s Lockport Felt Co. v. United,
etc., Co. (N. J.), 79 Atl. 544.
9 E. I. Du Pont de Nemours &
Co. V. Smith, 252 Fed. 491, 164 C.
C. A. 407.
1 Graselli Chemical Co. v. Aetna
Explosives Co., 252 Fed. 456, 164
C. C. A. 380.
In the above case Judge Manton
said: "The order appointing the
receivers placed the corporation
in the custody and control of the
court. It placed the receivers un-
der the admonition, direction, and
guidance of the court. The court
possesses jurisdiction over the
corporation, as well as over the
property of the corporation, and
it has complete power to deal
with either, and it is essential
that it should have, for it could
not control the property without
the power to control the corpo-
ration. The appointment of the
receiver supersedes the power of
the directors to carry on the busi-
ness of the corporation, and the
receivers take possession of the
corporation, its books, its records,
and assets. Indeed, it is often the
custom for courts of equity, in an
order appointing the receiver, to
expressly restrain the corporation
and its officers from exercising
any of the privileges or franchises
of the corporation until the fur-
ther order of the court. The
court's power to take from the
directors their right to direct can
also, while in control, restrain ac-
tion by the stockholders, when it
deems it for the best interests of
all concerned to do so.
"A court of equity's modes of
relief are not fixed and rigid. It
can mold its remedies to meet the
conditions with which it has to
deal. The jurisdiction of equity
is the whole domain of conscience,
limited only by legislative enact-
ment. The faculty of equity must
be energetic, productive, and pro-
1852
LAW OF RECEIVERS.
receivership and the nature of the plan proposed out of
court for a readjustment of its affairs by means of a
stockholders' meeting. The plan of readjustment con-
templated merely corporate action and not any approval
by the receivership court. The court, however, held that
during the receivership, it had control over corporate
action which proposed to determine to whom the prop-
erty would pass upon a termination of the receivership
and accordingly restrained the stockholders from hold-
ing their proposed meeting. The proposed plan was
attacked by common stockholders, who claimed that at a
proposed meeting of the stockholders a board of direc-
tors was to be elected which would permit the control of
the corporation to pass into the hands of the preferred
stockholders. The plan of readjustment did not propose
any new capital nor was any new capital required, but
did propose the payment of bonds, which were largely
gressive. But to exercise this
right of the court of equity there
must be some show of an injustice
attempted or about to be perpe-
trated upon the petitioners. Judge
Ward, writing in Davidson v.
American Blower Co., 243 Fed. 167,
156 C. C. A. 33, announced that
the court of equity had the power
in the proper case 'to deprive
stockholders holding a majority of
the stock from voting it, and to turn
over the control of a corporation
to the minority stockholders." In
Lehigh Coal & Navigation Co. v.
Central R. R. Co., 35 N. J. Eq.
349, an insolvent corporation in
the hands of the court, with its
railroad operated by a receiver,
refused to hold a meeting of the
stockholders. A petition was ad-
dressed to the court to direct such
a meeting, which the court denied
in the following language:
" 'The affairs of the company
had for many years been in the
hands of this court. There had
been no election of directors by
the stockholders since the insol-
vency was declared. The existing
board disputed the power of the
stockholders to hold the election.
The proceeding was under a pre-
vision of the law, the applicability
of which to an insolvent company,
whose affairs were under the man-
agement of the court, was denied.
It was quite evident that the
election, if held under the circum-
stances, would be subject to im-
putations of surprise and unfair-
ness, and to questions as to its
validity, which would lead to liti-
gation or induce this court to re-
fuse to recognize it as a just and
proper expression of the choice
of the stockholders. Hence, it
was not permitted to take place.'
SALES OF RECEIVERSHIP PROPERTY.
1853
held by preferred stockholders, at a much earlier date
than their maturity, and also a plan for the retirement of
the preferred stock and a voting trust on the part of the
common stockholders. The gist of the decision of the
court was that pending the receivership, it had the right
to determine when and under what circumstances cor-
porate meetings may be had which may tend to embarrass
the receivership court or prevent it from restoring the
property to those from whom it received it.
"In this court, the appellees,
large common stockholders, have
attacked the merits of the read-
justment plan, and, we believe,
Avith just cause. In the absence of
power created by legislation in
this country, the federal judges,
pitting in courts of equity, have
endeavored to secure to the rights
of those interested, including the
stockholders, at the time of read-
justment of large corporations, a
protection to meet the needs of
the occasion. Changing times, with
change in economic needs, require
the courts of equity to mold reme-
dies to meet the conditions with
which they have to deal. In
railroad foreclosure suits, where
plans of reorganization were pro-
posed, the federal courts have
exercised the right of approval or
disapproval. — Fearon v. Bankers'
Trust Co.. 2.38 Fed 83, 151 C. C. A.
