the real estate for the payment of their debts, and, the trustee having failed to pay over, the loss was directed to be borne by the creditors, and the estate was discharged from it. And see Kerr, Rec, at page 363, to the same effect. It was held by Lord Eldon, in Boehm v. Wood, Turn. & R., at page 345, that, if a person claiming to be en titled to the possession of property as a vendee under a con tract or a mortgagee applies in a suit for the appointment of a receiver, and the receiver be appointed, the possession of the receiver is held to be the possession of the party claiming the right to possession. The cases cited by Mr. Beach in support of his text were not cases of the default of a receiver appointed at the instance of a mortgagee, and are distinguishable from such a case. In one of them—Terrell v. Ingersoll, 10 Lea, 77—the supreme court of Tennessee, in a case involving the default of a receiver of partnership assets, appointed on the application or one partner, lays down the rule thus: "Prima facie the complainant is liable for all losses occasioned by the neglect or the receiver to perform his duty, whether it be in realizing the asset or in accounting for it after it is realized. He can shift the burden upon his adversary only by showing that the loss was occasioned by him. The fact that the adversary consents to the appointment of a particular individual as receiver will not change the result, for the receiver is equally the choice of the complainant, and the duty of active diligence still attaches to the latter." But I do not find it necessary to decide the question whether, where an indifferent person is appointed by the court upon the application of a mortgagee and becomes a defaulter, and his sureties are insufficient, the resulting loss should fall on the mortgagee, and have referred to the authorities only for the purpose of showing that they are not all in accord with the general proposition laid down by the text-writers. It is also worthy of remark that the case of a mortgagee, who applies for a receiver, stands on a footing decidedly different from that of a creditor who is suing for himself and other creditors, and asks for a receiver to hold the property for the benefit of all the creditors. The mortgagee asks for the rents and profits to be applied to his mortgage, on the ground that he holds the legal title to the premises, and is entitled of right to the possession and to receive the rents; and, if he himself were in possession, he would be entitled to hold it, and receive the rents himself, until his debt were paid; and it seems to me that it would be no hardship upon him if the rule were established that he should take the risk of the solvency of the receiver, and that a receiver so appointed should be considered as the agent of the mortgagee. Such a rule would make complainants and their solicitors applying for such appointments careful as to the character of the men whom they nominate to the court, and the responsibility of the sureties given by the appointee. But, whatever may be the rule in ordinary cases, it seems to me that the circumstances of this case render the equity of the exceptants quite plain. Here the complainant nominates, and procures to be appointed, his own solicitor and agent. None of the owners of the equity of redemption took any part in the proceedings; they were all conducted under the instructions of this very agent; and I do not see how the case differs from that of the mortgagee being himself in possession, receiving the rents and profits; and it seems to me that when they were paid to the receiver in this case they were, in effect, paid to the complainant, and he, in my judgment, must bear the loss. If a mortgagee applies for a receiver, and nominates one to the court, he should lie carerul to nominate one who answers the description of a receiver, viz.: "An indifferent person between the parties, appointed by the court to receive the rents, issues, or profits of land or other thing in question in this court, pending the suit, where it does not seem reasonable to the court that either party should do it." Edw. Rec. p. 2, citing Wyatt. Pract. Reg. 355; 2 Smith, Ch. Pr. 628. The receiver appointed in this case was not such a person. The defendants must be credited with the net amount of moneys received by the receiver, without any allowance for commissions, and, if not agreed upon, this amount must be ascertained by the master to whom reference was made for that purpose, and not by the master whose report is now under exception; and no costs must be allowed the complainant, as against the defendant, for any of the proceedings for the appointment of the receiver or calling upon him to account.