author: ERNEST F. COCHRAN, District Judge.

text:
    HOME MORTG. CO. et al. v. RAMSEY et al.
    No. 3161.
    Circuit Court of Appeals, Fourth Circuit.
    April 24, 1931.
    John W. Davis, of New York City, and James H. Pou, of Raleigh, N. C. (James H. Pou, Jr., of Raleigh, N. C., R. P. Reade, F. L. Fuller, Jr., and Jones Fuller, all of Durham, N. C., W. A. Devin, Jr., and Thos. P. Pruitt, both of Hickory, N. C., ■ and Allen Wardwell, Porter R. Chandler, Kenneth F. Clark, Rusbmore, Bisbee & Stem, Joseph Y. Kline, and Bertram F. Shipman, all of New York City, on the brief), for appellants.
    Ernest S. Merrill, of Norfolk, Va., and L. I. Moore, of Newbern, N. C. (A. L. Jordan, of Norfolk, Va., R. T. Allen, of Kinston, N. C., and R.' Clarence Dozier, of South Mills, N. C., on the brief), for appellees.
    Before PARKER and NORTHCOTT, Circuit Judges, and ERNEST F. COCHRAN, District Judge.
   ERNEST F. COCHRAN, District Judge.

The appellants were the defendants in the District Court, and the appellee the plaintiff, and will hereafter be styled the plaintiff and defendants, respectively. The plaintiff, claiming to be the owner of $3,500 of bonds of the defendant the Home Mortgage Company, brought suit against that company, and the defendant First National Bank of Durham as trustee, and prayed for a receivership. Temporary receivers were appointed without notice, and later, by successive orders were fcered, making the appointment of the reeeiveontinued and finally a final decree was eners permanent; and the consolidated record brings up for review these successive orders and decree. The record is a voluminous one, and many questions have been presented, both in matters of procedure and as to the rights of the parties in the premises. The case is a very important one, and the situation demands a prompt decision. In these circumstances, we shall not attempt to discuss the evidence or to state all of the facts in detail. It is sufficient to say that we have carefully considered all questions presented, and inasmuch as we have reached the conclusion, upon a consideration of the merits of the cause, that the receivership should be vacated, we shall simply state as briefly as practicable those facts upon which our conclusion is based, without attempting any elaboration of our views or such extended discussion of the questions presented as we might deem proper if the ease were such as not to demand a speedy decision.

The defendant Home Mortgage Company is a corporation having assets considerably in excess of $10,000,000. Originally it was one of a group of companies formed by its former president, and until January, 1930, he and his associates were in active charge of its affairs. There was some evidence of some mismanagement on the part of the officers of the Home Mortgage Company, prior to January, 1930; but the evidence discloses no fraud or mismanagement of such a gross nature as would imply misconduct or actual fraud. In January, 1930, however, the entire management of the company was reorganized and the president resigned. Numerous other changes in the personnel of the officers took place at the same time, and the policies of the company underwent a considerable change, and that course of conduct on the part of the previous officers which appears to have been (to some extent, at least) evidence of mismanagement, was abandoned, and efforts made by the new management to correct those matters. The Home Mortgage Company was engaged in the usual business of a mortgage brokerage concern, making loans upon real estate. At the time of the receivership the outstanding individual loans amounted to something over $10,000,000. The plan of the company was to issue bonds and certain indentures securing the same, supported by deposit, with the defendant First National Bank of Durham as trustee, the notes and mortgages of the individual borrowers to serve as collateral against the bonds. At the time of the receivership there was outstanding a total of more than $10,000,000 such bonds. They were issued under five separate indentures made by the Home Mortgage Company to the First National Bank of Durham, N. C., as trustee under each indenture. Under the first of these indentures (spoken of as the Metropolitan indenture), bonds were issued aggregating around $6,000,000 and were outstanding at the time of the receivership. Under this indenture, the bonds were issued in fourteen series, lettered consecutively. Each series is a unit, separate and distinct from every other series, and is secured by the deposit of separate collateral; so that the bonds of each series are secured by an independent lien upon independent collateral. The entire issue or series (under this indenture), besides being secured by real estate mortgages, is guaranteed as to both principal and interest by the Metropolitan Casualty Insurance Company of New York. The plaintiff claims to be the owner of $3,500, face amount of bonds belonging to Series I, issued under this indenture.

In addition to the Metropolitan indenture under which plaintiff claims to hold her bonds, there are four other indentures under which bonds were issued, commonly referred to as the Straus indentures. Under each of them were issued outstanding bonds in the face amount of $1,000,000, or $4,000,000 in all. The bonds under these indentures were likewise secured by first mortgages on real estate deposited as collateral with the First National Bank of Durham as trustee; but were not further secured by any outside guarantor, as was the case with plaintiff’s bonds. At the time of the receivership, none of the bonds issued under any of the Straus indentures were or at any time had been in default as to either principal or interest. As to the bonds under the Metropolitan indenture, none of them, either of the plaintiff’s series or any other, has at any time been in default with respect to either principal or interest; principal and interest on all of them having been punctually paid both before the receivership and since.

The bonds claimed by plaintiff and all other bonds issued under the Metropolitan indenture incorporate by reference the provisions of the indenture into the bond, the language of the bond in that respect being as follows: “This Bond is one of a duly authorized issue of Bonds of the Company known as its Guaranteed First Mortgage Collateral Gold Bonds, Series - (herein called the Bonds), limited as to said series to the aggregate principal amount of One Million Dollars ($1,000,000.), at any onetime outstanding, all of which Bonds of said series a,re issued and to be issued under and equally secured by and subject to the terms and conditions of a trust indenture dated the-day of May, 1927, made by the Company to the First National Bank, as Trustee (herein called the Trust Indenture), reference to which is hereby made for a description of the nature of the security and of the rights, obligations, and duties of the Company, of the Trustee and of the holders of the Bonds, and the terms and conditions under which the Bonds are secured.” .

The Metropolitan indenture under which the bonds claimed to be owned by plaintiff were issued contains the following provision:

“Section 12. Anything in this Article or elsewhere in this Trust Indenture to the contrary notwithstanding, no holder of my Bond or coupon issued hermmder and hereby secured shall have any right to institute any suit, action or proceeding at law or in equity or take any other steps or proceedings for any remedy hereunder, unless such holder previously shall have given to the Trustee written notice of such default and the continuation thereof, as hereinbefore provided; nor unless the holders of not less than twenty-five per cent. (25%) in amount of all the bonds of said series, then outstanding, shall have made written request upon the Trustee and shall have offered to it a reasonable opportunity either to proceed to exercise the powers hereinbefore granted or to institute' such action, suit or proceedings in its own name, and shall have offered to the Trustee adequate securities and indemnity against the costs, expenses and liabilities to be incurred therein or thereby; provided, however, that the right herein provided for shall not be exercised by bondholders without the consent of the Surety Company so long as no event of default as prescribed in subdivisions (1) and/or (2) of Section 2 of this Article Y shall exist, and in such case, in respect of a default as prescribed in subdivision (1) only after the elapse of ninety (90) days from the commencement of such default, and in respect of a default as prescribed in said subdivision (2) only after the elapse of eighteen (18) months from the commencement of such default. Said notification, request and offer of indemnity are in each and every such case to be conditions precedent to the exercise by the bondholders, except through the Trustee, of the powers and trusts of this Trust Indenture; it being understood and intended that no one or more holders of Bonds and coupons shall have my right in any manner whatsoever by his or their action to affect, disturb or prejudice the lien of this Trust Indenture, or to enforce any right hereunder, except in the manner herein provided, and that dll proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided, and for the equal benefit of all the Bonds of any Series outstanding hereunder.
“The foregoing provisions of this Section 12, however, are intended only for the protection of the Trustee, and shall not be construed to affect any discretion or power by any proi visions of this Trust Indenture given to the Trustee to determine whether or not it shall take action in respect of any default without such notice or request from bondholders or the Surety Company, or to affect any other discretion or power given to the Trustee.
“Nothing in this Section 12 or elsewhere in this Trust Indenture or in the Bonds or in the coupons, if any, appertaining thereto shall affect or impair the obligation of the Company, which is unconditional and absolute, to pay the principal and interest of the Bonds to the respective holders of the Bonds and to the respective holders of any coupons appertaining thereto, at the respective due dates in- such Bonds and coupons stated, nor affect or impair the contract right of action, which is also absolute and unconditional, of such holders to enforce such payment by action at law against the Company.” (Italics ours.)

The trustee has never consented to this action by the plaintiff, but on the contrary has opposed it. Neither the special master nor the District Court made any findings of fraud, misconduct, mismanagement, ineompetenejq or any other grounds why it should be displaced or disqualified from representing the bondholders. Nor was there any finding, nor is there any proof of'any collusion on the part of the said trustee with the Home Mortgage Company or any of the bondholders or any hostile attitude on the part of the trustee, as against the plaintiff’s rights.

