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Chicago Deposit Vault Co. v. McNulta, 153 U.S. 554 (1894)

Chicago Deposit Vault Company v. McNulta

No. 345

Submitted April 24, 1894

Decided May 14, 1894

153 U.S. 554


A receiver of a railroad, appointed with authority "to make all contracts that may be necessary in carrying on the business of said railroad, subject

Page 153 U. S. 555

to the supervision of this court," has no authority to make a lease for a term of general offices without authority from the court, and to bind his successors and the property therefor for the term, without direction from or sanction by the court.

The facts that the receiver's accounts showed, monthly, the payment of the rent under such a lease, and that that rent was reasonable, and that the accounts as rendered were passed by the master and reported to and approved by the court, do not amount to a sanction of the lease for the term.

Charles H. Beers, as the holder of certain bonds of the Wabash, St. Louis and Pacific Railroad Company, secured by a mortgage or trust deed on the Chicago division of that road, in 1886 filed a bill on behalf of himself and others in the Circuit Court of the United States for the Northern District of Illinois for the purpose of foreclosing the mortgage, and prayed that, pending the rendition of the decree in the cause, the court would appoint some disinterested and practical person receiver of all the mortgaged property, equipment, and appurtenances, to hold and administer the same and disburse the revenues and income thereof under the orders of the court from time to time to be entered in the cause.

On December 16, 1886, the court appointed Thomas M. Cooley receiver of the mortgaged property. The order appointing the receiver contained, among other things, the following:

"And the said receiver is hereby empowered and instructed to take possession of all of the said property described in said mortgage, or appurtenant thereto, and to manage, control, and operate the said railroad described in said mortgage, preserve and protect all said property, and collect, as far as possible, all assets, choses in action, and credits due to said company, acting in all things under the orders of this Court. . . . Said receiver shall also have authority, subject to the supervision of the court, to make such repairs to said railway and property as are necessary, in his judgment, for carrying on the business thereof, and also to make all contracts that may be necessary in carrying on the business of said railroad, subject to the supervision of this Court. . . . It is further ordered that the said receiver, out of the income which shall come into his hands by the

Page 153 U. S. 556

operation of said railroad or otherwise, proceed to make payments as follows: that he pay all current expenses incident to the creation or administration of his trust and to the operating of said railroad; that he pay all amounts now legally due, or that shall hereafter become due, for taxes on any of the property over which he is appointed receiver; that he pay all balances due, or to become due, to other railroads or transportation companies, on balances growing out of the exchange of traffic with such railway accruing six months prior hereto; . . . that he pay all rentals to become due upon rolling stock heretofore sold to said railroad company, and partially paid for, and necessary for use in the operation of the road over which the said receiver is appointed, covered by the mortgage described in the bill herein, and which come into the hands of the receiver under the operation of this order."

The order further directed that after discharging and making all the payments and outlays required by the terms of the order, the receiver should retain any surplus remaining in his hands to be applied to the payment of the past-due and matured interest coupons secured by the mortgage.

The receiver qualified and took possession of the mortgaged property, and on December 31, 1886, entered into a contract with the Chicago Deposit Vault Company for the lease of rooms 523 to 547, inclusive, in the Rialto Building, in the City of Chicago, for his use as receiver in the transaction of the business of the railroad. The term of the lease was from January 1, 1887, to April 30, 1891, a period of four years and four months at a yearly rental of $10,500, payable in installments of $875 monthly in advance. There was a provision in the lease that the receiver might cancel it on May 1, 1888, by giving notice to that effect on or before February 1, 1888.

Cooley, as receiver, took possession of the rooms, and continued to occupy them until his resignation, in April, 1887, paying the stipulated rent regularly during that time, for which he took credit in his reports of receipts and disbursements. The monthly items of rent were entered in the

Page 153 U. S. 557

receiver's reports under the heading of "Operating Expenses," as "Rent of general offices." These reports were regularly approved by the court.

Upon Cooley's resignation, the court appointed John McNulta as his successor, who took possession of the rented premises and continued to occupy them and pay the stipulated monthly rental until July 31, 1889. Receiver McNulta made his reports of receipts and disbursements in the same form as those made by his predecessor, and they were, from time to time, approved by the court.

