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Wiswall v. Sampson.
ferred the case to a master, to take. and state the account between the parties. He further ordered and decreed that a receiver should be appointed to take possession of all the property embraced in the fraudulent conveyance, and, particularly, that possession should be delivered to him of the premises in question; and further, that the receiver, under the direction of the master, should sell the same and apply the proceeds to the payment of the complainant's judgment, with costs, &c.
The receiver was appointed on the 27th June, 1845, and on the same day Ticknor, who was in possession of the premises, attorned to him, who held possession until the sale was made in pursuance of the decree. It will be recollected that the execu. tion on the judgment in favor of Crouch & Sneed, was issued, and levied on the 24th February, 1845; and on that in favor of Fowler & Co. 7th April of the same year, and that the sale took place under which the lessors of the plaintiff claim, 7th July, 1845.
At the time, therefore, of this sale, the receiver was in the possession of the premises, under the decree of the Court of Chancery — in other words, the possession and custody of them were in the Court of Chancery itself, (as the court is deemed the landlord,) to abide the final decree to be thereafter rendered in the suit pending.
The appointment of a receiver is a matter resting in the discretion of the court; and, as a general rule, in making the appointment on behalf of a complainant seeking to enforce an equitable claim, or a claim which is the subject of equitable jurisdiction, against real estate, it will take care not to interfere with the rights of a person holding a prior legal interest in the property. Thus, where there is a prior mortgagee having the legal estate, the court will not, by the appointment of a receiver, deprive him of his right to the possession; but, at the same time, it will not permit him to object to the appointment by any act short of a personal assertion of his legal rights, and the taking of possession himself. 1 J. & W. 648; 2 Swanst. 108, 137; 3 Id., 112, n. 115; 3 Daniel's Pr. 1950, 1951.
If the person holding the legal interest is not in possession, the equitable claimant against the property is entitled to the interference of the court, not only for the purpose of preserving it from waste, but for the purpose of obtaining the rents and profits accruing, as a fund in court to abide the result of the litigation. For until the person holding the legal interest takes possession, or asserts his right to the possession, the accruing rents and profits present a question simply between the parties to the litigation. And the court will also appoint a receiver, even against a party having possession under a legal title, if it
Wis wall v. Sampson.
is satisfied such party has wrongfully obtained that interest in the property. Thus, where fraud can be proved, and immediate danger is likely to result, if possession, pending the litigation, should not be taken by the court in the mean time. 13 Ves. 105; 16 Id. 59; 3 Daniel's Pr. 1955.
The effect of the appointment is not to oust any party of his right to the possession of the property, but merely to retain it for the benefit of the party who may ultimately appear to be entitled to it; and when the party entitled to the estate has been ascertained, the receiver will be considered his receiver, (T. & R. 345; Daniel's Pr. 1982); and the master will usually be directed to inquire what encumbrances there are affecting the estate, and into the priorities respectively. 10 J. R. 521, Codwise v. Gelston.
When a receiver has been appointed, his possession is that of the court, and any attempt to disturb it, without the leave of the court first obtained, will be a contempt on the part of the person making it. This was held in Angel v. Smith, 9 Ves. 335, both with respect to receivers and sequestrators. When, therefore, a party is prejudiced by having a receiver put in his way, the course has either been to give him leave to bring an ejectment, or to permit him to be examined pro interesse suo. 1 J. & W. 176, Brooks v. Greathed; 3 Daniel's Pr. 1984. And the doctrine that a receiver is not to be disturbed, extends even to cases in which he has been appointed expressly, without prejudice to the rights of persons having prior legal or equitable interests. And the individuals having such prior interests must, if they desire to avail themselves of them, apply to the court either for liberty to bring ejectment, or to be examined pro interesse suo; and this, though their right to the possession is clear.
Cox, 422; 6 Ves. 287. The proper course to be pursued, says Mr. Daniel, in his valuable treatise on Pleading and Practice in Chancery, by any person who claims title to an estate or other property sequestered, whether by.mortgage or judgment, lease or otherwise, or who has a title paramount to the sequestration, is to apply to the court to direct the plaintiff to exhibit interrogatories before one of the masters, in order that the party applying may be examined as to his title to the estate. An examination of this sort is called an examination pro interesse suo, and an order for such examination may be obtained by a party interested, as well where the property consists of goods and chattels, or personalty, as where it is real estate.
And the mode of proceeding is the same in the case of the receiver. 6 Ves. 287; 9 Id. 336; 1 J. & W. 178; 3 Daniel's Pr. 1984.
Wisrail v. Sampson.
A party, therefore, holding a judgment which is a prior lien upon the property, the same as a mortgagee, if desirous of enforcing it against the estate after it has been taken into the care and custody of the court, to abide the final determination of the litigation, and pending that litigation, must first obtain leave of the court for this purpose. The court will direct a master to inquire into the circumstances, whether it is an existing unsatisfied demand, or as to the priority of the lien, &c., and take care that the fund be applied accordingly.
Chancellor Kent, in delivering the opinion of the court in Codwise v. Gelston, as Chief Justice, observed, " that if a fund for the payment of debts be created under an order or decree in chancery, and the creditors come in to avail themselves of it, the rule of equity then is, that they shall be paid in pari passu, or upon a footing of equality. But when the law giv a priority, equity will not destroy it, and especially where legal assets are created by statute, as in case of a judgment lien they remain so, though the creditors be obliged to go into equity for assistance. The legal priority will be protected and preserved in chancery."
