Case Name: Cheney v. The Maumee Cycle Company et al.
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1901-03-12
Citations: 64 Ohio St. 205
Docket Number: 
Parties: Cheney v. The Maumee Cycle Company et al.
Judges: Minshall, <3. .-J., and Williams,, Riie-plt, Davis and Shauck, JJ., concur.
Reporter: Ohio State Reports, New Service
Volume: 64
Pages: 205–215

Head Matter:
Cheney v. The Maumee Cycle Company et al.
Receiver for insolvent corporation — “For all the property and assets,” etc. — Order of appointment embraces real estate,,when —Mortgage of realty not delivered to recorder before receiver appointed not a lien against receiver, when — Assets of such realty go to general creditors.
1. An order appointing a receiver for an insolvent corporation which in terms makes him “receiver for all the property and assets of the company, of every kind and description, wherever located,” -is sufficiently broad to embrace the real estate of the corporation, and is not invalid as respects such real estate because of the fact that the petition and motion in the case in which the order is made do not in terms refer to real estate, but, allegations otherwise being sufficient, prays “that the court will appoint a receiver to take charge of all the property and assets of the company.”
2. A mortgage of real property which has not been delivered to the recorder of the proper county for record before the appointment of a receiver for the property of the mortgagor, is not a valid lien upon the property as against the receiver, and the receiver, for and in the interest of general creditors, is entitled to the proceeds of sale of such mortgaged premises in preference to the mortgagee.
(Decided March 12, 1901.)
Error to the Circuit Court of Lucas county.
Plaintiff’s action was brought in the common pleas of Lucas to foreclose a mortgage given to him by the Maumee Cyele Company, January 14, 1896, to secure the payment of a note for $6,266.00 due in two years with interest. The mortgage covered lands in Toledo on which was situate the factory building of the defendant Company, and was filed for record in the recorder’s office July 30,1898. Titus B. Terry,.receiver, and the First National Bank of Toledo, were made defendants. Terry filed answer and cross-petition.
By the record in this case and in No. 6795, between the same parties, it appears that on June 15, 1898, the defendant bank recovered a judgment against the Company for $3,309.62 and that an execution that day-issued was levied by the sheriff upon the personal property of the Company, consisting, of all the machinery, manufactured and unmanufactured stock, being substantially all the tangible personal property of the corporation and necessary in the transaction of its business, and the sheriff took possession of the same. The Cycle Company Avas at the time insolvent. Afterwards, but upon the same day, the bank filed a petition for the appointment of a receiver, setting up its judgment and execution, the levy thereof; that the Company is indebted to the bank and other creditors to the sum of $27,000.00 and upwards; that it is unable to meet its obligations as they mature and is insolvent; that if its business can be temporarily continued and its property kept together, to the end that it may be sold as a going concern more can be realized therefrom than in any other way, and if the property is alloAved to remain in the hands of the sheriff and be sold on execution the same Avill be sold at a great sacrifice and the good will of the business as a going concern destroyed, to the damage of all the creditors of the corporation, and praying that a receiver be appointed to take charge of all the property and assets of the Company and to carry on the business until such time as the same can be sold for the benefit of the creditors, and that the property, assets and good will may be ordered sold, etc., etc. Thereupon, on due notice to the defendant Company and by its consent, a receiver was appointed and ordered to take charge of all the property and assets of the Company of every kind and description, wherever located, to col lect outstanding debts, etc., to carry on, conduct and manage the business of the Company, etc., subject to further order. The sheriff was ordered to turn over to the receiver all the property levied on by him, which was done, and all the property of the Company, including the said factory building, machinery and real estate, passed into the possession of the receiver and so remained until sold as hereinafter stated.
On November 22, following, the plaintiff, Cheney, having become a party, filed a motion to vacate and set aside the order of appointment, and the discharge of the receiver, on the ground that the petition was not sufficient to authorize the appointment of a receiver and that the court had no jurisdiction to appoint the receiver. Cheney was, at the time the receiver was appointed, .and continued to be, a director of the Company and its president, owning one share of stock and was a creditor by reason of his note and mortgage. The motion was overruled to which proper exception was preserved.
