COLUMBIAN INSURANCE COMPANY v. STEVENS

COLUMBIAN INSURANCE COMPANY against STEVENS. Court of Appeals; April, 1868. Costs.—Liability of Receiver. In an action prosecuted by a receiver to collect money to increase the fund in his hands, if the defendant prevails he is entitled to costs out of the fund, immediately. He is not required to accept a payment pro rata with the general creditors of the estate. An order denying a motion that a receiver pay costs to which a party defending an action prosecuted by such receiver has become entitled, is not discretionary in such sense that it cannot be reviewed in the court of appeals. Appeal from an order. This action was commenced in the supreme court in the first district by the Columbian Insurance Company, on January 9, 1866. On the 23rd of the same month, and before the defendant appeared, receivers of the plaintiff’s property were appointed, and the action was thereafter prosecuted by the receivers and their successor, to trial. The action was an ordinary suit at law for the recovery of money only. On a trial before a referee, the defendants obtained a report upon which judgment was entered in their favor for their costs of suit. The defendants then applied at special term for an order that the receiver pay such costs out of funds in his hands ; showing by affidavit that he had funds in his possession as such receiver to a much larger amount. The nature of the receivership was not shown by the papers, nor did it appear to what extent there are claims of creditors or others to the funds in the hands of the receiver, This motion was denied at the special term, and the order denying it was affirmed at the general term. The defendants now appealed from the order of the general term to the court of appeals. Ira D. Warren, for the appellants. I. Under sections 317 and 321 of the code of procedure, the receiver, who became the owner of the cause of action after the suit was brought, became liable for the defendants’ costs, in the same manner as if the action had been commenced by him. The defendant was therefore entitled to an order directing him to pay them (Conger v. Hudson River R. R. Co., 7 Abb. Pr., 255; Colvard v. Oliver, 7 Wend., 497; Carnahan v. Pond, 15 Abb. Pr., 283 ; Camp v. Receivers of Niagara Bank, 2 Paige, 283 ; Jordan v. Sherwood, 10 Wend., 122; Giles v. Halbut, 12 N. Y. [2 Kern.], 32 ; Schoolcraft v. Lathrop, 5 Cow., 17). It seems clear that the receiver, being a “trustee of an express trust, expressly authorized by statute to sue,” is bound to pay the defendants’ costs out of the fund, unless the court direct him to pay them personally; and that the court is bound to order them paid out of the fund, as no misconduct is shown on the part of the receiver. II. The receiver became the owner of this cause of action three weeks after it was commenced, and continued to prosecute it until a final determination of the action in favor of the defendant. Can a receiver, with plenty of funds in his hands, incur an. obligation in his capacity as receiver, and then refuse to pay it out of the funds in his hands \ Will the court permit a suit to be prosecuted against a party for the benefit of the fund in the receiver’s hands, and, when it results in a failure, refuse to charge that fund with costs % We submit that, on a proper case being presented (as there was here), the defendants are entitled to the order of the court directing its officer having custody of the funds to pay the costs, as a matter of strict legal right; and that, where the receiver seeks by a suit to increase the funds in his hands, and fails, that fund should be charged with the costs ; and that section 317 of the code makes them chargeable on the fund expressly, unless the court order the receiver to pay them personally. III. The order is reviewable. 1. It was not discretionary. The receiver is an officer of the court; the fund of the plaintiff is, therefore, in the hands of the court. Can the court incur an obligation in the prosecution of a suit to increase the funds in its hands, and then, if it fails, say to its unfortunate victim, “It is discretionary with me whether I pay you or not, and I am discreet enough not to do it ?” We submit this would be monstrous injustice and inequity, and that the supreme court has no such discretion ; and that this court is the only court having the power to correct it. 2. This order is reviewable under subdivision 3 of section 11 of the code. It is a “summary application in an action after judgment,” and it “affects a substantial right” (Bank of Geneva v. Reynolds, 33 N. Y., 160; People v. New York Central R. R. Co., 29 Id., 423). Thomas G. Shearman, for the respondents. I. The appeal should be dismissed. The order of the general term is not reviewable in this court. 1. Assuming that the court below had a power to make the order for which the defendants applied, it was certainly a matter within its discretion. The defendants had recovered judgment, and could have issued execution in the ordinary way. This was all to which they were entitled as a matter of right. It is not in the regular course of judicial business to grant an order directing the payment of a judgment. It may be that leave might have been required to issue an execution, the assets being in the hands of receivers ; but this was not the relief for which the defendants applied. They asked for an order of a peculiar character, not to remove obstacles to the exercise of their absolute rights under the judgment, but to obtain a species of relief which never was obtainable under an ordinary money judgment as a matter of course. Such relief can only be asked as a favor, not as a right. 