The settled rule, also, appears to be, that where the subjectmatter of the suit in equity is real estate, and which is taken into the possession of the court pending the litigation, by the appointment of a receiver, or by sequestration, the title is bound from the filing of the bill; and any purchaser, pendente lite, even if for a valuable consideration, contes in at his peril
. 3 Swanst. 278, n., 299, n.; 2 Daniel's Pr. 1267; 6 Ves. 287; 9 Id. 336; 1 J. & W. 178; 3 Daniel's Pr. 1984.
It has been argued, that a sale of the pr-mises on execution aud purchase, occasioned no interference with the possession of the receiver, and hence no contempt of the authority of the court, and that the sale therefore, in such a case, should be upheld. But, conceding the proceedings did not disturb the possession of the receiver, the argument does not meet the objection. The property is a fund in court, to abide the event of the litigation, and to be applied to the payment of the judg. ment creditor, who has filed his bill to remove impediments in the way of his execution. If he has sucoeeded in establishing his right to the application of any portion of the fund, it is the duty of the court to see that suoh application is made. And, in order to effect this, the court must administer it independently of any rights acquired by third persons, pending the litigation. Otherwise, the whole fund may have passed out of its hands before the final decree, and the litigation become fruitless.
It is true, in administering the fund, the court will take care that the rights of prior liens or encumbrances shall not be de
Wiswall v. Sampson.
stroyed; and will adopt the proper measures, by reference to the master or otherwise, to ascertain them, and bring them before it. Unless the court be permitted to retain the possession of the fund, thus to administer it, how can it ascertain the interest in the same to which the prosecuting judgment creditor is entitled, and apply it upon his demand?
There can be no difficulty in ascertaining the prior liens and encumbrances, as all of them are matters of record. Several of the judgment creditors came in, in this case, and received their share in the distribution.
These two judgment creditors had notice of the suit before the sale, and might have made themselves parties to it, and claimed application of the fund according to the priority of their liens.
They were also before the court, pending the litigation on the petition of Dargan, who had purchased for their benefit, to have the possession of the receiver delivered up to the purchaser. There is no pretence, therefore, for saying that they have not had notice of the proceedings in the equity suit. The prayer of the petition' was denied, among other grounds, because their appropriate remedy was a motion to the court, founded on their judgments to have the proceeds of the sale under the decree applied to them according to priority.
We agree, that the person holding the prior legal lien or encumbrance, must have notice, and an opportunity to come in and claim his prior right to the property or interest in the fund before his legal right can be affected; and the proper way is by summons or notice upon the order or direction of the court.
This notice can be readily given on the report of the master, of the prior liens or encumbrances resting upon the estate.
But it is-not necessary to go this length in the case before us, as it is sufficient to say, that the sale under the judgment, pending the equity suit, and while the court was in possession of the estate without the leave of the court, was illegal and void. We do not doubt but that it would be competent for the court, in case the judgment creditor holding the prior lien had not come in and claimed his interest in the equity suit, to decree a sale in the final disposition of the fund subject to his judgment. The purchaser would then be bound to pay it off. But this disposition of the legal prior encombrance is a very different matter, and comes to a very different result, from that of permitting the enforcement of it, pendente lite, without the leave of the court. The rights of the several claimants to the estate or fund is then
settled, and the purchase under the decree can be made with a full knowledge of the condition of the title, or charges to which it may be subject.
Wiswall v. Sampson.
Neither do we doubt but that it is competent, and might, in some cases, be fit and proper for the court, where the property in dispute is ample, and the litigation protracted, to permit the execution to issue, and compel the prosecuting creditor to pay off the judgment. 3 Beav. 428. But it is manifest that these proceedings, on behalf of the prior encumbrancer, should be under the control of the discretion of the court, as the condition of the title to the property may frequently be so compli. cated and embarrassed, that unless the sale was withheld until the title was cleared up by the judgment of the court, great sacrifice must necessarily ensue to the parties interested. This case affords an apt illustration of the remark.
The marshal's sale was made under an arrangement that no mesjey was to be paid by the purchaser, unless he succeeded in obtaining a title to the property under it. It is obvious, therefore, if the purchase had been unconditional, and at the risk of the purchaser, it must have been bid off for a nominal consideration.
As we have already said, it is sufficient, for the disposition of this case, to hold, that while the estate is in the custody of the court, as a fund to abide the result of a suit pending, no sale of the property can take place either on execution or otherwise, without the leave of the court for that
this ground, we hold that the sale by the marshal on the two judy. ments was illegal and void, and passed no title to the purchaser.
We are, also, inclined to think, that the question of title to the property under the marshal's sale is concluded between these parties by the judgment of the court in the proceedings on the petition by the purchaser for the removal of the receiver, and to be let into the possession. This, we have seen, is the appropriate remedy on behalf of a person claiming a paramount legal right to an estate which has been brought into the possession and safe keeping of the Court of Chancery, pending the litigation in respect to it.
This proceeding was explained by Lord Eldon in Angel v. Smith, (9 Ves. 335), speaking of the rule in respect to seques. trators, and which he held was equally applicable in the case of receivers. “Where sequestrators," he observed, " are in possession under the process of the court, their possession is not to be disturbed, even by an adverse title, without leave: upon this principle, that the possession of the sequestrators is the possession of the court, and the court being competent to examine the title, will not permit itself to be made a suitor in a court of law, but will itself examine the title. And the mode is, by permitting the party to come in to be examined pro interesse suo ; the practice being, to go before the master to state his title, and there is the judgment of the master, and afterwards, if neces