Both before and after the present officers took charge of the affairs of the Home Mortgage Company, a large number of underlying mortgages supporting the bonds and indentures became in default, and many of the properties were foreclosed by the Home Mortgage Company in the name of the trustee; that course being permitted by the terms of the indentures. It is conceded that prior to the present management, the method of bidding in the property at these foreclosures by what was termed a service corporation, namely, the New Hope Realty Company, was improper, as not sufficiently protecting the rights of the Home Mortgage Company and the bondholders; but this plan was changed by the new management, and we have been unable to find any evidence that the plan adopted by the new management through the means of a new service corporation known as the Realty Sales Company was improper, or did not properly protect the interests of the bondholders and of the Home Mortgage Company. As has been stated above, the court below found some other evidence of mismanagement on the part of the former officers; but we have found no charge of mismanagement against the present officers sustained by the evidence.

The plaintiff testified that some time in August, 1930, she decided to invest in bonds of this company. It is claimed that she acquired and had possession of her bonds of Series I of the Metropolitan indenture issue before the bill was filed and the order appointing temporary receivers was made; and both the special master and the District Court have found in her favor upon that fact. The District Court also held that her motives in purchasing the bonds were immaterial, and not to be considered in determining whether a receiver should be appointed or not. We are not unmindful of the rule that concurrent findings of the special master and District Court should not be set aside unless the evidence is clear, cogent, and convincing; but in this case it is impossible from the documentary evidence and the circumstances surrounding the transaction of the purchase of these bonds by the plaintiff, to resist the conclusion that she had not acquired either the possession or the legal title to them at the time the bill was filed and the order appointing temporary receivers was made. The evidence is beyond any reasonable doubt that she had merely an option upon the 'bonds, and did not acquire either the title to them or their possession until several days after the first order was made appointing the temporary receivers. It is clear also from the evidence and the circumstances of the case that these bonds purchased by her were not pur.-i chased as an investment, but for the purpose of obtaining a receivership of the properties of these defendants.

The bill was presented to the district judge on October 17, 1930, and an order was granted, without notice, appointing temporary receivers of all the properties of the Home Mortgage Company, including the trust estates held by the First National Bank as trustee of the collateral to secure the bonds of the Home Mortgage Company. Later there were various proceedings in the cause, but it is unnecessary to recite them. Before the defendants appeared in the cause, a special master was appointed to investigate the affairs of the Home Mortgage Company, mainly (apparently), to determine its solvency or insolvency. While his appointment was made without notice, nevertheless the defendants afterwards had notice to participate, and did participate in the hearings before the special master. After the appearance of the defendants the plaintiff was pert mitted to file an amended bill, and the court by various orders continued the receivership,' and finally, upon the coming in of the report of the special master, heard the ease upon the merits, and passed a final decree making the receivership permanent; and directed the receivers as permanent receivers to administer all the property of the Home Mortgage Company, including the property embraced in the indentures, the same to be administered, however, in connection with the First National Bank of Durham as trustee. The final decree also declared the Home Mortgage Company in default, under the terms of the trust indenture under which the bonds of the plaintiff had been issued. Both the District Court and the special master found that the Home Mortgage Company is insolvent. It appears to us that there is doubt about the insolvency of the company, but in view of the conclusions reached in this opinion, it is not necessary to decide that question.

The plaintiff, holding at the present time •only $3,500 of these outstanding bonds, was the only bondholder to bring this suit and although it has been pending nearly six months no other bondholder or person has at any time appeared in her support. The reeeiver•ship is opposed by the Home Mortgage Comspany and its stockholders, by the trustee representing the bondholders under all of the collateral trust indentures, by the Metropolitan Casualty Insurance Company, which guaranteed over $6,000,000 of these bonds (including the plaintiff’s), by individual bondholders aggregating a large amount, and apparently by all unsecured creditors having admitted claims. It should be stated, however, that none of these parties have sought to intervene in the cause, but at the hearing in this court, attorneys representing a committee of bondholders desired to appear as amici curiae in opposition to the receivership, but were not permitted to do so, "and their brief was admitted only after it was signed by the attorneys for the defendants as their own brief.

Neither the plaintiff’s original bill nor her amended bill sought any independent equitable relief. The bill was simply for receivership of the property of the Home Mortgage Company; to take over all the property of that company, including that held by the trustee under the indentures referred to; and to administer the same under the order of the .court.

It is perhaps unnecessary to advert to 'Certain well-settled principles governing the appointment of receivers. It is a drastic remedy, ■ and calls for the exercise of the ■greatest care and judgment; and this is especially true where it is sought to take not •only from the parties themselves the management of their own property, but property in the hands of a trustee. The appointment of receivers is to be, resorted to only in eases of necessity, and when no other remedy is available. In the present case, we are firmly of the ©pinion from a consideration of the merits of 'the case and all the facts and circumstances disclosed by this record, that this receivership should not have been granted, and that the appointment of the receivers should be vacated; that they should be discharged from the duties of their office; and the property turned over forthwith to the defendants and the plaintiff’s bill dismissed. We think this conclusion inevitable upon several grounds.

In the first place, in so far as the receivers are directed to take charge of the property of the Home Mortgage Company, which is not embraced in the trust indentures, the plaintiff has no lien or claim on such property, and is a simple contract creditor. Assuming (without deciding) that the Home Mortgage Company is insolvent, nevertheless in the federal courts, in such ease, insolvency is not sufficient; but in áddition it must appear that judgment has been obtained and execution returned unsatisfied, or that there is property which may be reached in equity for the satisfaction of the plaintiff’s claims which may not be reached by law. This is well-settled law in the federal courts. Hollins v. Brierfield Coal & Iron Co., 150 U. S. 371, 379, 14 S. Ct. 127, 37 L. Ed. 1113. Here no judgment has been obtained, and so far as the property of the Home Mortgage Company which is not embraced in the trust indenture is concerned, no receivership should be granted.

It is said, however, that this is a trust estate, and that equity should intervene and take charge of and administer that estate for the benefit of the bondholders. We quote from the plaintiff’s brief as follows: “However, this is not a suit having for its purpose the dissolution of the Home Mortgage Company, but rather to conserve and preserve, as well as liquidate a trust through officers appointed by the Court. Nothing more is really asked in this suit for the reason that it appears that the Home Mortgage Company is nothing more than a skeleton or shell. It is entirely devoid of any appreciable amount of assets, and the relief sought by this suit was, and is, to have the Court administer the trust estate belonging to the bondholders who are, by virtue of this suit, asking for this relief.”

And again in her brief she says: “This suit has not for its purpose the disturbing of any lien given by the trust indenture or prejudicing any right under it. It is not a suit having for its purpose the granting of any remedy under the terms of the Indentures but is one solely for the purpose of conserving and preserving the trust estate and the enforcement of the right, irrespective of any Trust Indenture, of any bondholder intei'ested in any trust estate to have that estate administered honestly

When considered in that aspect, the bill must certainly fail. In effect, it is nothing more than a bill to take charge of a trust estate because of misconduct or incompeteney of the trustee, or such mismanagement as would amount to waste. Here the proofs are lacking to show any misconduct or mismanagement on the part of the trustee, and both the special master and the district court have found there was none. The District Court has not attempted to remove the trustee, but, on the contrary, has continued the trustee in its duties as trustee in connection with the receivers. Consequently, this is not a case where the trust is being abused, and the court of equity is removing the trustee and directing the administration of the trust. If it were, a receivership of the trust estate pendente lite would be proper and a receivership of the other property of the corporation might be proper as incidental relief, but certainly it is not proper where the trust is to be administered by the trustee, and the only effect of the receivership would be to create charges against the funds in the hands of the trustee.

Moreover, the proposition is well settled that a federal court has no jurisdiction to entertain a suit for the appointment of a receiver where the receivership is sought as an end in itself, and not as ancillary to other relief. A receivership is essentially a temporary remedy to protect and conserve the property involved during the pendency of the principal action. Pusey & Jones v. Hanssen, 261 U. S. 491, 497, 43 S. Ct. 454, 67 L. Ed. 763; Brictson Mfg. Co. v. Close (C. C. A. 8th) 280 F. 297; Willson v. Waltham Watch Co. (D. C.) 293 F. 811; Zuber v. Micmac Gold Mining Co. (C. C.) 180 F. 625; 23 R. C. L 11; High on Receivers, § 6.

In Pusey & Jones Co. v. Hanssen, supra, page 497 of 261 U. S., 43 S. Ct. 454, 456, the Supreme Court said: “A receivership is not final relief. The appointment determines no substantive right, nor is it a step in the determination of such a right. It is a means of preserving property which may ultimately be applied toward the satisfaction of substantive rights.”

Here, again, the plaintiff suggests that the relief sought is the administration of the trust estate. We think that argument has been sufficiently answered in what has been said above. If this were a case to remove the trustee, and there was evidence to sustain the allegations of misconduct on the part of the trustee, the court could entertain the suit for such removal, and as incidental to that equitable relief, grant a receivership for the purpose of preserving the property pending the litigation. But no- such case and no such facts are presented here. The effort is a bald one to displace the trustee without cause, and have the trust estate administered by reeeivers appointed by the court. The continuation of the trustee in the administration in connection with the receivers does not alter the case. In its practical effect, the decree-of the District Court is simply the appointment of additional trustees; and we know of no law which would permit such appointment under the facts of this ease over an objection of the trustee and practically all other parties in interest except the plaintiff.

