Court Opinion

ID: 8747873
Source: CourtListenerOpinion
Date Created: 2022-11-26 11:14:30.098874+00
Date Added: 2024-06-11T17:00:46.374028
License: Public Domain

MORROW, Circuit Judge
(after stating the facts as above). The specifications of error present the single question whether the facts alleged in appellants’ bill of complaint constitute such a cause of action as would entitle them to the equitable,relief sought; in other words, have the appellants a lien upon the property or funds in the hands of the receiver, Bacorn, superior to that of other creditors? We think this question must be answered in the negative. It is well settled that when a corporation becomes insolvent, and the corporate assets have passed into- the hands of a receiver, such assets constitute a fund for ratable distribution among its creditors; and no creditor can, by suit commenced or judgment recovered after the commencement of the proceedings to secure the appointment of a receiver, secure a lien upon the corporate assets that will entitle such creditor to priority of payment. Thompson, in section 7060 of his work on Corporations, states the reason for this rule to be that “the proceeding in which the receiver is appointed is a judicial assignment of the property of the insolvent for a ratable distribution, and no creditors are allowed, therefore, by any act subsequently done, to get liens or preferences in respect of it.” It would, indeed, seem anomalous that a lien adverse to the rights of the receiver could be obtained, and thus interfere with one of the objects of his appointment in the control of the distribution of the assets.
In Cowan v. Plate Glass Co., 38 Atl. 1075, the supreme court of Pennsylvania held that a creditor of a private business corporation, who had not obtained judgment against it until after appointment of a receiver, on adjudication of its insolvency, to take possession of all its *619assets, was not entitled to a preference, though his claim was for money advanced to pay wages and freight bills to keep the business running. In discussing the effect of the appointment of the receiver the court said:
“To avoid sacrifice of the assets by executions and sales on many claims, with the attendant costs, the court took possession of the property, that it might be turned into money for equitable distribution among all the creditors, as'they stood on March 19, 1891 (the day the receiver was appointed). If any creditor can, regardless of the change in the situation of the property made on that day, obtain a lien by adverse proceedings against the corporation, then the property is still within corporate dominion, and the decree of the court goes for nothing. The argument leads to a conclusion wholly inconsistent with the very purpose of the receivership. The decided weight ■of authority in regard to common-law receiverships is that, in substance, stated by Tayl. Corp. § 813: ‘Where a judgment has been recovered against a corporation after the appointment of a receiver, it does not give the creditor who has obtained it a preference over other creditors in the distribution of corporate assets.’ ”
And in Temple v. Glasgow, 25 C. C. A. 540, 80 Fed. 441, the circuit court of appeals of the Fourth circuit affirmed the general rule above stated, in holding that judgments against a corporation, obtained between the entry of an order appointing receivers therefor and the approval of the receivers’ bonds, create no lien on the property subject to the receivership. The only cases supporting a contrary doctrine are those where the receiver has been appointed on a bill filed by one partner against his copartner for a dissolution of the partnership, and where such receiver is appointed to hold the property or funds pending such litigation, or where a bill has been filed to foreclose a mortgage given by a corporation upon its property, and a receiver is appointed to provide for the safe-keeping of the property of the corporation and to prevent transfers thereof pending the foreclosure proceedings. In these cases creditors recovering judgments prior to the decree of dissolution or decree of foreclosure and sale have been allowed preferential rights, the judgments becoming liens upon the partnership or corporation assets, and such assets regarded as still belonging to the firm or corporation rather than to the creditors. But that is not the situation in the case at bar. This is not a case of partnership dissolution or for the foreclosure of a mortgage, but of corporate insolvency. The bill shows that at the time the judgment in favor of the appellants was obtained the property upon which execution was sought was then in the hands of the court for administration and distribution among all the creditors, through its agent, the receiver, and all the creditors of the corporation were under injunction not to inter-meddle with the property in the hands of the receiver. This state of facts does not entitle the appellants to the relief sought.
The judgment of the circuit court is therefore affirmed.