2. The decision of the court below. against an application for a favor is not. appealable (Spaulding v. Kingsland, 1 N. Y. [1 Comst], 426; King v. Merchants’ Exchange Co., 5 N. Y. [1 Seld], 547; Candee v. Lord, 2 N. Y. [2 Comst.] 269 ; Lansing o. Russell, Id., 563; Briggs v. Vandenburg, 22 N. Y, 467). 3. The order applied for by the defendant was of much the same nature as an order requiring a receiver to file security for costs. It was designed to effect the same purpose after judgment, as an order of that kind would effect before a judgment. Such an order, it is now settled, is not appeal-able (Briggs v. Vandenburgh, 22 N. Y., 467). II. The court below had no power to make the order sought by the defendants’ attorneys. 1. The statute under which the receivers were appointed, and which governs them, and the court in directing them, expressly prohibits any preference given to judgments, except so far as they are liens upon real estate (2 Rev. Stat., 470, § 79). And it is only by virtue of a, judgment fox these costs that they can recover at all. 2. The statute provides for pro rata payments in all cases, except those particularly mentioned therein. A judgment for costs is not one of the excepted and preferred claims (2 Rev. Stat., 470, § 79). III. There is no difference in this respect between the costs of an unsuccessful defense, and of an unsuccessful prosecution. In the former case, no one pretends, or has ever claimed, that the costs are to be paid in full, out of the assets of an insolvent corporation. But if the costs in either case are to be paid, the costs in both must be. 1. There is no difference made by the language of the statutes. 2. There is no difference in principle or upon grounds of expediency or public policy. The evil of an unjust defense is greater than that of an unjust claim, and it is of far more frequent occurrence. IV. The rights of a defendant in this respect are abundantly protected by statutory provisions. 1. The defendants might have obtained security for costs (Code, § 317). 2. If the action has been carried on in bad faith, the receivers may be made personally liable (lb.). V. If the defendants could not avail themselves of these provisions, it must be for reasons which would make it no more than just that they should stand on the same footing as other creditors. They are not the only persons who suffer by the insolvency of the company. And there is no peculiar equity in their case which should give them a preference. Like many other defendants, they have defended a claim at some expense, and at the end find that the plaintiff is insolvent. It is hard, no doubt, but it is a hardship of every-day occurrence ; and often occurs where a claim is unreasonably pressed, which is not the case here. This suit has been maintained in good faith, and on reasonable grounds. Part of the claim (the notes) has been settled. VI. It hás been attempted by the defendants’ counsel to compare this claim to one founded upon an express contract with the receivers; and it was asked whether they could drive their clerks to accept a pro rata allowance with creditors of the company. The answer to this is easy. 1. A claim for costs acquired in hostility to the receivers is not founded upon any contract with them, express or implied. 2. If there was any contract in the case, it was with the company, not with the receivers. The ac-i tion went on in the name of the company. If the defendants desired to establish any claim against the receivers, as distinguished from the company, they should have compelled a substitution of the receivers as parties plaintiff. 3. A clerk who continued to serve the company after the appointment of the receivers, and should make out his bills to the company only, would have to take his pay in the same manner as any other creditor. The reason why one who serves the receivers may recover his compensation in full, is, that he serves the court, of which the receivers are agents, and acts for the benefit of the creditors ; whereas one who serves the company, acts for the benefit of the stockholders. VII. It would be peculiarly unjust to the other creditors of the company to allow a preference in this case for the allowance of $800, that being not so much a matter of strict debt and an absolute right, as a favor granted to the defendants by the court, with a view to increase their pro rata allowance, as has "been done in other cases. [MAJORITY — Woodruff, J.] Woodruff, J. The right of the defendants to have judgment for their costs in such an action as the present, brought against them for the recovery of money only, is absolute; as well by the law before, as by that since the code of procedure. There is no claim, nor ground of claim, that the allowance of costs in the action was discretionary. The liability of the receiver, in whom the alleged cause of action became vested after the summons herein was served, and by whom the action was prosecuted, is made, by section 321 of the code, the same as if he had caused himself to be made a party. The questions here are, therefore : 1. In an action by a receiver, for the collection of a money demand, instituted or carried on for the enhancement of