Moreover, we think that the plaintiff is precluded from maintaining this suit by the terms of her bonds and the indenture securing them which provide in substance that action can be taken for the protection of the interest of the bondholders only where a certain number of the bondholders join. These provisions have already been quoted. The plaintiff argues that these provisions are void because it is an attempt to oust the jurisdiction of the courts. We do not so regard them. Under the terms of the bonds and indenture, the trustee is the representative of the plaintiff, and entitled to bring suit. The provisions are merely reasonable conditions precedent to the right of the plaintiff to bring the suit herself. They are intended for the security of all the bondholders, and no doubt rendered the bonds more salable. They were devised for just- such a ease as is presented here, where one bondholder, or a small minority, is determined upon action which a large majority believe hostile to their interests. The limitations imposed by the contract have not been met in this ease. The plaintiff has not only not complied with the provision, but has made no demand whatever upon the trustee to take action, nor is there any showing that if such demand had been made, it would be futile. If it were shown that the trustee had colluded with the majority of the bondholders, or was engaged with the Home Mortgage Company in perpetrating a fraud upon the plaintiff, and that the other bondholders would not join with her in protecting their rights, a different situation would be presented; but there is no such showing. The plaintiff as against the corporation is seeking to enforce rights which the trustee is the proper person to enforce. She has made no demand upon the trustee to safeguard these rights, and has not secured the co-operation of the bondholders required by the provisions of the indenture.

Similar provisions have been sustained, by other courts. Allan v.. Moline Plow Co. (C. C. A. 8th) 14 F.(2d) 912; McGeorge v. Big Stone Gap Improvement Co. (C. C.) 57 F. 262; Crosthwaite v. Moline Plow Co. (D. C.) 298 F. 466; Batchelder v. Council Grove Water Co., 131 N. Y. 42, 29 N. E. 801; Cf. Southern Nat. Bank v. Germania Mfg. Co., 176 N. C. 318, 97 S. E. 1; Muren v. Southern Coal & Mining Co., 177 Mo. App. 600, 160 S. W. 835.

The ease of Reinhardt v. Inter-state Telephone Co., 71 N. J. Eq. 70, 63 A. 1097, relied upon by the plaintiff, is not in point. In that ease, the suit was maintained by the plaintiff as a creditor under a statute of New Jersey, and the terms of the contract prohibited the suit under the mortgage, but did not include the ease of an application for a receiver under the statute.

The plaintiff insists, however, that the terms of the indenture prohibit suit to enforce any right “hereunder,” and that this suit is not of such a nature. We do not think this contention can be sustained. The rights claimed by the plaintiff are under her bonds and the indenture. If she does not stand upon the indenture, she has no standing at all. The suit, therefore, clearly is one under the terms of the indenture, and embraced in the restrictive clause.

But there is another ground which we think demands that a, court of equity should not entertain this suit. At the outset, we desire to say that we are not unmindful of those cases which hold that where the suit is based on a plaintiff’s property rights, either legal or equitable, his motives in the acquisition or prosecution of those rights cannot be considered as a basis for refusing to recognize them. There are exceptions to the rule. Cf. Forrest v. Ry. Co., 4 De Gex F. & J. 126, and Seaton v. Grant, 2 Ch. App. 459. But in cases like the one at bar, where an application is made for the appointment of a receiver, we think that in balancing the equities of the parties, under the peculiar facts of this particular ease, a court of equity should take into consideration the circumstances under which the plaintiff acquired her bonds and her purpose in doing so. If we should fail to express our views upon the facts in that respect as disclosed by this record, we feel that we should not do our duty, and we do not intend to give even an apparent sanction to the methods of obtaining a receivership that have been employed in this case. While there is some conflict in the evidence, and we have reluctantly come to the conclusion that we have reached in this respect, nevertheless, as already stated, there is no escaping the conclusion that the plaintiff was not the owner of these bonds at the time the suit was instituted, and did not have possession of, or the legal title to them; and that she acquired them, not as a bona fide investment, but for the sole purpose of bringing this suit and creating a receivership. The plaintiff, before she brought her suit, and before she had bought or paid for her bonds, and when she had only an option to purchase them•, was advised that the Home Mortgage Company was in difficulties, and that it would be necessary for her to employ counsel. She did employ counsel to bring this suit before she had done anything more than obtain a mere option on the bonds. There had never been any default in the payments of interest or principal, as to her bonds or any of the bonds issued by the Home Mortgage Company. Her bonds were guaranteed by a surety company. She stands alone in her suit, unsupported by any other bondholder or party in interest. She claims to bring the suit, not only for herself, but as a representative of all other bondholders. She never made any demand upon the trustee to take any action whatsoever; nor has she shown that such demand would have been unavailing. She has not shown that the trustee has taken any position hostile or adverse to her interest or that of any bondholder. She has not shown that there is any conspiracy or collusion or connivance between the trustee and the Home Mortgage Company or any other person to deprive her of any of her rights. The officers of the Home Mortgage Company, under whom there had been mismanagement before she acquired her bonds, had been displaced and a new management and new officers installed, who were doing (as far as the record discloses) all they could to tide over the crisis in the affairs of this eoiporation. We know that in times of stress, many corporations find themselves embarrassed and in great straits to tide over those periods. We know also that many of them do pass successfully through times of financial distress. If, when those times arrive, and a corporation is struggling to tide them over, a person with knowledge of the situation can go out and buy a small percentage of outstanding bonds for the simple and sole purpose of creating a receivership, against what the other bondholders and parties in interest believe to be a proper course for them to pursue, many corporations would be in great danger. We think, when all the facts are considered and all the equities balanced, a court of equity should not appoint a receiver in such a ease. Cases may arise where the interests of other persons would be so involved as to necessitate the appointment of a receiver in any event; but such a case is not presented here. If this corporation had been let alone, it might (as has been suggested by the district judge) be found necessary at a later date for a receiver to be appointed. But, on the other hand, it might retrieve its fortunes. To deprive the corporation and the trustee of the opportunity to go forward and conserve the assets of the corporation for the benefit of the bondholders in the circumstances as disclosed by this case, would, it seems to us, be inequitable.

' In the brief submitted by defendants, it was argued that this court should direct that the suit should be dismissed at the cost of the plaintiff, and no fees and allowances should be paid out of the trust estates. As there has been no ruling of the district judge in that respect, we do not think that we should at this stage enter such directions. This court has in this opinion held plainly that this receivership ought not to be granted, and we cannot assume that the District Court, with the views of this court before it, will impose any part of the costs and expenses of this receivership and these proceedings upon the property of the corporation or upon the trust estate, at the expense of the innocent bondholders and other creditors. The several decrees of the District Court are therefore reversed, and the ease remanded with directions to vacate the receivership and order the property of the defendants returned to them forthwith and to dismiss the suit.

Reversed.


source: Caselaw Access Project

author: STONE, Circuit Judge.

license: Public Domain

text:
    IMPERIAL ASSUR. CO. v. LIVINGSTON et al., and eight other cases.
    Nos. 8857-8865.
    Circuit Court of Appeals, Eighth Circuit
    April 6, 1931.
    Rehearing Denied May 18, 1931.

      Samuel H. Liberman, of St. Louis, Mo. (Harry C. Willson, of St. Louis, Mo., on the brief), for appellants.
    John R. Turney, of St. Louis, Mo. (Carter, Jones & Turney and Lewis & Rice, all of St.. Louis, Mo., on the brief), for appellees.
    Before STONE and GARDNER, Circuit Judges, and WYMAN, District Judge.
   STONE, Circuit Judge.

These are appeals in nine cases from separate judgments according recovery on separate insurance policies.

In five of the cases, Orville Livingston, trustee in bankruptcy, and Title Guaranty Trust Company, trustee, were plaintiffs; in three of the cases, Orville Livingston, trustee in bankruptcy, and Missouri State Life Insurance Company and American Investment Company were plaintiffs, and in one Orville Livingston, trustee in bankruptcy, was the sole plaintiff. Each suit was upon a policy issued by a different company upon the same property and covering the same loss. Pursuant to stipulation, the eases were consolidated and tried upon an agreed statement of facts with a formal waiver of jury. The appeals are separate, but all cases are brought here upon one bill of exceptions and are briefed and argued together.

Prior to June 29', 1927, the Buckingham Realty Company owned and operated a hotel building which was protected by fire insurance policies issued by the various appellants. During this time there were incumbrances upon the building consisting of a deed of trust to Title Guaranty Trust Company, as trustee, to secure a loan by the American Investment Company; a mortgage to the Missouri State Life Insurance Company; and another mort: gage to the American Investment Company.

On June 29,1927, a petition in bankruptcy was filed against the Buckingham Realty Company, and upon the same date Isaac T. Cook was appointed by the bankruptcy court, qualified, and took possession as receiver. There has been no order yet made discharging him as receiver. The company was adjudicated a bankrupt on September 26,1927. Orville Livingston was elected and qualified as trustee on November 7, 1927. In view of the fact that the receiver was operating the hotel properties at a loss, the trustee was unwilling to take them over without first investigating the incumbrances against the property to ascertain whether they were so great that the properties would become a burden and charge upon the estate. A number of proposals relating to the sale, possession, or disclaimer of the property by the trustee were made to and considered by him, but before he had reached any conclusion and on December 5, 1927, a fire occurred destroying much of the property and causing the losses involved in these suits. On December 17,1927, an order was made requiring the trustee to accept possession of the property and of the policies of insurance thereon. The receiver remained in actual possession and custody until December 23,1927.