159; Guaranty Trust Co. v. Mis-
souri Pac. Ry. Co., 238 Fed. 812.
. . . So long as the suit con-
tinues, the corporation and the
res are in the possession of the
District Court; the court having
the power as an incident thereto,
and as ancillary to its proceed-
ings, to determine when and
under what circumstances an
election may be held which will
determine what persons will
receive the property from the
corporation and control the prop-
erty upon the discharge of the
receivers."
In the above case a concurring
opinion was filed by Judge Rogers,
who did not think it necessary to
consider the merits of the pro-
posed readjustment, while a
vigorous dissenting opinion was
filed by Judge Ward, who took
the position that the proposed cor-
porate action and plan was out-
side of the domain of the court
because no order of court was
necessary for its execution.
CHAPTER XXIII.
TAXATION OF PROPERTY' TXDER RECEIVERSHIP.
§ 678. General Rule Concerning the Taxing of Property Under
a Receivership.
''It is tlie imperative duty of the court to recognize as
paramount and enforce with promptness and vigor the
just claims of tlie authorities for the prescribed contribu-
tions to state and municipal revenue."^ The foregoing
quotation from an opinion of the United States Supreme
Court states a principle, contrary to that prevailing under
the common law with reference to the taxation of property
in custodia legis, recognized by courts with practical
unanimity under tlie present day modes of taxation, wliich
are established and regulated entirely by constitutional
and statutory enactments. The force of the principle is
set forth by the Supreme Court of Missouri, in a case in
which the payment of taxes was opposed on the ground
that the demand had been presented to the court after
the date appointed by the court for the filing of claims
and at a time when, if an ordinary claim had been filed,
it would have been barred under the general rule govern-
ing that matter in receivership cases. The court said:
''The ordinary revenue officers of the state being deprived
of the ordinary means of securing the state's revenue
from the fund in the custody of the court, the duty de-
volved upon the court to be satisfied, and the receiver to
see that the taxes due the state were paid before the
estate was distributed to other creditors; and we can
conceive of no scheme of administration that the court
could properly adopt by which the state's demand could
be reduced to the level of an ordinary debt and be cut off
1 Ex parte Tyler, 149 U. S. 187, 13 Sup. Ct. Rep. 791, 37 L. Ed. 696.
( 1854 )
TAXATION UNDER RECEIVERSHIP. 1855
unless presented to the court for allowance within a
given time."- The same principle is expressed, from a
somewhat different point of view as follows : ' ' The ap-
pointment of a receiver by a court does not destroy the
entity of a corporation. It yet remains w^ith corporate
power at least for the purpose of winding up the business
of the concern, for it is corporation business always that
the receiver transacts. All property being taxable, and
corporations being liable to taxation, it is inconceivable
that a suit in chancery and the appointment of a receiver
by operation of law withdraws the property from the
power of assessment and taxation. Nor was it necessary
that the receiver should, eo nomine, be designated as a
person subject to assessment and taxation. He is but an
arm of the court in the management of the corporation
property, whether it be as a going concern or in process of
dissolution, and the court holds the property subject to all
the burdens and limitations to which the corporation
itself was subject under the law, and one of these is the
liability to taxation as a natural person."^
In accordance with this principle it has been held that
the payment of taxes is not a diversion of income as
against statutorily preferred labor claimants so as to
entitle them to be paid out of the proceeds of the corpus
of the estate as against the mortgagee ;* that the fact that
the funds of the estate will not permit the receiver to
continue the business if he pays taxes, is not a sufficient
reason for not pajdng taxes f that, when a mortgagee
pays the taxes, he is subrogated to the rights of a tax col-
lector who, by statute, is authorized to have the taxes
paid as a first lien out of the estate f that money for pay-
ing the taxes may be raised by the issuance and sale of
2 Greeley v. Provident Sav. G. N. Ry. Co., 237 Fed. 921, 150
Bank, 98 Mo. 458, 11 S. W. 980. C. C. A. 571.
3 Coy V. Title Guarantee & T. r. Treasurer of Athens County v.
Co., 212 Fed. 520. Dale, 60 Ohio St. 180, 53 N. E. 958.