Under the order of the common pleas a sale of the premises was made and the proceeds brought into court for distribution. Trial was afterwards had in the common pleas and from its judgment an appeal was taken to the circuit court whose judgment is brought by the plaintiff to this court for review.
Seney & Johnson, for plaintiff in error.
If “all the property and assets of every kind and description wherever located” should be construed to include the real estate, the order thus made by the court would be void for want of jurisdiction, in so far as it embraced the real estate, for the reason the subject matter, viz., real estate, was not brought before the court by any statement or claim of the par ties. Spoors v. Coen, 44 Ohio St., 497; 20 Am. and Eng. Enc. of Law, pages 83, 100, 327; Beach on Receivers, Sec. 508; Crow v. Wood, 13 Beavan’s Reports, 273.
Hence we insist that the receiver in this case was never appointed over the real estate upon which the mortgage was given, and hence the mortgage is the first best lien upon the premises, notwithstanding it was not filed for record until after the appointment of the receiver.
For it again must be borne in mind that a receiver with such limited powers is solely and alone a representative of the corporation, and no one else. This unrecorded mortgage thus being clothed by being recorded before the receiver had any additional powers, viz., to represent creditors upon the order being obtained to sell the property for their benefit, it thus became by being recorded a legal lien upon the property, not only valid against the corporation but against every one else. Smith on Receivership, Sec. 62, page 145; lb. Sec. 38, pp. 112, 113; Matthews v. Cooper, 49 N. Y. S. R., 792; Van Rown v. San Francisco, Sup. Ct. 58 Cal., 358; Davis v. Bonney, 89 Va., 755; Smith on Receivership, part —, Sec. 44, page 126; Bank v. Bank, 106 U. S., 236; Smith on Receivership, Sec. 59, page .142; Sec. 67, page 149; Gill v. Finney’s Admr., 12 Ohio St., 38; Montgomery v. Merrill, 18 Mich., 338.
It was urged in the court below and it appeared to have considerable force in that court that the receiver was entitled to this fund as against the mortgage of the plaintiff, for the reason that the mortgage was not left with the recorder for record before the receiver was appointed, and this by virtue of Section 4133 of the Revised Statutes.
If what we have attempted heretofore to impress upon the court as the reason why the decree of the circuit court should be reversed should avail nothing, we still maintain that this section of the statute has no application to the case at bar, and that the decree of the circuit court should be reversed on well-known equitable principles. Beach on Receivers, Sec. 324; Stansell v. Roberts, 13 Ohio, 148, 155; White v. Denman et al., 1 Ohio St., 110; Fosdick v. Barr, 3 Ohio St., 471; Bloom v. Noggle, 4 Ohio St., 49; Betz v. Snyder, 48 Ohio St., 492; Wright v. Bank, 59 Ohio St., 80.
Smith & Beckwith and R. S. Holbrook, for defendant in error, Titus B. Terry, receiver.
The general rule relative to the form of orders appointing receivers is laid down in High on Receivers, Sec. 87; Beach on Receivers, Sec. 508.
It is familar practice that orders appointing receivers for large manufacturing plants, railways and other similar properties, describe the property placed in the hands of the court in general terms, and that no particular nor definite description of the real estate over which said receivers are so appointed is ever made in such orders. The same is also true of the form of deeds of assignment. Bank v. Werk, 9 Dec.(Re.) 770 (17 B. 124); Barton v. Morris, 15 Ohio, 408.
But there is another aspect of this case which also renders plaintiff’s position relative to the insufficiency of the order appointing the receiver wholly untenable. At the time of the appointment of such receiver, the Maumee Cycle Company was insolvent and had ceased to prosecute the objects for which it was created. Hence under the principles laid down so clearly and emphatically by this court in the case of Rouse v. Bank, 46 Ohio St., 493, “the rights of the creditors” of such company, thereupon, “became fixed instantly and equally.” Its property then became a trust fund for such creditors, a fund in which their equities were equal. Belmont Nail Co. v. Columbia Iron & Steel Co., 46 Fed. Rep., 8.
In view of the foregoing, we submit—
1. That the order of the court appointing the receiver herein was sufficient by its terms to include the real estate of the defendant company.
2. That such order and the possession taken thereunder by the receiver of the real estate of the defendant, was clearly sufficient as against the plaintiff, a director and president of such defendant.