Immediately upon qualification, the receiver consulted with representatives of the American Company and- the Missouri Company, which then held the policies upon the property under standard mortgage clauses, and, with their approval, secured the policies and had some of them indorsed to him as “Isaac T. Cook, receiver for Buckingham Realty Company,” and the others canceled and new policies issued to him as above quoted. These indorsed or new policies were returned by him either to the American or to the Missouri companies, with the exception of that issued by the Niagara Fire Insurance Company to him, which latter policy he has retained in his possession. This disposition of the policies accounts for the difference of plaintiffs in these cases.

Six of these policies were so indorsed or so issued prior to November 7,1927, the date upon which the trustee was elected and qualified. The other three were issued on November 21, 1927, two weeks after election and qualification of the trustee, but while the receiver was yet in actual possession and custody of the property insured.

The main contentions of appellants are as follows: I. That a change in title and interest in the insured property was occasioned by the election and qualification of the trustee, thus avoiding the six policies issued or indorsed to the receiver prior to the qualification of a trustee. II. That after the qualification of the trustee, there was no insurable interest in the property in the receiver, therefore the policies issued to the receiver subsequent to the qualification of a trustee were void from their inception. III. That the sale-of the mortgaged debt by the Missouri Company disabled it from complying with the' policy clauses permitting the insurers to become subrogated to the rights of the mortgagee and to pay the mortgaged debt, therefore such sale rendered the policies void as to the Missouri Company. As to the lienholders, it is claimed that their failure to notify appellants of the above changes in ownership and in interest affected by the election and qualification of the trustee, rendered the policies void as to each of them on the grounds set forth in I and II above.

I. As to the six policies indorsed or issued to the receiver prior to the appointment and qualification of the trustee, appellants, concede that the receiver “as an arm of the court charged with the responsibility for the preservation and protection of the property, had an insurable interest therein.” However, they contend that the appointment and qualification of the trustee put an end to the insurable interest of the receiver and constituted a change of title and interest which avoided the policies under their terms.

The provision of the policies in question is as follows: “This entire policy, unless otherwise provided by agreement indorsed hereon and added hereto, shall be void * * * if any change, other than by death of an insured, take place in the interest, title or possession of the subject of insurance^ (except change of occupants without increase-of hazard) whether by legal process or judgment or by voluntary act of the insured, or.' otherwise. * • * ”

It is conceded that there was no change in “possession” since the receiver had possession until the fire and for more than two weeks thereafter. The question is whether there was any change, within the meaning of the policies, in either the “interest” or in the “title” prior to the fire. The contention is that such change occurred because of and at . the time of the election and qualification of the trustee, which occurred prior to the fire.

The supporting argument is that the status of a receiver in bankruptcy and of a trustee are defined in sections 2 and 70a of the Bankruptcy Aet (USCA, title 11, §§ 11 and 110 (a), and that the result thereof is that, upon election and qualification of the trustee, the title and the resulting right to possession rested in him and any right or interest of the receiver in the property was thereupon and thereby terminated — thus constituting a change in title and in interest within the meaning of the policies. This requires examination and definition of the status (with resulting legal effects thereof) of such receiver and of such trustee.

In framing the machinery to work out the purposes of the Bankruptcy Aet, Congress made use of terms (such as referee, trustee, receiver) which were taken from the body of the general law and which had, therein, already acquired fairly clear meaning and definition. Probably, this was done because the powers and duties of those officials under the aet were somewhat analogous to those repognized in existing law. But the importations were of terms or names rather than of definitions; for example, referee in bankruptcy does not mean an officer with the same powers and duties as a referee in equity, and the same is true of trustees and receivers in bankruptcy. The act defines the powers and duties of the officials named therein and it is only where the aet is deficient in definition that the analogy becomes useful through the rule that proceedings in bankruptcy are in the nature of proceedings in equity. Bardes v. Hawarden Bank, 178 U. S. 524, 20 S. Ct. 1000, 44 L. Ed. 1175; Lockman v. Lang, 132 F. 1; In re Rochford, 124 F. 182; Swarts v. Siegel, 117 F. 13; Dodge v. Norlin, 133 F. 363; Ogden and Jamison v. Gilt Edge Mines Co., 225 F. 723; Clark v. Johnson, 245 F. 442; Nisbet v. Federal T. & T. Co., 229 F. 644 — -all in this eourt. Resort must first be had to the act in order to ascertain, through the definition therein of powers and duties, the real meaning of the terms used therein. To do otherwise results in confusion, if not, indeed, in defeat of the aet.

Some introductory observations of a general character as to the purposes and plan of the aet and of the places therein of each of these officials will aid in understanding and defining the status of each as to the property of the estate. The broad purposes of the act are to permit (voluntary) or to compel (inyoluntary)_ a debtor to turn over all of his property to the eourt for the benefit of his creditors, to have set aside therefrom his exemptions and to be discharged from further liability to such creditors. The plan by which the above purposes are wrought into results is set forth in the aet. Generally speaking and in so far as pertinent to these cases, that plan is as follows: A special class of tribunals (courts of bankruptcy) are created to handle such matters and are given defined jurisdiction deemed adequate for such purposes. In general, this jurisdiction includes power to determine its own jurisdiction and to administer estates within that jurisdiction. The legal order of procedure prescribed is the initiation of the proceeding, the determination that the matter is one for bankruptcy administration, and (if it be such an one) the administration of the estate and the discharge of the debtor.

The place of a trustee is as an important part of the machinery of administration ■ — after adjudication. As the property (except exemptions) is to be administered for the benefit of creditors and (as a part of such administration) the proceeds thereof are to be distributed to them, the creditors are permitted to choose the trustee; the purpose being to thus secure an active agent for the prosecution of the interests of all of the creditors in the estate. But this choice is subject to the approval of the eourt (through its official representative, the referee); the trustee can, in important matters, aet only with approval of the court and he must keep the court fully and frequently advised of his actions as trustee — all of this is because of and emphasizes the fact that he is an officer of the eourt. Section 47 of the aet (USCA, title 11, § 75) defines his duties in some detail but the general scope thereof is well expressed in á portion of that section as being to “collect and reduce to money the property of the estates for which they are trustees, under the direction of the court, and close up the estate as expeditiously as is compatible with the best interests of the parties in interest.” Many provisions as to the status, powers, and duties of the trustee appear in this section (section 47 of the aet), in other sections of the act, and in the General Orders, but all are in aid of the general duties above quoted. His status is governed by his relationship to the parties and to the court. As to the bankrupt, he sets aside exemptions. As to the creditors, he collects, conserves, and distributes the assets. But in all he does, he is subject to control of the court because he is administering property which is placed by the act in custodia legis. His relation to that property is set forth in several sections but. principally in sections 47 and 70a, which must be read together. He not only succeeds to the rights in the property of the bankrupt (section 70a), but he has also the rights of a creditor holding a lien by legal or equitable proceedings. Section 47; In re Seward Dredging Co. (C. C. A. 2) 242 F. 225. At the same time, all of his acts relate to administering property in the custody of the court or to bringing property into such custody so that it may be there administered. This situation, as an officer of the court administering property in the custody of the court, is the woof into which all of his status, duties and powers are woven. While the act (section 70a) gives him “title” to the property and while he is vested with the rights, remedies and powers of a creditor holding a legally established lien or unsatisfied execution (section. 47), yet he has such title and such rights, remedies, and powers solely to place him in position better to collect into, and to preserve, transfer, and distribute the property in the custody of the court in accordance with the requirements of the act.

The status of a receiver in bankruptcy comes about and is as follows: Until there is an adjudication, it is not known whether there will be any administration under the act. Yet the bankruptcy jurisdiction begins with the filing of the petition and it is obviously necessary to secure and protect the property until the adjudication so that it can be administered if bankruptcy is adjudged. Therefore, the property is regarded as in custodia legis for such purposes from the filing of the petition. Lazarus v. Prentice, 234 U. S. 263, 266, 34 S. Ct. 851, 58 L. Ed. 1305; Fairbanks Steam Shovel Co. v. Wills, 240 U. S. 642, 649, 36 S. Ct. 466, 60 L. Ed. 841; Bailey v. Baker Ice Machine Co., 239 U. S. 268, 276, 36 S. Ct, 50, 60 L. Ed. 275; Everett v. Judson, 228 U. S. 474, 33 S. Ct. 568, 57 L. Ed. 927, 46 L. R. A. (N. S.) 154; Acme Harvester Co. v. Beekman, 222 U. S. 300, 307, 308, 32 S. Ct. 96, 56 L. Ed. 208. To protect this custody, the act (section 2) gives bankruptcy courts jurisdiction to “appoint receivers or the marshals * * * in case the courts shall find it absolutely necessary, for the preservation of estates, to take charge of the property of bankrupts after the filing of the petition and until it is dismissed or the trustee is qualified.” Such a receiver takes no title to the property, because the title remains in the bankrupt until the adjudication (section 70a of the act; Robertson v. Howard, 229 U. S. 254, 260, 33 S. Ct. 854, 57 L. Ed. 1174; In re Baum, 169 F. 410, 412, this court), but he is a custodian in possession. Under another provision of section 2 he may, as here, be empowered by the court to operate the property. He is an officer of the court in charge of property in the custody ^ of the court. Murphy v. John Hofman Co., 211 U. S. 562, 568-570, 29 S. Ct. 154, 53 L. Ed. 327; also see Union Nat. Bank of Chicago v. Kansas City Bank, 136 U. S. 223, 236, 10 S. Ct. 1013, 34 L. Ed. 341.