4 Texas "^o. v. International & c Equitable Trust Co. of New
1856 LAW OF RECEIVERS.
receiver's certificates' or by a sale of some of tlie
property.^
The foreg-oing principles have been adopted by equity
courts without the direct aid of statutes, but in some
jurisdictions it has received statutory expression, such
statutes not only providing that property in the hands of
receivers shall be taxable but also, generally, giving the
claim for taxes a superior rank in the distribution of the
estate.^
§ 679. Distinction Between Taxation of Personal Property and
Realty.
It has been principally in regard to the payment of
taxes on personal property that courts have found it
necessary to express themselves thus strongly as to the
duty of the receiver to pay taxes upon property in his
custod}^ Usually by statute, taxes upon realty are made
a debt against the property itself and are given a para-
mount lien for their enforcement, so that the government
is able to recover taxes assessed against such property
regardless of changes in ownership or possession and the
conflict regarding the payment of realty taxes in receiver-
ship cases has usually been as to which of various classes
of creditors should pay them. On the other hand, taxes
upon personal property are usually, if considered in the
nature of a debt at all, regarded as a personal debt of the
York V. Kelsey, 209 Mass. 416, C. C. A. 186; Hamilton v. David
Ann. Cas. 1912B, 750, 95 N. E. 850. C. Beggs Co., 171 Fed. 157; City
7 Union T. Co. v. Illinois M. R. of Los Angeles v. Los Angeles
Co., 117 U. S. 434, 6 Sup. Ct. Rep. City Water Co., 137 Cal. 699, 70
809, 29 L. Ed. 963; Central T. Co. Pac. 770; Equitable Trust Co. of
V. Tappan, 25 N. Y. St. Rep. 635, N. Y. v. Kelsey, 209 Mass. 416,
6 N. Y. Supp. 918. Ann. Cas. 1912B, 750, 95 N. E. 850;
8 Ledoux V. La Bee, 83 Fed. 761; Stratford v. Franklin Paper Mills
Virginia T. & C. Steel & L Co. v. Co., 257 Pa. 163, 101 Atl. 349;
Bristol L. Co., 88 Fed. 134. Taylor v. Sutherlin-Meade To-
il Union Trust Co. v. Great East- bacco Co., 107 Va. 787, 14 L. R. A.
ern Lumber Co., 248 Fed. 46, 160 (N. S.) 1135, 60 S. E. 132.
TAXATION UNDER RECEIVERSHIP. 1857
owner and if a lien on property for their payment is
•created it usually attaches at a time somewhat subsequent
to the date when the tax becomes payable, is not superior
to contract liens created at a time when the property is
free from a lien for taxes, and attaches not to any specific
property but to all personal property of the person taxed.
Through timely changes in ownership or possession the
government might lose its claim entirely and the occa-
sions for the expression of the courts' opinion on the
question have thus arisen through attempts of those
interested in the estates to avoid the payment of taxes
altogether.
An illustrative instance of the usual argument against
the payment of personal property taxes and of the judi-
cial answer thereto is found in an opinion of the federal
Circuit Court of Appeals of the Ninth Circuit,^ in which
the court said: ''The receiver's answer alleges: That
'as matter of law, on and after the 6th day of November,
1907 [the date of the appointment], no property or funds
or assets of the Title Guarantee & Trust Company were
assessed as such to the Title Guarantee & Trust Com-
pany; that the same were on that date, and ever since
have been, and are now, i)i custodia legis; and that the
Title Guarantee & Trust Company, under a bill of com-
plaint in this court, was then in liquidation and being-
wound up.'
"The appellant's counsel thus states 'the single im-
portant and pertinent question' presented by the appeal:
"'Whether under the laws of the state of Oregon,
prior to the amendment of 1913, a personal property tax
assessment in the name of a defunct corporation, through
merely placing its name upon the tax roll, after it had
ceased business, and after all of its property of every
kind had been surrendered to its creditors, and while said
1 Coy V. Title Guarantee & Trust Co., 220 Fed. 90, L. R. A. 1915F,
:211, 135 C. C. A. G58.
II Rec— 117
1858 LAW OF RECEIVERS.
property was being administered and distributed through
and by a court and receiver, can be made and enforced,
with penalties and interest, after several years' delay,
by an intervention in the receivership cause, prosecuted
by the authorities as a preferred lien or claim, or by
indebitatus assumpsit, when the laws of the state at the
time of intervention do not provide for such cases, and
the Supreme Court of the state has expressly denied such
a tax to be either a lien or a debt, and declared equity
courts without power to render judgment therefor.'