3. That the insolvency of the company and its failure to perform its corporate functions' immediately impressed all its property with a trust for the equal benefit of its creditors and vested the court with complete jurisdiction over the same, to the exclusion of any creditor seeking to assert a preferential lien thereon.
Cases involving the construction of statute as applied to unrecorded mortgages have been brought before this court in almost every conceivable form, and in all such cases a uniform line of decisions has been rendered, holding substantially that while unrecorded mortgages are good and effectual between the parties, they are “entirely nugatory as to third parties, both at law and in equity, until théy are recorded.” Fosdick v. Barr, 3 Ohio St., 471, and earlier cases cited; Bloom v. Noggle, 4 Ohio St., 45; Erwin v. Shuey, 8 Ohio St., 509; Betz v. Snyder, 48 Ohio St., 492.
This brings us to a brief consideration of the character and functions of a receiver. Bank v. Bucking ham, 12 Ohio St., 419; Railway Co. v. Sloan, 31 Ohio St., 1; High on Receivers, Sec. 5.
The receiver,' while representing the court appointing him, likewise represented the creditors of the company, substantially the same as an assignee.
While it is true that there are no decisions in our own state covering this exact point, yet we are favored by recent decisions of the courts of other states, which clearly establish the principle for which we contend. They are briefly as follows, viz.: Hebberd v. Land & Cattle Co., 55 N. J. Eq., 18; Graham Button Co. v. Spielmann, 50 N. J. Eq., 120; Wilcox & Howe, In re, 70 Conn., 220; Bayne v. Brewer Pot. Co., 90 Fed., 754; Farmers Loan & Trust Co. v. Minneapolis, 35 Min., 543; High on Receivers, Sec. 454; Smith on Receivers, Sec. 231.

Opinion:
Sfeae, J.
The case having been fully and adequately reported by the circuit court (20 O. C. C., 19), opinion bv Haynes, J., but little more is necessary here than to state the conclusions to which this court has arrived. .
The questions arising upon the record are: Did the order of the court that appointed the receiver include the real estate of the defendant Company? And if it did, is the receiver entitled, to the funds arising from the sale of the mortgaged property in preference to the mortgagee by reason of the fact that the mortgage, though executed before the appointment of the receiver, Ayas not delivered to the recorder for record until after such appointment?
1. Objection is made to the sufficiency of the order to embrace the real estate because neither the petition nor the motion on which the receiver was appointed describes .or refers to real estate. True it is that real estate is not specifically mentioned in either the petition or motion, but the petition,' having set forth adequate grounds for the appointment, including the allegation that if the personal property seized in execution, being all the personal property and assets, should remain in the hands of the sheriff and be sold under the writ, the good will of the business as á going concern would be destroyed (thus showing that it was.no longer able to carry on its. business), prays that the court will appoint a receiver to take charge of all the property and assets of the Company. Then follows the order making the appointment of a receiver for all the property and assets of the Company, of every kind and description, wherever located. He was thereupon authorized to collect debts, to conduct and manage the business heretofore carried on by the Company, etc., etc. The defendant Company, and all persons having any property belonging to it, were ordered to surrender the same to the receiver. Thereupon the receiver, having qualified, proceeded to take possession of all the property of the Company of every kind and description, including real estate, and to further carry out the order of the court. All this was done with the full knowledge and consent of the Company, and without any suspicion of fraud or improper practice. How could a creditor of the Company be heard afterward to object? Most of all, how couid the president of the Company be heard? We think he could not. The petition sufficiently describes, and the order sufficiently includes, the property sought to1 be subjected to the jurisdiction of the court, and satisfies the rule that the order should distinctly state over what property the receiver is appointed in order that persons dealing with him may know what property is in possession of the court by its officer. (High on Bee., sec. 87.) It is all the property. Nor is the validity of the order affected by the fact that the petition does not specifically refer to real estate. Even though it be defective for lack of fullness of statement, such defect would be cured by the appearance and consent of the Company. (High on Bee., sec. 86.) The order is as full and definite as is usual in orders appointing receivers for railways, large manufacturing concerns, and the like, and as full as many deeds of assignment and other conveyances which have been sustained by the courts. High on Bee., sec. 453; Barton v. Morris, 15 Ohio, 408; Bank v. Werk, 17 W. L. B., 174. Slight imperfections in the pleadings, or irregularities in the proceedings, if they exist, become unimportant in view of the well established general rule that the property of an insolvent corporation Avhich has ceased to do business, and to carry out the objects of its creation, constitutes a trust fund for the equal benefit of its creditors, and the conclusion which inevitably follows that, upon the filing of the petition and service on the corporation and its answer admitting the truth of the charges and consenting to the granting of the prayer, the court's jurisdiction attached to all the property of the corporation, and its poAver to administer it for the benefit of all the creditors was complete. Rouse v. Bank, 46 Ohio St., 493; Belmont Nail Co. v. The C. I. & S. Co., 46 Fed. Rep., 8.
