Court Opinion

ID: 7974318
Source: CourtListenerOpinion
Date Created: 2022-09-09 00:58:12.625034+00
Date Added: 2024-06-11T16:34:51.887573
License: Public Domain

BROWjST, j.
In July, 1899, respondent Willius was by the district court of Ramsey county duly appointed receiver of the Germania Bank of St. Paul, an insolvent banking corporation, and thereafter qualified and entered upon the discharge of his duties as such. At the time of and as a part of the order of appointment the court fixed the compensation of the receiver at the sum of $200 per month, subject to the further order of the court. The receiver, under authority of the court, employed Harris Richardson as his general counsel and adviser, whose compensation was fixed by the court at $2,000 per annum “until the further order of this court.” The receiver continued in the discharge of his trust until July 15, 1907, when he resigned.
Prior to his resignation certain creditors had petitioned the court for his removal for alleged negligence in the management of the estate, in that he had failed to cause the commencement of proceedings, to enforce the statutory liability of the stockholders of the bank, in consequence of which a large amount of money was claimed to have been lost to the creditors. The petition for his removal also contained a prayer for the appointment of his successor and for an order directing the new receiver to institute suit upon the receiver’s bond to recover the loss so alleged to have occurred through the receiver’s neglect. Pending the hearing on this petition the receiver tendered 'his account to the court for adjustment and settlement, in which he asked for an additional allowance of attorney’s fees to his counsel, Harris Richardson, in the sum of $3,000, for extra service rendered the estate, and an allowance to other special counsel rendered necessary by protracted *141litigation. To the allowance and settlement of this account the creditors interposed numerous objections, concluding with the prayer that it be surcharged in certain respects, and particularly that the receiver be charged with the amount alleged to have been lost by reason of his failure to enforce the stockholders’ liability before barred by the statute of limitations, the amount of which was alleged to exceed $50,-000. The petition for the removal of Willius, his account, and the objections thereto, and the prayer that it be surcharged to the extent of the losses alleged to have occurred through his neglect, all came on for hearing before the court below at the same time and were tried together.
At the conclusion of the trial, but before a decision had been reached, Willius resigned, as already stated, and his resignation was accepted by the court. Thereafter the court made three separate orders in the matter: (1) Accepting the resignation of Willius and appointing his successor; (2) dismissing the petition for his removal; and (3) confirming and settling his fifth, sixth, and seventh accounts, filed with the court, thereby allowing $2,000 to Richardson as extra compensation and $9,000 to the receiver, the balance remaining due- for his services computed on the basis of the order of the court originally fixing his compensation. Though the receiver’s account thus settled was not presented as his final account, it was in fact final; for it included all transactions, receipts, and disbursements up to May 25, 1907, a short time prior to the hearing on the matters resulting in the order now before us for review, which were heard below June 22, 1907.
The question whether the receiver’s account should be surcharged to the extent of the losses incurred by his alleged negligence in not enforcing the stockholders’ liability was litigated before the court by both parties; but the court declined to determine the question. In the order settling the account the court, upon this branch of the case, incorporated the following special order, namely:
Ordered, further, that all matters relating to the question of the alleged negligence and malfeasance of said Gustav Willius as such receiver, and relating to the losses, if any, therefrom to this estate, and his liability, or that of his bond therefor, arising out of any negligent act, failure, or omission of said *142Gustav Willius as such receiver, be and are left open, to be determined in proper proceeding according to law, and that, nothing herein shall operate to release said Gustav Willius- or his bond in any manner from the responsibilities for any and all acts as such receiver.
The creditors acquiesced in the order accepting the resignation of Willius and in that by which a new receiver was appointed, but appealed from the order settling the receiver’s account and allowing Richardson $2,000 for extra services.
The case in this court narrows down to two propositions: (1J Whether the court below erred in declining to determine the question whether the receiver’s account should be surcharged as claimed by the-creditors; and (2) whether the extra allowance to Richardson was authorized as a matter of law.
As stated above, the court expressly declined to pass upon the question of the negligence of the receiver in failing to enforce the stockholders’ liability before the bar of the statute of limitations set in, the-basis of the creditors’ claim that the account should be surcharged, and referred that question to some other court, to be determined in an action to be brought by the new receiver for that purpose. The-court, however, settled the account as rendered, with the reservation that the order should not in any manner affect or relieve the receiver from responsibility for any neglect of duty imposed by his trust. The-merits of the contention that the receiver was chargeable with negligence, .and hence that his account should be surcharged, were elaborately argued in this court; but the question is not properly before us..