"We regard it as wholly unimportant that under the
laws of Oregon taxes levied upon personal property do
not constitute a lien thereon, nor a 'debt,' The statutes
of that state do declare the personal property of every
individual liable to taxation, and that like property of
every private corporation is likewise liable, and shall be
assessed in the name of such corporation in the county
where its principal place of business is, unless otherwise
specially provided by law, and require, among other
things, the assessor to put down on his roll the names of
all persons assessable in his county, and among other
property the personal property owned by or taxable to
such person. Lord's Oregon Laws, §§ 3560, 3563, 3593.
"It is too clear for argument that the appointment of
a receiver and the taking of property into the hands of
the court through its officer does not withdraw it from
taxation. It renuiins subject to assessment and to the
payment of all legal taxes thereon while in custodia legis,
to the same extent as it was while in the possession of the
owner. And whether or not such taxes be a lien or a debt
by the laws of the government within whose jurisdiction
the property is situated, such taxes are and should be
regarded by the courts as a preferred and paramount
claim over all other claims, for they are essential to the
existence and maintenance of the very government under
which the proj^erty is acquired and protected."
TAXATION UNDER RECEIVERSHIP.
1859
Against practically the same argument ami in the face
of somewhat conflicting decisions of the state courts on
the question as to whether or not personal property taxes
were in the nature of a debt and supported by a lien upon
property the Circuit Court of Appeals of the Sixth Cir-
cuit has said :-
''It is not claimed that the taxes are unjust or in any
way inequitable. Under these conditions, and even if it
were to be assumed that the taxes had not become a lien
against the property, or that, through the mistake of the
assessing officers, no enforceable debt against the re-
ceivers had arisen, a due regard for the rightful burdens
of all citizens and residents toward the state government,
and a due recognition of benefits received should impel
a federal court to direct its receiver to make payment.
Such payment, in the absence of a meritorious objection
to the tax, we regard as the receiver 's clear duty. ' '^
2 Bear River Paper & Bag Co.
V. City of Petoskey, 241 Fed. 53.
3 Midland Guaranty & T. Co. v.
Douglas County, 217 Fed. 358, 133
C. C. A. 274.
For similar rulings see: First
National Bank v. Ewing, 103 Fed.
195, 43 C. C. A. 150; George v. St.
Louis Cable & W. Ry. Co., 44 Fed.
117; Wiswall v. Kunz, 173 111. 110,
50 N. E. 184; Atwood v. Knowl-
son, 91 111. App. 265; Greeley v.
Provident Savings Bank, 98 Mo.
458, 11 S. W. 980; Mixter v. Mo-
hawk Clothing Co., 155 N. Y. Supp.
647; Newman v. Van Nortwick, 95
Wash. 489, 164 Pac. 61.
In an action brought to contest
the validity of water rates estab-
lished by municipal authorities,
and during the pendency of which
the water company was permitted
to collect rates in excess of those
being contested on condition that
the excessive collections should be
placed in various banks to await
the outcome of the litigation, it
was held that, under a statute
providing that "money and prop-*
erty in litigation in possession
of a county treasurer, of a court,
county clerk, or receiver, must
be assessed to such treasurer,
clerk, or receiver, and the taxes be
paid thereon under the direction
of the court," the moneys in said
banks were subject to taxation,
the banks being receivers, the
money being the real subject of
the litigation, and various irregu-
larities in the assessment, includ-
ing the naming erroneously of one
of the banks, being held immate-
rial. Spring V. W. Co. v. C. & C.
of San Francisco, 140 C. C. A. 209.
See, also, as regards this same
statute, 225 Fed. 728; City of Los
1860
LAW OF RECEIVERS.
Under tliis principle it has been held that personal
property in the hands of a receiver is subject to taxation
irrespective of the question as to whether or not the par-
ties beneficially interested in the property are residents
of the state."*
*'The courts of the United States have always recog-
nized the importance of leaving the powers of the state
Angeles v. Los Angeles City Wa-
ter Co., 137 Cal. 699, 70 Pac. 770.
In Edgecombe County v.Walston,
174 N. C. 55, 93 S. E. 460, and
Town of Tarboro v. Walston, 174
N. C. 75, 93 S. E. 461, It was held
that where the proceeds of a fore-
closure sale by a receiver had been
placed, pending distribution, in the
custody of the clerk of the court,
the funds were properly listed by
the clerk for taxation, the funds
standing in place of the property
and it being in the power of those
holding mortgage notes and being
entitled to share in the funds to
protect themselves against double
taxation by listing the notes at
their actual value.
In Midland G. & T. Co. v. Doug-
las County, 217 Fed. 358, 133 C. C.