2. It is to be noted that the mortgage, though executed months prior to the commencement of the action, Avas not delivered to the recorder for record until July 30,1898, forty-five days after the appointment of the receiver. The distinct provision of section 4133, Bevised Statutes, being that "All mortgages shall take effect from the time the same are delivered to -tlie recorder, of the proper county for record," it would follow that this mortgage could not operate as a lien to affect the rights of creditors prior to the above, date, nor, as against the receiver, provided the receiver represents the general creditors. That an assignee by virtue óf. a general assignment for the benefit of creditors so represents creditors, and that a mortgage of real property, not deposited with the recorder for record until after the taking effect of the assignment, creates no lien as against the assignee and the creditors, is distinctly held in Betz v. Snyder, 48 Ohio St., 492. The relation of an assignee and a receiver to the property of an insolvent debtor is in many respects similar. The one obtains title to and authority and power over the property by reason of the joint act of the debtor and the court; the other obtains a liké authority by the act of the court alone, not having the title, but standing as the ministerial officer of the court, his relation to the property being much like that of a sheriff or master in chancery. Bank v. Buckingham, 12 Ohio St., 419. His appointment is an equitable remedy, bearing the same relation to Courts of equity that proceedings in attachment bear to courts of law, the appointment being treated as an equitable execution. The purpose is to secure the means for satisfying the final order and judgment of the court in the action, and the effect of the seizure is to place the property seized in the custody of the court. Railroad Co. v. Sloan, 31 Ohio St., 1. By express provi - sion of section 5590, Revised Statutes, the receiver is given power, under the control of the court, to take and keep possession of the property, and generally to do such acts respecting the property as the court may authorize. This statutory provision establishes a legal Tight, and this legal right is not affected by the fact that it is conferred in an action in its nature equitable, nor by the fact that it is to be enforced against a claim which would have been good as between the claimant and the debtor. It follows from this that the effect of the appointment, and the seizure of the property by the receiver, was to fasten the claims of creditors upon it and to give that officer control over it for the benefit of creditors, and in this respect his relation to it was, for all practical purposes, the same as that which an assignee would have had. The property thus sequestered was held by the receiver as effectually as an assignee could have held it, .or as creditors could have held it by attachment or levy. In no other way than through him could the rights of creditors be worked out, and, in this aspect of the case, he represented the creditors rather, than the debtor. Graham Button Co. v. Spielmann, 50 N. J. Eq., 120, Hebberd v. S. L. & Cattle Co., 55 N. J. Eq., 18; In re W. & H. Co., 70 Conn., 220; Farmers' L. & T. Co. v. M. E. & M. Works, 35 Minn., 543; Bayne v. Brewery Pottery Co., 90 Fed. Rep.; 754; High on Rec., Sec. 454; Smith on Rec., secs. 230, 231.
We think that, upon principle as well as upon the above authorities and.many others of like import which might be cited, the right of the receiver'to the property in dispute was a legal right to its possession with authority to manage it and dispose .of it for the benefit of creditors generally; that it antedated the taking'effect-of plaintiff's mortgage, and--that, therefore,, as1 between the plaintiff'and'the receiver, the proceeds of the sale belong to the ffitter. '.
We find no error in the record in this case nor in case No. 6795, and both judgments will be
Affirmed.
Minshall, <3. .-J., and Williams,, Riie-plt, Davis and Shauck, JJ., concur.