From the foregoing, it is evident that the property is at all times in the custody of the court; that the receiver and the trustee are officers of the court for the purposes of handling such property in accordance with the directions of the court within the act; and that their relation to the property is purely and solely in such official capacities.

In the preservation of such property, it is obviously proper for either of such officials to insure it against loss. Such insurance is in no sense for the benefit of such officers, who derive no personal benefit whatever therefrom. It is for the preservation of the value of the property to those who may, in the administration of the estate, be found to be entitled to it.

When these policies were issued or indorsed to “Isaac T. Cook, Receiver for Buckingham Realty Company,” the interest insured and intended to be insured was not of Cook, personally, because the designation of his official- title and representative capacity forbade such, but it was and could have been only the interest of those entitled to share in the estate. Of course, the companies might-have limited their contract to the protection of such interest only while it was in the keeping of a particularly named receiver but such a construction of these policies is forbidden by Thompson v. Phenix Ins. Co., 136 U. S. 287, 297, 10 S. Ct. 1019, 34 L. Ed. 408. In that ease, the policy was to “E. S. Kearney, receiver for Holladay v. Holladay.” The court (page 297 of 136 U. S., 10 S. Ct. 1019, 1023) said: “If an insurance company intends its policy to mean otherwise [than to cover succeeding receivers], it must express that intention more distinctly than was done by the defendant. If a policy is so drawn as to require interpretation, and to be fairly susceptible of two different constructions, the one will be adopted that is most favorable to tbe insured. This rule, recognized in all the authorities, is a just one, because those instruments are drawn by the company.”

That ease also governs the contention that the change of custody from the receiver to the trustee avoided the policies. The receiver and the trustee are, in this respect, merely successive officers of the same court as to the same property in that court and for the same beneficiaries. In principle, the situa- * tion, is in this regard, entirely analogous to successive chancery receivers. In the Thompson Case this same issue was presented concerning successive chancery receivers, and the court (page 297 of 136 U. S., 10 S. Ct. 1019, 1023) said: “But in our judgment the above clause of the policy does not necessarily import that a mere - change, of receivers would work a change either in title or possession. The title to property in the hands of a receiver is not in him, but in those for whose benefit he holds it. Nor in a legal sense is the property in his possession. It is in the possession of the court, by him as its officer. Wiswall v. Sampson, 14 How. 52, 65 [14 L. Ed. 322]; Heidritter v. Elizabeth Oil Cloth Co., 112 U. S. 294, 304, 5 S. Ct. 135 [28 L. Ed. 729]; Chicago Union Bank v. Kansas City Bank, just decided, 136 U. S. 223 [10 S. Ct. 1013, 34 L. Ed. 341]. So that, where a policy runs to a receiver in a designated suit, a mere change of receiver does not involve a change in title or possession.”

Since these policies were insurance of the beneficiaries and not of the official and because a change in such official is not a change of .title or interest, this contention is not well founded and the policies are enforceable.

II. As to the three policies issued after the election and qualification of the trustee, the contention is that the insurable interest of the receiver ended upon the election and qualification of the trustee and, therefore, these three policies were-void from their inception. The question is one of “insurable interest.”

From what has been said above it is clear that the receiver is designed .by the aet as a mere temporary conservator of the property and business pending the time when it can be turned back ti> the owner, if the adjudication _ is denied or when it can be turned over to the regular administrative officer provided by the aet — the trustee — if adjudication results. The aet clearly defines and limits this by providing that receivers may be appointed to take charge of the property “until it [the petition] is dismissed or the trustee is qualified.” Section 2 of act, USO A, title 11, § 11. The same section authorizes the business to be conducted by receivers “for limited periods.” Other sections (cited above) place the title in the trustee upon qualification. However, the act should always be construed in a way to carry out its purposes and to care for the situations created by it. Where a receiver has been appointed and is in possession of the property when the trustee qualifies and, perhaps, with even greater emphasis where the receiver has been and is at that time conducting a going business of the bankrupt, a situation is created (under the act) which, in the nature of things, requires certain acts and procedure to end the custody and activities of the receiver and actually to begin those of the trustee. This is so because the property is in the actual care and custody of the receiver and must be so until it passes into the actual care and custody of the trustee. The receiver cannot walk away and leave the property the moment the trustee qualifies. He has duties until the property is actually turned over. While the aet malees no express provision, the nature of the situation and the purposes of the aet'require that there be no hiatus between the actual care and custody of these two officials. Until there is delivery of actual possession by the receiver or a taking of actual possession by the trustee, the receiver has such custody and it is his duty to protect the property in that custody. This responsibility and attendant liability result, necessarily, in powers adequate thereto. Such responsibility, liability and powers determine the status of the receiver. As to perishable property, the power to protect includes anything reasonably suitable or necessary to afford such protection adequately. Certainly, insurance is a usual and proper means of protection. Until the custody is actually out of the receiver, he has the power to protect such property by insurance. The record here shows no actual possession by the trustee until after this fire and loss. The trustee was unwilling to take over the possession and operation of this property (then being operated by the receiver) until he could determine whether such property, because of incumbrances and running expenses, would be burdensome. At the time these three policies were issued to the receiver, he was in actual possession and was actually operating . the property and he was so doing under the orders of the court .and the trustee was re-framing from possession. In this situation,. the receiver had ample power and it was his duty to protect this property by insurance. Where an officer has actual possession and custody of property which it is his duty to protect and conserve, he has a sufficient insurable interest to afford such protection. This contention as to these three policies is not well founded.

Since there was no change of interest' or title, within the meaning of the policies, by the. election and qualification of the trustee, there was no legal need for the lienholders to notify the insurers. Therefore, the contention that such lienholders have lost any rights because of failure to give such notification is not sound.

III. It is also urged that the policies on which the Missouri State Life Insurance Company had union mortgage clauses ■ became ineffectual and unenforceable because of its assignment of the trust deed to the American Investment Company after the loss and before suit. "The clauses are as follows: “Loss, if any, payable to Missouri State Life Insurance Company, as mortgagee (or trustee) as such interest may appear. * * * On payment to such mortgagee (or trustee) of any sum for loss or damage hereunder, if this company shall claim that as to the mortgagor or owner no liability existed, it shall, to the extent of such payment, be subrogated to the mortgagee’s or (trustee’s) right of recovery and claim upon the collateral to the mortgage debt, but without impairing the mortgagee’s (or trustee’s) right to sue; or it may pay the mortgage debt and require an assignment thereof and of the mortgage.” There is neither pleading nor proof that the companies have offered to pay the loss and have demanded assignment, nor is there either pleading or proof of any offer to pay the mortgage debt, or of any demand that an assignment of the mortgage be made. The most that can be gathered from the record is that the appellants e[aim that the appellees are not in position to perform certain provisions of the contract which the appellants have indicated no desire to have performed. This clause does not prohibit the mortgagee from selling and assigning its debt, with its rights under the policies, particularly after the loss had occurred. This court has held that: “Unless expressly prohibited by statute, all ordinary business contracts, which are not necessarily personal in character, are assignable.” Iowa Bridge Co. v. Commissioner of Internal Revenue (C. C. A.) 39 F.(2d) 777, 780.

Another answer to the argument on this matter is that, apparently, it presupposes that the policies were void as to the trustee. As we hold, however, that the policies even as to the trustee are valid, there is no right of subrogation and no right of assignment involved in these cases. . Sun Ins. Office of London v. Heiderer, 44 Colo. 293, 99 P. 39; Hare v. Headley, 54 N. J. Eq. 545, 35 A. 445; Traders’ Ins. Co. v. Race, 142 Ill. 338, 31 N. E. 392.

The judgment in each of these cases should be, and is, affirmed.


text:
    CLOSE et al. v. BRICTSON MFG. CO.
    No. 8901.
    Circuit Court of Appeals, Eighth Circuit.
    April 6, 1931.
    Rehearing Denied May 16, 1931.

      See, also, 43 F.(2d) 869.
    Robert J. Webb, of Omaha, Neb. (Mulfinger & Webb and H. M. Kelley, all of Omaha, Neb., on the brief), for appellants.
    H. Y. Mercer and E. J. Lien, both of Minneapolis, Minn., for appellee.
    William M. Ciller, of Omaha, Neb. (M. E. Culhane, of Minneapolis, Minn., Frank L. Weaver, of Omaha, Neb., and R. A. Bielski and D. S. Elliott, both of Sioux Falls, S. D., on the brief), for Martin Engebretson.
    Before STONE' and BOOTH, Circuit Judges, and DEWEY, District Judge.
   STONE, Circuit Judge.

This is an appeal from an order charging appellants with certain expenses of a receivership in a case filed by them and in which they sought and obtained the appointment of a receiver, which appointment was by this court adjudged to be improper. The order from which this appeal was taken was entered June 24, 1929. The allowances ehargec! against appellants consisted of $1,000- allowed to the receiver for services, expenses, and attorney fees, and $8,295.81, repi*esenting amounts paid by the receiver upon orders of the court for storage, drayage, rental, and other matters in connection with the care and administration of the property in his hands as receiver.

