Court Opinion

ID: 6968321
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:57:53.942774+00
Date Added: 2024-06-11T16:08:41.957011
License: Public Domain

Mr. Justice Magruder delivered the opinion of the court: The main question, presented by the demurrer to the amended declaration in the present case, is this: Where a corporation has been placed in the hands of a receiver, and an injury or death has been caused by the negligence of the receiver while he is operating the property of the corporation; and where, by stipulation between the parties, the receiver is discharged, and the property is restored to the possession of the corporation, can the corporation itself be held liable for damages for the injury so received during" the receivership? As a general rule, a corporation, while its property is in the hands of a receiver, has no control over either the receiver or his servants, and, therefore, in the absence of any liability imposed by statute, is not responsible for the negligence or torts of the employes of the receiver; and no suit for damages occasioned thereby can be maintained against the corporation itself. But there is an exception to this rule which will be hereafter stated. The amended declaration in this case contains the following averment: “And the plaintiff avers further, that during the receivership the said receiver had the entire management and control of the business of the defendant company, collected large sums due it, sold its bonds and other property, and applied the receipts to the running of the business of the company and to the improvement and betterment of the company’s property, and that the said property at the close of the receivership was without reservation turned back into the possession of the company.” We do not deem it necessary to discuss any other of the points made, or questions raised by counsel, except that suggested by the averment of the declaration above quoted. In view of this averment, we are of the opinion that the court below erred in sustaining the demurrer to the declaration. The receiver holds the property in his possession as an officer of the court. But the appointment of the receiver does not dissolve the corporation. The corporation still remains in existence, and is still clothed with its franchises. The appointment of the receiver merely gives him the temporary management of the corporation under the direction of the court, instead of leaving it under the direction of the manager appointed by the directors of the corporation. (Bloomfield Railroad Co. v. VanSlike, 107 Ind. 480; Ohio and Mississippi Railway Co. v. Russell, 115 Ill. 52; Heffron v. Gage, 149 id. 182; Safford v. People, 85 id. 558; Toledo, Wabash and Western Railway Co. v. Beggs, 85 id. 80). By the appointment of the receiver the corporation’s capacity of being sued is not affected. The receiver is legally the agent of the company, although under the direction of the court; and the title to the property is not divested by his appointment. (Ibid). Damages for injuries to persons or property during the receivership, caused by the torts of the receiver’s agents and employes, are classed as a part of the operating expenses of the corporation. (20 Am. & Eng. Ency. of Law, p. 385, and cases cited in note 1; Green v. Coast Line Railroad Co. 97 Ga. 15; Sloan v. Central Iowa Railway Co. 62 Iowa, 728; Missouri, etc. Railroad Co. v. McFadden, 89 Tex. 138; People v. Yoakum, 7 Tex. Civ. App. 85). Such damages, being part of the operating expenses, are accorded the same priority of payment as belongs to other necessary expenses of the receivership, and “will be paid out of the net income if that is sufficient, but in the event of-a deficiency they will be paid out of the corpus.” (20 Am. & Eng. Ency. of Law, p. 385, and cases in note). Where the net income derived from the business during the receivership is diverted from the payment of such operating expenses, and applied to the permanent improvement of the property of the corporation, and the. receiver is afterwards discharged, and the property is again turned over to the corporation, in such case the corporation is liable for torts during the receivership to the extent of the net income so applied. (20 Am. & Eng. Ency. of Law, p. 389). In Texas and Pacific Railway Co. v. Johnson, 76 Tex. 421, it was held, that a claim for damages, caused by injuries inflicted through the negligence of a receiver while he was operating a railway, was entitled to payment out of the current receipts; that, if the current earnings be invested by the receiver in the betterment of the road, which without sale was returned to the company with its other property at the close of its receivership, then the company must be held to have received the property, charged with the satisfaction of any claim which the receiver ought to have paid out of the earnings. (Texas, etc. Railroad Co. v. Bailey, 83 Tex. 19). The receivers in such cases are not personally liable upon their discharge for claims of this character, but the claims follow the property or fund which alone can be used to satisfy them. (Gluck & Becker on Receivers of Corporations,-—2d ed.