The mortgaged property was sold under foreclosure decree, and purchased by James F. Joy, Ossian D. Ashley, Thomas H. Hubbard, and Edgar T. Welles, as a purchasing committee. The sale and purchase having been confirmed, the court, on June 20, 1889, entered an order directing Receiver McNulta, on or before July 1, 1889, to turn over all the property in his possession as receiver to the purchasing committee. This order contained the following provision:

"But this order is made, and the surrender and delivery of possession by the receiver shall also be made, . . . subject also to the power and right of this Court to consider and determine all questions which have heretofore arisen, or shall hereafter arise, herein, concerning expenses of this cause, or of the receivership herein, concerning claims against said receiver, or against any of the property now in his possession as receiver, and concerning allowances to counsel or to parties, and to charge upon or against said property any amounts at any time deemed by this court proper to be charged upon it, and this court hereby reserves full power and right to consider and determine all such questions, to make any charges which it deems proper against said property now in the possession of said receiver, notwithstanding the surrender thereof, and to resume possession of all or any of said property, if necessary at any time hereafter, and to place said property again in the possession of a receiver, and to resell or otherwise dispose of the same for the purpose of securing compliance with any orders which it shall make in this cause."

On June 27, 1889, McNulta, as receiver, gave notice to the

Page 153 U. S. 558

Chicago Deposit Vault Company that he would not need the leased rooms after August 1, 1889, and that on July 31, 1889, he would surrender possession of the premises to the lessor. The rent was paid by McNulta up to the latter date, when he vacated and gave up possession of, the premises.

The Chicago Deposit Vault Company on June 29, 1889, filed an intervening petition in the foreclosure suit of Beers, setting up the execution of the lease, the taking possession and occupancy of the rooms under it by the receivers, Cooley and McNulta, and the payment of the monthly rental therefor during the period of such occupancy. The petition also set out the notice given by McNulta, receiver, of his intention to surrender possession of the rooms, and that he would cease paying rent after July 31, 1889. The petition insisted that the receiver had no right to surrender the lease; that it would be unjust and inequitable, and prayed that he might be restrained from so doing and that the purchasers of the mortgaged premises at the foreclosure sale should be required to abide by and perform the terms of the lease; that an adequate fund out of the trust assets should be retained in the court to assure the payment of the rent thereafter to accrue, and that the same be applied to the payment of such rent.

To this intervening petition, the receiver and the purchasers filed an answer which, after admitting the execution of the lease by Cooley as receiver, averred that he had no power, without the approval of the court, to bind the court or the funds of the receivership beyond the time the premises should be required by the receiver, and that the lease was properly terminated by the last receiver's notice. The answer further stated that on July 1, 1889, the receiver, under and in pursuance of the order of the court of June 20, 1889, had turned over all the property to the purchasers at the foreclosure sale.

An amended petition, filed by the intervener on April 5, 1890, set forth that $7,875 had accrued as rental under the lease since the filing of its original petition, and repeated substantially the same prayer for relief.

Proof was made of the execution of the lease, possession of the premises by the two receivers, payment of the monthly

Page 153 U. S. 559

rental by them, and the approval of their accounts by the court, showing such payment. It was also shown by the petitioner that the rental agreed upon was as reasonable as the receiver could have secured elsewhere.

The monthly reports made by the respective receivers, which show, under the heading of "Operating Expenses," the payment of certain sums as "rent for general offices," did not disclose to the master by whom the reports were examined, or to the court, that the lease had been made by the first receiver, or that the second receiver (McNulta) had occupied the rooms thereunder.

Upon the hearing, the court dismissed the petition on the following grounds:

"The order appointing the receiver was not broad enough to authorize him to enter into the contract of lease, and the lease was never reported to, or confirmed by, the court. It is true that from time to time the receiver's accounts, embracing payments of rent under the lease, were submitted to the master and passed by him, and the master's reports approved by the court. That, however, was not such a confirmation of the lease as concluded the court. Any contract entered into by the receiver not authorized by the order of appointment and not subsequently confirmed by an order of the court ended with the termination of the trust. The intervening petition is dismissed, each party paying half the costs."

From this decree the present appeal is prosecuted by the intervener, and the following errors are assigned for its reversal: (1) the court erred in holding that the order appointing the receiver did not authorize him to enter into the contract of lease in controversy; (2) in holding that such lease was never reported to or confirmed by the court; (3) in holding that the action of the court and the master in chancery upon the receiver's reports and accounts was not a sufficient confirmation of such lease; (4) in holding that the equities were with the defendants to the intervening petition; (5) and in ordering and decreeing that such petition be dismissed, and in not granting the relief prayed for in said petition.

Page 153 U. S. 560

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