Appellants make several contentions here.

I. The main contention is that this decree was not on a motion to tax costs and was without notice to appellants after the ease had been dismissed as to them.

In August, 1921, eight stockholders of the Brictson Manufacturing Company filed a bill in the District of Nebraska before Judge Woodrough wherein, inter alia, they prayed a receivership of that company. A receiver was appointed and apparently took possession on September 3, 1921. An appeal from such order was determined by this court in an opinion filed April 5, 1922. 280 F. 297. In that appeal it was determined thaH; the receivership proceedings were improper and that the order appointing the receiver be reversed “with directions that the receiver be required to return all property in his hands to those from whom he received it, that he be thereupon discharged, and that the bill be dismissed at complainants’ costs.” 280 F. 297, 301. The trial court (Judge Woodrough) failed to carry out the mandate.

In the meantime, various other stockholders had presented a petition in intervention to the trial court. The company filed a motion for action in compliance with the mandate. On that hearing, the court (August 3, 1922) announced: “* * * I therefore will suspend for the present the obedience to that part of the mandate which orders me to turn the money over to the party from whom the receiver got it, who was O. A. Brietson;” and “for the present, therefore, I merely order the money impounded in the hands of the receiver until further proceedings are had on the petition as to intervention;” and “the order will now he entered suspending action on that part of the mandate which requires the money to he turned over to Mr. Brietson and granting leave to file the petition of intervention.” An order was entered that day “that the petition of the plaintiffs, filed herein, be, and the same is hereby, dismissed at plaintiffs’ costs. * * * That leave be, and the same is hereby granted to file said petition of intervention, and distribution of assets in the receiver’s hands is hereby suspended until a hearing on same.” Case 7932, p. 22.

The result was a mandamus proceeding here to enforce the mandate. Therein this court found such writ justified, but, out of consideration to Judge Woodrough, did not at once order the writ, but said: “When he is advised of the views here expressed he will, doubtless, at once comply, and there will be no occasion to issue the writ; but on his failure to do so within a reasonable time it will be directed that the writ issue.” 284 F. 484,' 487. The mandate thereon is dated October 30, 1922, and was received by Judge Wood-rough on November 13, 1922. A few days thereafter, but of date November 13, 1922, the trial court made an order “that the receiver be required to return all property in his hands to those from whom he received it, and that he be thereupon discharged, and that the bill of complaint be dismissed at complainants’ costs.” On November 21,1922, the receiver filed a 'detailed report of receipts and expenditures. On the, same day this report was approved, and the receiver allowed $2,000 for his services. This was treated by the court as “the final report” of the receiver, the receiver was ordered to retain sufficient funds to pay the claims filed against him as shown in the report, and “upon complying with the order heretofore made by this court pursuant to the mandate of the Court of Appeals the said receiver be discharged.”

This action of the court resulted in another petition for mandamus setting forth the actions of the trial court since receipt of the mandate. This court ordered the writ on February 8, 1923, and it issued as of February 9, 1923. 289 F. 1020. It was received by Judge Woodrough as of February 14, 1923. The writ required - Judge Woodrough to “immediately” vacate, etc., the above order approving the reports and accounts of the receiver, “provided, however, that you as District Judge of the United States for the District of Nebraska, on application of the said Ralph M. West as such receiver, or of any of the parties to the suit upon notice to the parties to the suit, may after said order * * * has been vacated and set aside, take testimony, and therefrom determine and áseertain what expenditures, if any, made by said Ralph M. West as receiver were necessary to be made for the preservation of and for the benefit of the property so held in receivership through the hand of said Ralph M. West and thereupon allow to him as credits and as charges to be deducted from the funds in his hands as receiver such expenditures made before the filing of this application, and to tax any sum allowed said receiver for his services as such against petitioners in the cause in which he was appointed such receiver, to-wit, Close et al. v. Brietson Manufacturing Company, no part of same to be paid out of the funds under his control; and Provided, further, that for the sums so allowed such receiver and charged against the funds in his hands as such receiver and for any liabilities incurred by him as such receiver and remaining unpaid, you as respondent will, at the same time, enter judgment for recovery from and over in favor of The Brietson Manufacturing Company and against the petitioner in the cause of Close et al v. Brietson Manufacturing Company, in which said Ralph M. West was so appointed receiver.”

On February 16,1923, Judge Woodrough made an order, solely to comply with the above writ, wherein he set aside his order of November 21,1922, approving the report and accounts of the receiver, and stated that the receiver or any party to the suit might, upon notice to the parties to the suit, “make application for the taking of testimony and the determination and ascertainment therefrom by me what expenditures, if any, made by said Ralph M. West as Receiver were necessary to be made for the preservation of and for the benefit of the property so held in receivership through the hand of said Ralph M. West, in order that I may thereupon allow to such receiver as credits and as charges to be deducted from the funds in his hands as Receiver such expenditures made before the filing of the application for the writ of peremptory mandamus, and in order that I may tax any sum allowed said Receiver for his services as such against the petitioners in the cause in which he has been appointed Reeeiv'er, no part of the same to be paid out of the funds under his control, and in order that for the sums so allowed such Receiver and charged against the funds in his hands as Receiver and for any liabilities incurred by him as Receiver and remaining unpaid, I may as Judge of the United States Court at the same time enter judgment for recovery from and over in favor of the Brictson Manufacturing Company and against the petitioners in the cause of Close et al. v. Brictson Manufacturing Company.”

On March 9, 1923, the receiver filed such an application, verified on March 8, 1923. Therein he stated that he had incurred the expenses shown in his report and some since the report; that such were for the preservation and benefit of the property and should be allowed him as credits. Also he stated that he had been acting as receiver sinee September 3,1921, and should have an allowance for his services as such. He prayed an order “fixing a time and place for the hearing of this Application and that upon such hearing testimony be taken and that a finding be made that the expenses incurred by your Petitioner were for the preservation and benefit of the funds in his hands, and that he be allowed credit therefor and that a’ reasonable allowance for his services as such Receiver be made.”

Thereafter Judge Woodrough was disqualified, and Judge Hunger was designated by the Senior Circuit Judge (Walter H. San-born) by designation filed April 10, 1925.

Why the above application of the receiver lay dormant for more than two years does not appear. Prom statements in this record, in pleadings and otherwise, we gather that an “order to show cause” was directed to the receiver about October 7, 1925, to which be filed an answer verified on October 28, 1925. Neither such order nor the answer appears in this record.

On November 27,1925, the Brictson Manufacturing Company filed a motion to dismiss the application of the receiver to take testimony “which is based on his application verified by him on the 8th day of March, 1923, and his'answer to the court’s order to show cause herein is verified on the 28th day of October, 1925.” The grounds of such motion were, as stated, “because the same [application and answer] do not contain facts sufficient to entitle Ralph M. West as receiver to any relief because of expenditures made by him as receiver. And also because the same do not contain any facts showing any expenditures made * * * were necessary to be made for the preservation of and for the benefit of the property held by him in receivership.”

Oh December 7, 1925, the court entered an order setting for hearing, on December 21, 1925, the receiver’s “reports,” the order to show cause, and the answer thereto.

The record is barren as to what took place upon December 21, 1925, but upon the day following, December 22, 1925, the court entered an order denying the above motion of the company and directing the receiver “to make a report including in it in detail what property he received as such receiver, when such property was received and from whom received; also what expenditures the receiver has made for the preservation of the property received by him, what expenditures he has made for the benefit of such property, and any other expenditures; also what property the receiver has in his possession at the present time, showing same in detail. Such report to be filed on or before January 5, 1926.”

Such order provided further that “parties hereto” might file exception to such report within fifteen days of its filing, and that “the receiver or any of the parties may call up the report and the exceptions for hearing upon notice as of date to be fixed by the court for such purpose.”

-On January 5, 1926, the receiver filed his report covering “his doings from the date of his appointment, September 6, 1921, up to and including January 5, 1926.” In this report, the receiver set forth the property coming to and held by him, the -receipts from business transacted by him, and his various expenditures and two incurred liabilities not then paid. He alleged that all of such' expenditures were for the preservation and benefit of the property. Also he alleged his continued willingness to turn over the property, charged that such had been prevented solely by the company which refused “to come into this jurisdiction and accept its property,” and therefore claimed compensation for so holding the property.

On January 19, 1926, the company filed extended exceptions to this report of the receiver.

Beginning with September 27, 1926, and “continuing up to the 4th day of November, 1926,” there were hearings which resulted in an order of November 3,1926.

On November 3> 1926, an order was entered. This order recited that “the cause having been submitted” upon various named pleadings, which included “the receiver’s reports and the objection and exception thereto filed by the Brictson Manufacturing Company on January 19, 1926; the application of the receiver filed March 25, 1926, the answer of the receiver to the exceptions and objections of the Brictson Manufacturing Company, filed September 15, 1926, and also submitted upon the evidence offered at the hearing.”