The supreme court is a court of review, and, except in a few remedial cases, is vested by the constitution with appellate jurisdiction only,, the nature of which confines the court to such questions as, originating in an inferior court, have been there actually or presumably considered' and determined in the first instance. Dunnell Minn. Pr. § 1802; Johnson v. Howard, 25 Minn. 558; Northwestern Railroader v. Prior, 68 Minn. 95, 70 N. W. 869; Smith v. Kipp, 49 Minn. 119, 51 N. W. 656. We are concerned, therefore, respecting this feature of the case, only-with the question whether the trial court erred in declining to deter*143mine the question in this proceeding. It was unnecessary for the creditors to make application to the court, after the rendition of its decision, for further findings upon this subject. The court had expressly declined to decide the question, and subsequent application would have resulted in a reaffirmance of the court’s first position. It is unlike a case where a question of fact has been unintentionally overlooked by the-trial court.
This question requires no extended discussion. It is elementary that the court appointing a receiver or assignee in insolvency proceedings has and retains exclusive jurisdiction over the proceedings and the receiver or assignee for all purposes, settling and adjusting, in the same proceeding, all conflicting interests, all controversies, and all matters arising out of or connected with the trust, all questions respecting the accounts of the receiver, allowances for his compensation, the compensation of his attorneys, agents, and necessary clerks. No other tribunal has concurrent or other jurisdiction to order or interfere with the receiver in any way in the conduct of the office, or to settle or adjust his accounts. High, Rec. 48; 28 Am. & Eng. Enc. (2d Ed.) 1061; Conkling v. Butler, 4 Biss. (U. S.) 22, Fed. Cas. No. 3,100; Smith, Rec. 593; Beverley v. Brooke, 4 Grat. 187.
This exclusive authority and jurisdiction includes the surcharging of the receiver’s accounts for losses incurred through his mismanagement or negligence, and should in the orderly course of procedure be heard and determined in the receivership proceedings and by the court initiating and having jurisdiction of the same. Otherwise there would arise conflicts of authority between different tribunals assuming to act, and confusion in the adjudications affecting the rights and liabilities of interested parties would inevitably follow. Therefore the court first entertainiríg the proceeding by the appointment of a receiver must retain and continue its jurisdiction until the estate is finally closed by the settlement of the receiver’s final account and his discharge. The settlement of the account includes all objections made thereto by creditors, all questions of bad faith, negligence, and mismanagement by the receiver, and should be determined on the final hearing. Minneapolis Trust Co. v. Menage, 73 Minn. 441, 76 N. W. 195; In re Angell, 131 Mich. 345, 91 N. W. 611; In re Cornell, 110 N. Y. 351, 18 N. E. 142; *144State v. Gibson, 21 Ark. 140. There are several special reasons why the final accounting should include all charges of mismanagement by which the estate suffered loss, and for which it is sought to charge the receiver, only two of which need be referred to.
1. The question of negligence and mismanagement by the receiver should have an important bearing upon the amount of his compensation. If found guilty, the court would be justified in refusing to reward the neglect or misconduct, or the nature of the neglect charged might be such as to require a material reduction from what might otherwise be allowed, though not a refusal of any compensation whatever. In this particular case the order appealed from approves the receiver’s claim of $9,000 as a balance due him, and, if the order stands without modification, he would be entitled to a credit of that amount in turning the assets in his hands over to the new receiver; whereas, if the court should sustain the charge of mismanagement made against him, and that his account should be surcharged, that amount might either be materially reduced or denied altogether. Cook v. Lowry, 95 N. Y. 103; Smith, Rec. 587; 23 Am. & Eng. Enc. (2d Ed.) 1105; In re Sheets Lumber Co., 52 La. An. 1337, 27 South. 809. This the court could do, notwithstanding the fact that it had by order previously fixed the compensation at a certain amount per month or year.