A. 274, the court, in ordering taxes
upon railroad property to be paid
out of the proceeds of a foreclo-
sure sale ahead of the mortgage,
reasoned as follows: "The stat-
ute has not been construed as to
whether this section means that
railroads in the hands of receivers
shall be assessed to the receivers
as owners, and there is nothing in
this case to show how this railroad
was in fact assessed for 1913,
whether to the railroad company
or to the receiver. If the railroad
was legally assessed to the re-
ceiver as owned, as this was a
tax on personal property, it was
not only a lien upon all personal
property of the receiver as such,
but was a personal claim against
him as receiver.
"It is conceded that the railroad,
having been sold before November
1st, was free of the lien of the
taxes for that year; and as the
railroad company is hopelessly in-
solvent, if the railroad was as-
sessed to the railroad company,
the entire taxes must be lost to
the counties, unless they are col-
lectible from the receiver under
some of the provisions of the stat-
ute referred to. W^e conclude that
they were so collectible."
â– i Walters v. Railroad Co., 68
Fed. 1002; Ex parte Chamberlain,
55 Fed. 704; Baldwin v. State, 89
Md. 587, 43 Atl. 857.
A claim of non-residents to dis-
tributive shares of property on
final settlement did not prevent
the taxation of funds in the hands
of a receiver of a mutual benefit
assessment society organized un-
der the laws of the state, as prop-
erty within its jurisdiction, al-
though the funds had been col-
lected in other states in which the
company also did business, and
turned over by order of the courts
of those states to the receiver,
with the understanding that all
holders of certificates in the dif-
ferent states should be ratably
paid on final settlement. Schmidt
I
TAXATION UNDER RECEIVERSHIP. 1861
in respect to taxation unimpairod";^ and accordingly we
find state courts much more likely than federal courts, in
receivership cases, to lean toward a strict interpretation
of taxation statutes and to give Aveight to technical re-
quirements concerning the assessment and other prelim-
inaries to establishing a claim for taxes. It has been
held that an assessment to a receiver who has not title
either by statutory provision or assigimient is void;*^
property in the hands of a receiver is not assessable
under a statute authorizing the taxing of property held
by assignees in bankruptcy, insolvency, or for the benefit
of creditors ;' under a statute imposing taxes against a
person for personal property only for the excess of the
value of the property over the owner's liabilities the
property of a corporation in receivership is not subject
to taxation ;'^ personal property taxes may not be paid
by a receiver as against prior liens attaching to the
property.^
Taxes levied during the receivership and such as con-
stitute a lien upon property when it passes into a receiv-
ership rank as expenses of the receiver and are paid
next after the expenses of the proceeding. ^^ If however
V. Failey, 148 Ind. 150, and 37 Mich. 584, 94 N. W. 8; Schenck v.
L. R. A. 442, 47 N. E. 326. Consumers' Coal Co. (N. Y.), 26
5 Ex parte Tyler, 149 U. S. 187, 13 Abb. N. C. 356, 14 N. Y. Supp. 343
Sup. Ct. Rep. 791, 37 L. Ed. 696. (statutory liens for wages, etc.,
6 Dallas County v. Boyd, 138 may have precedence over taxes) ;
Iowa 583, 17 L. R. A. (N. S.) 1220, Wise v. Wise Co., 153 N. Y. 507, 47
116 N. W. 700; City Nat. Bank v. N. E. 788.
Charles Baker Co., 180 Mass. 40, lo Atkinson & Co. v. Aldrich-
61 N. E. 223; Lucking v. Ballan- Clisbee Co., 248 Fed. 134; Ferris
tyne, 132 Mich. 584, 94 N. W. 8; v. Van Ingen, 110 Ga. 102, 35 S. E.
Thompson v. Evans, 2 Tenn. Ch. 347; Stewart v. McDonald, 147 Ga.
App. 61. 158, 93 S. E. 86; Union Trust Co.
V City Nat. Bank v. Charles v. AVeber, 96 m. 346; Mixter v.
Baker Co., 180 Mass. 40, 61 N. E. Mohawk Clothing Co., 155 N. Y.
223. Supp. 647.
8 City of Detroit v. Hertz, 184 Where the receiver takes into
Mich. 512, 151 N. W. 564. his possession personal property
y Lucking v. Ballantyne, 132 subject to the lien of taxes pre-
1862 LAW OF RECEIVERS.
taxes have been levied prior to the receivership and the
authorities have not taken the steps necessary to acquire
a lien upon the property for the payment of the taxes,