Besides requiring the receiver to make designated dispositions of the funds and property in his possession, the order was, as to the reports and expenditures of the receiver, as follows: “That the accounts and reports of the receiver filed November 21, 1922, and January 19, 1926, be approved; and the expenditures made are approved as necessary to be made for the preservation and benefit of the property in the hands of the receiver or of the property in South Dakota; that the receiver shall pay out of the funds in his hands the balance due to the First National Bank of Omaha as rental of a safety deposit box for the papers and effects ofl the Brictson Manufacturing Complany and shall pay the sum of $2,378.75 to the Gordon Fireproof Warehouse So Van Company, as the amount of storage and drayage due to September 29, 1926; and shall pay to the Sovereign Camp Woodmen of the World the sum of $1,615.00 as rent for the receiver’s offices until October 1,1926; and shall pay to Gregerson Brothers, the sum of $1,043.00, as the balance due for services rendered to the receiver.”

The order recited further that:

“If an appeal shall be taken by any of the parties then the receiver shall make none of the payments nor surrender any of the property without a further order of this court. The receiver is authorized, pending the performance and execution of this decree, to continue to keep the goods stored at the present place and rate of storage and to maintain the office now held at the present rate of rental, and to continue to rent a safety deposit box at present rate of rental.
“The receiver is directed to file a further report showing compliance with this order and decree, and to execute this decree with all convenient speed, in the manner stated herein. The right to require a full compliance with the terms of this decree is reserved and jurisdiction is retained for that purpose, with the right to the receiver or any proper party to apply to the court for such relief as shall be necessary in carrying out the terms of this decree; jurisdiction is also reserved as to the taxation of costs, to be exercised upon the application of any parties interested.”

There were appeals from this order by the company which were determined in this court by an opinion filed April 2,1928. 25 F.(2d) 794. A portion of that opinion (page 806) quoted and adopted the opinion of Judge Hunger as to the allowances to the receiver of certain expenditures as being for the preservation and benefit of the property, and the order was affirmed. Thereafter the company applied to the Supreme Court for a writ of certiorari (278 U. S. 666, 49 S. Ct. 249, 73 L. Ed. 571), which was denied, and the mandate of this court issued February 25,1929.

The subsequent order of the court (here appealed from) shows the filing of a receiver’s report on April 15, 1929, and of objections thereto, but neither appeárs in this record. i

The next thing appearing in this record is the order now appealed from. This order was entered on June 24, 1929, and is as follows:

“This cause having come on further for hearing upon the receiver’s report filed April 15,1929, and the objections thereto', It Is Ordered that the receiver shall within ten days from this date, pay into the registry of this court the $9,516.16, being the principal of the amount found due to the Brictson Manufacturing Company as heretofore found due to said company in the decree of this court filed herein November 3,1926, with interest at seven per cent per annum of $5,872.23 from September 6, 1921, until said amount is paid into this registry of this court, and with interest on $3,643.93 at the rate c£ seven per cent per annum from February 28,1922, until said sum is paid into the registry of this court; it is further ordered the clerk of the court may retain from said sum $171.45 as his costs pursuant to order of Judge Booth filed July 22, 1927, and further ordered that the receiver be authorized to pay the premium on his bond as such receiver in the sum of $687.50 as shown by his report; it is further ordered that the receiver shall not pay nor allow the alleged claims of C. R. Squire, James Hobbs and Waldeman Klien set forth in the receiver’s report; It is further ordered that the claim of the receiver for payment of his expenses and services and for his attorney’s fees out of the moneys and property of the Brictson Manufacturing Company be disallowed ; that the receiver be allowed the sum o£ $1,000 for the full payment of his expenses, services and attorney’s fees, but to be taxed as part of the eosts against the plaintiffs in this case, no part of the said sum to be paid out of the fuijds under the receiver’s control; it is further ordered that the Brietson Manufacturing Company do have and recover from the plaintiffs in this suit the sum of $8,295.81, being the sums of $4,098.21 heretofore ordered paid by the receiver to the Gordon Fireproof Warehouse and Storage Company, $2,969.54 heretofore ordered paid to the Sovereign Camp of the Woodmen of the World, $140.00 heretofore ordered paid to the First National Bank, $122.06, heretofore ordered paid to Gregerson Bros, in accordance with the order for and writ of mandamus heretofore issued by the United States Court of Appeals of the Eighth Circuit, dated February 8, 1923, in the ease of Brictson Manufacturing Company, a corporation, plaintiff, v. J. W. Woodrough, respondent; it is further ordered and decreed that after making the payments out of the funds in his hands, as herein ordered, and as ordered by a prior order of this court dated April 17, 1929, the receiver shall deliver to the trustees of the Brictson Manufacturing Company, duly appointed by the district court of Douglas county, Nebraska, John F. Moriarity, John T. Mareell and Harry S. Byrne, all of the remainder of the monies, .funds, credits and properties, real [person] or mixed, and all assets of every character of the Brictson Manufacturing Company, upon the execution and delivery to the receiver by said trustees of a proper receipt for the same; it is further ordered that the receiver make a final report of his acts as such receiver, and shall file in this court with such- report the receipts of the parties to whom the payments or deliveries shall.have been made.”

This record contains a later order (November 27, 1929), made after the present appeal was perfected, approving the final report of the receiver and discharging him. The materiality of the inclusion in this record of this order is not clear. -

The main attacks upon the order of June 24, 1929, are that no application for taxation of costs was made and appellants had no notice of nor were present at the hearing which resulted in this order. It is true that the record does not show such application, notice* or presence.

As to lack of application for taxation of eosts. The only light in the record as to whether there was or was not such application is the recital in the order that '“this cause having come on further for hearing upon the receiver’s report filed April 15, 1929, and the objections thereto. * * * ” The matters here objected to in the order are not, accurately and technically speaking, “eosts.” They are expenses of the receivership. A receivership ease necessitates the ordinary court costs of any litigation and, in addition the expenses arising from administration of the property by a receiver which are of a character rarely or never appearing in other classes of litigation. This receivership proceeding was no exception. Herein the “costs” are, so far as we are advised, not yet determined and assessed. But, as to the expenses, this court early determined their disposition, leaving only the matter of amount open. In the above quotation from the writ of mandamus (February 8, 1923), it is shown that allowance for services to the receiver and expenditures necessary to be made or liabilities incurred by the receiver for the preservation ’of and for the benefit of the property, were to be allowed- against the petitioners or recovered by the company “against the petitioners in the cause.” Such order was made and is fully justified by Burnrite Coal Briquette Co. v. Riggs, 274 U. S. 208, 214, 47 S. Ct. 578, 580, 71 L. Ed. 1002, where the court said: “It is settled that where a receiver is appointed in a stockholders’ suit by a federal court having jurisdiction, and the appointment is held on review to have been wrongly made, the court may, in the exercise of its judicial discretion, require that the receivers’ charges be paid either by the corporation or by the unsuccessful plaintiff. See Palmer v. Texas, 212 U. S. 118, 132, 29 S. Ct. 230, 53 L. Ed. 435; Lion Bonding & Surety Co. v. Karatz, 262 U. S. 640, 642, 43 S. Ct. 641, 67 L. Ed. 1151. Compare Atlantic Trust Co. v. Chapman, 208 U. S. 360, 28 S. Ct. 406, 52 L. Ed. 528 [13 Ann. Cas. 1155].”

This record affirmatively shows the application of the receiver to have his expenditures and incurred liabilities allowed and adjudged to be for the preservation and benefit of the property and to have allowance made for his services.

As to notice or presence: As said above, the record shows neither. However, it does not show the contrary, either expressly or by proper inference. It is merely silent. Also the certificate to the transcript does not show that this record contains all that took place in connection with the order or the hearing upon which it was made. That certificate shows simply that the transcript here “is a true and faithful transcript of the pleadings and proceedings on file and of record in said Court, as mentioned in said praecipe and as indicated in the foregoing index.” The only thing called for in the praecipe which relates immediately to this order and the proceedings thereon is the order itself. The recitation in the order-is: “This cause having come on further for hearing upon the receiver’s report,” etc. There is no recitation as to any appearances by any parties. The situation is that the order of the court recites a “hearing”; the record here is barren of what preceded and led up to that hearing or what occurred thereat; no such matters were called for by the praseipe of appellants, and the certificate of the clerk to the transcript carefully refrains from stating that the record here contains all that took place as to such matters. We have no right or power to supply such omission and to hold this order unwarranted because of what took place or failed to take place at that hearing, when we have information, in this record, that there was a hearing, but absolutelyono further word of information as to such hearing. This situation is not new to this court, and the duty of this court has been more than once declared. In Rector v. United States, 20 F.(2d) 845, at page 859, this court said:

“Appellant contends these orders were not binding because they were made ex parte without notice or her knowledge. This contention is met by the state of the record here which does not show what took place. It was within the power of appellant to make this record unmistakable on this matter. As the record is hfere, there is no showing one way or the other. Therefore, we must presume that the court proceeded regularly (City and County of Denver v. Stenger, 295 F. 809, 814, this court) and that any notice required by equity practice was given or that, if the order was ex parte, appellant was given the notice required by equity rule IV and that appellant failed seasonably to move to reconsider, set aside or modify such orders.
“The burden is upon appellant to produce a record here which will show prejudice of her rights in the trial court (Bankers’ Trust Co. v. M., K. & T. Ry. Co., 251 F. 789, 798, this court) and she has failed in that respect as to this contention. Our conclusion is that these orders were within the jurisdiction of the court; that we must at least under this record hold thqm to have been properly made; and that they are binding upon all parties affected thereby (including appellant), subject to any right of appeal appellant may have.”