—sec. 93, pp. 494, 495). Not merely claims arising out of contracts, but claims for torts, arising through the negligence of the receivers or their subordinates, thus follow the property or fund. (Ibid.) Where the earnings of the road have thus been invested in betterments upon it, and the receiver has been discharged, and the property has been returned to the owner with such improvements, it necessarily follows that the company must be liable, because the receiver, by virtue of his discharge, ceases to be liable. (Texas and Pacific Railway Co. v. Comstock, 83 Tex. 537; Boggs & Bro. v. Brown, 82 id. 41; Texas and Pacific Railway Co. v. Johnson, 76 id. 421; Brown v. Gay, 76 id. 444). “Where the receiver is discharged, and the property restored with improvements, the company is liable for accidents during the receivership.” (2 Cook on Stock and Stockholders and Corporation Law,—3d ed.—sec. 875, note 2, pp. 1447, 1448, and cases there cited). If such were not the law, great and irreparable injustice would be done in many cases. As a receiver is not personally liable for the torts of his servants, but only liable in his official capacity, and as the damages for such torts cannot be recovered in suits against him personally or collected on execution against his individual property, a judgment, rendered while the receiver is in possession, should provide for its payment out of the trust fund or the property in the hands of the receiver or under his control. (McNulta v. Lockridge, 137 Ill. 270). In the case at bar, suit has not been brought against the receiver, but has been brought against the company, to which the trust fund or property was restored after the discharge of the receiver. In the absence of all personal liability on the part of the receiver, there is no reason why the trust fund or property should not be liable, as well after the discharge of the receiver, as while he is in office. Where the receiver has returned the property to the company, the fund or property remains the same, and the only difference in the circumstances is, that it is in the possession of the company instead of being in the possession of the receiver. In the case at bar, if the plaintiff has no remedy for the death of his intestate against the company, then he has no remedy at all, inasmuch as the receiver, during whose administration the death occurred, has been discharged from his office, and cannot be held personally liable. The doctrine'above announced has been well stated, and has been placed upon correct grounds, by Thompson in his Commentaries on the Laws of Corporations, (vol. 5, sec. 7151), where the author says: “The receiver becomes the new custodian of a property which was before, in a sense, a trust property in the hands of the corporation. In the management of this trust property, negligences are committed by his servants, for which, under the settled principles of law, the receiver is liable,—not personally except where he has been guilty of personal fault,—but out of the trust funds in his hands. The liability is then-essentially a liability of the fund, and not of the custodian. When, therefore, the fund is transferred to a new trustee, whether it be to a new and re-organized corporation created by the purchasers at a mortgage sale for the purpose of receiving' and operating the property, or whether it be the original corporation, its former owner, to whom it is re-delivered under a new arrangement, it is the case of a trust property, to which a liability has attached, passing into the hands of a new trustee. The trust property continues liable; but from the very nature of the case, any action brought to charge it must, if the receiver has been discharged prior to the bringing of the action, be brought against the corporation which is its custodian,—that is to say, against the new trustee.” It is contended by counsel for defendant in error, that a contrary doctrine to that here announced has been laid down by this court in the case of McNulta v. Lockridge, supra. But that case is not capable of the construction sought to be given to it. It is true, that general expressions are there used to the effect, that the corporation is not responsible for the negligence or torts of the employes of the receiver; but such expressions are to be understood as applying to the facts of the case. It was there held, that an action can be maintained against one receiver for the torts of the servants of a preceding receiver; that the liability is enforcible against the fund, which is the subject of the trust, and follows such fund; that the judgment in such a case is in the nature of a judgment in rem, the res being the matter of the receivership, and,that the plaintiff should not be deprived of his action and of the right of trial by jury because one receiver has succeeded another. The reasoning of the court in the McNulta case lends support to the doctrine, that a company, which receives its property back from the receiver improved and bettered, and after such property has been managed and operated for some time at an expense paid by the receiver out of the property, cannot escape liability for the torts of the receiver’s agents or employes. If the corporation desires to set up that it is only liable for claims of this character to the amount of the net income during the receivership which has been applied to the improvement and betterment of the property, the fact of the payment of such claims to an amount equal to the value of the improvements, if such fact exists, presents a. question which the corporation must raise by the pleadings. (20 Am. & Eng. Ency. of Law, p. 390, and cases cited in note 1). The judgments of the Appellate Court and of the circuit court of Cook county are reversed, and the cause is remanded to the latter court with directions to proceed in accordance with the views herein expressed. Reversed and remanded.