2. Another yet stronger reason why the question should be determined in the insolvency proceedings is that it is essential to fixing the liability of the receiver’s bond. The sureties on this obligation are liable only in case the principal fails or refuses faithfully to execute his trust and abide by all orders of the court. Before suit can be brought against them the liability of the receiver must be determined on the final settlement of his accounts by the court having jurisdiction of the proceedings, or, as expressed in Smith, Rec. 77, a necessary prerequisite to a suit on a receiver’s bond is an order of the court that the receiver render his accounts, or a rule to pay over any balance shown by an account rendered, and a default by him. The regular course of procedure, say the authorities, is to proceed against the receiver in the first instance, and, if he shall fail to comply with the order of the court, then obtain leave to sue on the bond. State v. Gib*145son, supra; Atkinson v. Smith, 89 N. C. 72; Bank of Washington v. Creditors, 86 N. C. 323. “Preliminary to the action the settlement of the account of the trustee is essential.” French v. Dauchy, 134 N. Y. 543, 31 N. E. 1041. The case is analogous to those involving the administration of estates of deceased persons, in which no action against the administrator can be maintained until final decree of the probate court. Huntsman v. Hooper, 32 Minn. 163, 20 N. W. 127. And for the reasons already stated this final order can be made only by the court having jurisdiction .of the proceedings.
In the case at bar the learned trial court undoubtedly deemed the question of the receiver’s negligence a doubtful one, depending somewhat upon conflicting evidence,*and a proper question, therefore, for the consideration of a jury. It is undoubtedly within the power of the court in proceedings of this kind to submit controverted questions of fact to a jury. But the issue should be framed and the jury impaneled in the particular proceeding, and not referred to another action to be brought, perhaps not in this particular case, in some other court of this or some other state, depending on the residence of the receiver when the action is commenced.
Our conclusion, therefore, is that the question of surcharging the receiver’s account with the losses alleged to have resulted from his negligence should have been determined in this proceeding. It was litigated on the trial below, and, though the evidence upon the question respecting the amount the estate lost by the neglect complained of is not complete, yet certain amounts are definitely shown, which could have been made the basis of an order surcharging the account, if negligence had also been found. The proceedings must therefore be remanded for the determination of this question.
No question affecting the allowance of $2,000 to Harris Richardson for extra services, other than the authority of the court to award it, is presented by the record. The claim of his counsel that the question of Richardson’s negligence is immaterial to the issues presented by the written objections of the creditors is sustained. The receiver presented his report, together with an application that Richardson’s extra compensation and other items of expense in the administration of the trust be allowed, upon which an order of the court was made appoint*146ing a day of hearing. Thereafter the creditors appeared and filed written objections to the account, specifically charging the receiver with negligence in the conduct of the trust, and demanding that he be charged with certain losses resulting therefrom. But no objections were made to the Richardson item, nor was he charged with negligence or other misdoing in his relation to the estate. The creditors, having made their objections to the account and presented them in written form, are bound by the allegations therein contained. The introductory clause of the objections reserving the right to interpose special objections to the account on the hearing is not sufficient to raise a question of this character. We therefore do not consider the claim now made that Richardson was guilty of negligence equally with the receiver, for the reason that it is not presented by the record, and pass to the contention that the court had no power to grant additional compensation.
It is the contention of the creditors that the original order fixing his compensation was tantamount to a contract between the attorney and the estate and precludes further allowance by the court. That order authorized the receiver to pay his counsel “at the rate of $2,000 per year, from the inception of said receivership and until the further order of this court, as and for attorney’s fees herein.” In our judgment this clearly left the matter of the attorney’s compensation in the hands of the court, subject to revision by increasing or decreasing the allowance as the future circumstances of the case justified. Though the allowance of compensation to receivers and their attorneys fixed by the act of appointment may generally be considered' as sufficient fully to compensate them for their services, the court may, in its discretion, grant additional allowances for extraordinary services made necessary in the progress of the trust proceedings. 23 Am. & Eng. Enc. 1069 (2d Ed.) and cases cited. The whole matter is within the discretion of the court. Olson v. State Bank, 72 Minn. 320, 321, 75 N. W. 378. This rule justified the court below in allowing this claim, and a fair view of the evidence discloses no reason for holding that the court abused its discretion in the premises, and the order of allowance is affirmed.
The case is remanded to the trial court for further proceedings in harmony with the views herein expressed.