the fund, for the benefit of those to whom it is ultimately to be paid, is the defendant entitled to costs to be paid to him immediately, or must he stand as a general creditor to await the final administration, and receive only, as the case may be, his distributive share of the fund, pro rata, with those for whose benefit he has been subjected to a groundless litigation % 2. Is the question stated addressed to the discretion of the court, in such sense that no appeal lies to this tribunal from the decision made below % It was conceded on the argument that the costs in question are chargeable upon, and are to be collected out of the fund ; this could not well be denied ; and yet in a case in which it does not appear by anything stated in the papers that there are other claims on the fund of any sort, except the interests of the stockholders of the company, it would seem to follow, as of course, that the receiver should have been directed to pay these costs. Such an order is the-appropriate mode of reaching funds in the receiver’s hands. He not being in form a party to the action, no execution could reach the property he holds; and being the custodian of the fund as an officer of the court, he is subject to immediate direction to pay it to the party entitled. If it be assumed that the company was insolvent, and that the funds which the receiver holds or collects may not prove sufficient to satisfy all the creditors of the company, this does not, in my opinion, upon clear and just rules governing the subject, impair the defendant’s right to be paid in full; the fund being confessedly sufficient. The receiver is, pro hac vice, the representative of the company, its creditors and stockholders. The action is prosecuted for the increase of a fund which is to be paid to them. It is not according to any rule of justice or equity towards third parties, that actions like the present should be prosecuted by the company or such representative, otherwise than at the expense and risk of the fund which it is sought thereby to increase. In my opinion the right of the defendant to this protection and indemnity against groundless prosecution is clear; and it is not necessary to invoke section 317 of the code for its maintainance, further than to say that its provisions warrant the charge of the costs upon the defendants ; and that such charge should be absolute, and prior to the claims of those for whose benefit this action is prosecuted is the rules of equity. Whether section 317 imperatively entities the prevailing party to such priority of payment in all cases mentioned in that section, it is unnecessary in this case to decide. If the views thus expressed are in conformity with established rules relating to the subject, as they are in my judgment conformable to what is obviously just, then it was not a matter of discretion to refuse the order sought. The rule was applied by Chancellor Walworth to a case like the present, in which it did appear that the corporation was insolvent (Camp v. Receiver of Niagara Bank, 2 Paige, 283), where the receivers continued the prosecution of a suit at law which was at issue before their appointment. In giving his opinion he says, “If the receivers did not think it for the interest of the creditors to run the risk of having the costs charged upon the fund, they should have-abandoned the suit, and then the petitioner would only have been entitled to a share ratably with the other creditors. The petitioner is entitled to his costs down to the time of the nonsuit, to be paid out of the funds in the hands of the receivers,”—and he made an order to that effect. In my opinion the scheme and principle proposed by the chapter of the code in relation to costs is, that where costs are allowed, they should be paid by the fund or a party who would be benefited by a counter judgment ; and I think that this case is not within any exception to the rule. To the suggestion that the statute (2 Rev. Stat., 470,. § 79), will not permit the reference sought, it must suffice-to say that it is not sought to give a preference to the defendants in the payment of a debt of the company as such; but only to require the fund to bear and pay an expense-incurred for its own benefit or increase. Nor is it any answer to say that defendants often fail to collect their costs of a successful defense when the plaintiff is insolvent, and that therefore the order made below works no unusual hardship. Where the plaintiff has funds, the defendant is always entitled to collect, and does collect his costs. Row the beneficial party plaintiff has funds. It may be' said that this rule places it in the power of the receivers to waste the whole of the assets in their hands', in groundless litigation, and successful defendants are-paid their costs while creditors may get nothing. On that subject I answer,—when the receiver’s accounts are passed, there will be abundant opportunity for creditors and others to inquire whether he has acted with due regard to their interests ; and the right to require that he personally pay costs which he ought not to have incurred is not confined to the parties to the action (Colvard v. Oliver, 7 Wend., 497). The question whether an unreasonable allowance was or was not made to the defendant, is not before us, we must assume that the case called for the allowance made. The order appealed from should be reversed. All the judges concurred. Order reversed.