In Pulaski-Lonoke Drainage District et al. v. Missouri Pacific Railroad Company (C. C. A.) 44 F.(2d) 899, in an opinion by Judge Van Valkenburgh, a somewhat similar situation, respecting the presence of evidence in the court below, was presented, and the court at page 901 said:

“The question presented by these assignments revolves itself into the propriety of the court’s action in finding that there had been no change in plans since the judgment of November 21, 1921, and, therefore, that appellee’s plea of res adjudicata must be sustained. No evidence is contained in the record brought. Appellant, in brief, asserts that none was taken. Appellee insists that the record sustains the finding and judgment of the'trial court. We are remitted to the rule that it is the duty of the appellant to see that the evidence, if any, is in the record, or by appropriate action to show that no evidence was offered or received. An appellate court will. ordinarily not reverse a judgment simply because the record fails to show that testimony was offered or evidence taken. Barcklow v. Hutchinson, 32 N. J. Law, 195.
“In general, evidence will be presumed to have been adduced to support the court’s finding or judgment. 4 Corp. Jur. 55, § 1644.
“It must be conceded that the findings of the court, if legitimately made, support the judgment entered. The only reasons for believing that no evidence was heard ate the silence of the record, that the judgment entry does not state that testimony was introduced) that there is no showing of a waiver of the jury, and the statement made in appellant’s brief, to which there was no categorical denial.
“But when the record is silent it will be presumed that evidence was adduced, the burden devolving upon appellant to see that his record affirmatively supports his contentions, and ‘it is the general and well-settled rule that parties are presumed..to have waived a jury, even in the absence of written stipulation, whenever it appears that they were present at the trial in person or by counsel and made no demand for a jury.’ Edwards v. La Dow (C. C. A. 6) 230 F. 378, 380, 382. And where an issue of fact might be made for a jury, a defendant waives his right in this respect by allowing the court to try the matter without objection. Parkerson v. Borst (C. C. A. 5) 251 F. 242. These pronouncements are supported by a great many authoritative decisions. See, further, Kearney v. Case, 12 Wall. 275, 284, 20 L. Ed. 395; Gilman et al. v. Telegraph Co., 91 U. S. 603, 604, 23 L. Ed. 405; United States v. Harris, 106 U. S. 629, 635, 1 S. Ct. 601, 27 L. Ed. 290; Perego v. Dodge, 163 U. S. 160, 166, 16 S. Ct. 971, 41 L. Ed. 113; Rogers v. Life Ins. Co., 111 Ind. 343, 12 N. E. 495, 497, 60 Am. Rep. 701; International Development Co. v. Sanger, 75 Wash. 546, 135 P. 28, 29; Wolfman v. Corey, 258 Mass. 611, 155 N. E. 635.
“The judgment of the court recites that ‘on this day comes on to be heard the matter of fixing or increasing the assessment of benefits in the Pulaski-Lonoke Drainage District against the property of the defendant Missouri Pacific Railroad Company, and the plaintiff being present and represented by its attorney Grover Garner, and the defendant being present and represented by its attorney H. G. Combs, and the court after being well and sufficiently advised in the premises doth find/ etc. In'the face of this solemn utterance with its attendant presumption of verity, can it be assumed that the court made its important findings without evidentiary support? And can a judgment so rendered, after hearing, without protest or objection, and with presumed agreement, be overturned on appeal upon the bare statement in appellant’s brief that no evidence was heard? We think not.”

These contentions must, upon this record, be determined against appellants.

Another contention is that the record affirmatively shows that portions of the sums charged against appellants were for expenditures incurred after the appellants’ complaint had been dismissed and the defendant company given the right to receive back the property from the receiver, and that there is no showing in the record that the failure of the defendant company to secure the return of the property from the receiver was in any way chargeable to the appellants or that the company itself was not directly responsible therefor.

Appellants, and they alone, caused this property to be taken from its owners and put into the hands of a receiver. That aet was wrongful and was harmful to the owners. The wrongful custody so brought about necessitated expenditures and incurring of liabilities by the receiver to preserve the property. This court determined that such expenditures and liabilities should be ultimately borne by these appellants who had caused such invasion of the rights of the owners. This record and the records of other appeals of this litigation in this court show that, when this property might have been returned, the trial court, “suspended” distribution of the property until it could determine intervening petitions (which it permitted to be filed) which asserted claims against that property, that afterwards other claimants for the property appeared, and that it was not until the order noW appealed from was entered that a final determination was made as to whom the property should be handed over. Doubtless, this chain of events was never anticipated by appellants, but, obviously it could never have resulted in a prolonged custody by the receiver and the resultant expenses incurred by him for its protection had appellants not caused that custody. It may be that much of this expense resulted from the action of the court in not promptly and properly complying with the mandate of this court on the first appeal, but the appellants who created this situation, and not the company, which constantly has objected and opposed such in every way it could, must bear the burden of the mistakes of the court in a wrongful proceeding which they set in motion. If there were circumstances which might haVe shown that some part of this expense was caused by the company or by others than appellants in a way that it would have been inequitable for appellants to be charged therewith, the burden was upon them to make that showing and secure that relief. The only suggestion of such showing is in allegations of the receiver in his reports and in fragmentary extracts from the testimony before the court on its order of November 3, 1926. The record shows notice to attorneys for appellants of that hearing and the actual presence of one of such counsel, although he stated “we are nót before the court in any manner or means.” Appellants seem to have preferred to remain out of participation in the litigation. This was their privilege, but it has its consequences. They knew they were liable to be charged with these expenses because this court had so declared they would be. That liability did not cease when the order of dismissal was entered, because the custody of the receiver was not and could not be terminated thereby. He yet had an actual custody under the protection of the court in that proceeding. To protect their rights in this regard, they were bound to follow the proceedings to their conclusion. They have failed to make a showing what, if any, part of these expenses were caused by the company.

Another contention is that an item of $1,043 paid Gregerson Brothers should not have been charged against appellants. The reason asserted is that this record shows that this sum was a contingent fee paidffor recovery of an overpayment of income tax. The record, bears out the assertion of fact. Such a claim (refund of overpayment of tax) is different in its character from protection of physical property in custody of the receiver. While it is, in a sense, in protection of the property and certainly is for the benefit of the property yet it is unique in character and is more in the nature of an addition to the property. It seems inequitable to permit the property to profit by this refund and not pay the expense of securing it, and no claim is made that the- expense was unreasonable in fact or amount. We think this item should, because of its peculiar character and for that reason alone, he eliminated as .a charge against appellants. But this item is not shown to be any part of the sum now charged against appellants. In so far as the situation can be gathered from this record, the contrary is true. The record shows (report of receiver made January 5, 1926) payments by the receiver to Gregerson Brothers of nineteen items totalling $2,703.86. The record shows also various services, such as moving, auditing, and making tax return, which are unrelated to the tax refund services. The reeord shows also an order (November 3, 1926) for the receiver to pay to Gregerson Brothers ■“the sum of $1,043.00, as the balance due for services rendered to the receiver.” The recitation in the present order is “$122.06, heretofore ordered paid to Gregerson Brothers.” The above constitute the only light in this record as to what the $122.06 was for. It seems more probable that it was for services entirely separate from the tax refund, but, at any rate, there is complete lack of showing that it is a part of the fee of $1,043 paid on account of tax refund. Therefore this contention must be found against appellants.

Another contention is that the order appealed from reveals, on its face, a mistake in amount, which mistake can and should be rectified by this court. This part of the order is as follows: “It is further ordered that the Brictson Manufacturing Company do have and recover from the plaintiffs in this suit the sum of $8,295.81, being the sums of $4,098.21 heretofore ordered paid by the receiver to the Gordon Fireproof Warehouse and Storage Company, $2,969.54 heretofore ordered paid to the Sovereign Camp of the Woodmen of the World, $140.00 heretofore ordered paid to the First National Bank, $122.06, heretofore ordered paid to Gregerson Bros, in accordance with the order for and writ of mandamus heretofore issued by the United States Court of Appeals of the Eighth Circuit, dated February 8, 1923, in the ease of Brictson Manufacturing Company, a corporation, plaintiff, v. J. W. Woodrough, respondent.”

This quotation shows clearly an ambiguity, as it reveals that the court intended to permit recovery for the total of four items which it separately designates by creditor and amount. Whether this ambiguity arose merely through mistake in addition or from inadvertent misstatement of the amount of one or more of the items, the record gives nó hint. However, the source of this mistake can be readily discovered by the trial court and rectified by him, since the order shows that each of the items had been theretofore allowed and ordered paid. As the truth is in the record of the trial court and is not here, the proper procedure is to remand the case upon this sole matter for such correction as may comport with the truth as so shown and with this opinion, and that will be done. Errors in computation may be corrected. Woodruff & Co. v. United States (C. C.) 154 F. 861. If, as we think must be the situation, the record reveals without question where the error lies, the court may make this correction with -or without notice to the parties as the justice of the case may require. Odell v. Reynolds, 70 F. 656, 661 (C. C. A. 6).

Conclusion.

The ease will be remanded for the sole purpose of the above correction, and the order, when and as thus corrected, will stand as affirmed.

      In his report filed January 5, 1926, the receiver alleges that the delay -was caused by the "refusal of said company ['Brictson Manufacturing Company] to come into this jurisdiction and accept its property.”