
    Daniel B. Wesson, for the Benefit of Himself and Other Creditors, etc., Resp’t, v. George D. Chapman, as Receiver, etc., et al., App’lts.
    
      (Supreme Court, General Term, Fifth Department,
    
    
      Filed March, 1894.)
    
    1. Receiver—Railroad—Certificates.
    Without the order of the court, the receiver has no power to issue notes or certificates which will be binding upon the trust estate.
    2. Same—Without order.
    The holder of notes, issued without authority, must at least show that his money was used for the benefit of the road, before he can make a claim for equitable relief.
    
      Appeal by Robert Dunlap & Company, creditors of George D. Chapman as receiver, etc., from a judgment entered herein adjudging that they are not entitled as creditors of said receiver to a lien against the property of the railroad company equal to the lien held by the holders and owners of receiver’s certificates and notes issued under the orders of the court.
    
      R. Floyd Clark, for app’lts; William L. Marcy, for resp’ts.
   Lewis, J.

This action was commenced by the plaintiff, Daniel B. Wesson, in behalf of himself as the owner and holder of receiver’s certificates, and others like situated, to obtain a judgment declaring their claim a first lien upon the said railroad property and franchises and for the.sale thereof, etc. The action was referred to James M. Townsend, Jr., as sole referee to hear, try and determine the issues in said action, and to ascertain the amount of the outstanding indebtedness of the receiver George D. Chapman, together with the names of the holders of said indebtedness and the amounts due to each, and the validity and priorty of said claims as liens upon- the property and franchises of the Lackawanna & Pittsburg Railroad Company. The referee found as facts that the Lackawanna & Pittsburg R. R. Go. is a domestic corporation created and existing under the laws of the state of New York, that it was formed by the consolidation of two other railroads which constituent railroad companies had theretofore mortgaged their respective properties, to secure their bonds, and that the new company had also mortgaged its property to secure its bonds and that thereafter and on the eighth day of December, 1884, an action was commenced in the name of the People of the state of New York for the purpose of dissolving said corporation and distributing its assets. That at a special term of the supreme court held in the city of Buffalo, George D. Chapman was duly appointed, receiver of said company and thereafter on the application of said receiver an order was granted authorizing and directing him to issue receiver’s certificates to the amount of one hundred thousand dollars, to be sold by him and the proceeds of the sales used for the benefit of the property of said road, and of the owners and holders of its stock and bonds. The order provided that the certificates, when issued, should be and become the first lien on the said railroad property and franchises prior to the lien of said mortgages. Said Chapman issued' certificates amounting to one hundred thousand dollars, ten of said certificates he sold to the plaintiff who paid therefor full value, to wit: the sum of ten thousand dollars ; the certificates became due and payable on the first of January, 1890. Thereafter upon the application of said receiver, an order was duly granted by the supreme court, authorizing him to issue receiver’s notes to the aggregate amount of fifty thousand dollars, the order provided that when so issued they should be a lien upon all the railroad property and franchises of said Lackawanna & Pittsburg Railroad Company prior and superior to the liens of said mortgages mentioned; under the authority thus conferred said receiver duly issued and negotiated receiver’s notes to the amount of $50,000 of which there were, at the date of the referee’s report, forty-five thousand dollars outstanding.

Some of said notes were sold by the receiver at par; others were pledged as collateral security to his individual notes which were sold at less than par, the aggregate amount realized therefrom being forty-four thousand dollars. The receiver operated the road from the time .of his appointment in "December, 1884, to September 1, 1888, and during most of the time the receipts and income therefrom were not sufficient to pay its current expenses. Attached to each of the genuine notes issued by the receiver was a certificate which stated that the notes were issued pursuant to an order of the court, authorizing their issue, that they were to be a debt of the receiver for the benefit and. protection of the property of said railroad and of the creditors and holders of the stock and bonds thereof, and were to be a first lien on said property prior to-the lien of the said several mortgages. After the said receiver had issued the said notes to the amount of fifty thousand dollars, and after he had ceased to operate and manage the road as receiver, and in the month of December, 1888, he entered into negotiations with the appellants, looking to the borrowing of ten thousand dollars from them and to accomplish his purpose he issued what purposted to be receiver’s notes to the amount of ten thousand dollars and sold them to the appellants -at par, they believing them to be the genuine notes of the receiver when they purchased them. There was attached to said notes so sold to the appellants a writing which recited that they were issued as the notes of George D. Chapman as receiver of said road, it did not, however, state by what authority they were issued nor that they were to be a first lien upon the railroad property and its franchises. The appellants at the hearing before the referee presented tneir notes and asked to-have them allowed as a claim against the receiver and the railroad company with the same force and effect as the certificates and notes issued as aforesaid by virtue of the orders of the court. • It was not shown that the proceeds of the appellants’ notes, nor any part thereof, were in any way used for the benefit of the railroad, as their sale to the appellants occured after the receiver ceased his connection with the road it is quite evident that they were not so used. The referee held that the appellants were not entitled to come in as creditors of the railroad company and participate in the-assets of the company. The report of the referee having been confirmed, and judgment entered thereon, this appeal was taken by Dunlap & Company. The case comes here upon exceptions only. Ho evidence is contained in the record, so that questions of law only are presented. It is the contention of the appellants-that having advanced money to the receiver appointed by the-court.upon the strength of notes purporting to be issued by him as such receiver, that they are entitled to share pro rata with the holders of genuine certificates and notes in the assets of the company ; if not to the full amount of their notes, to at least in the sum of six thousand dollars, which the receiver had not obtained from the sales of the notes of fifty thousand dollars, issued by the order of the court, there being, the appellants contend, an actual overissue of only four thousand dollars. Without the order of the court the receiver had no power to issue notes or certificates which would be binding upon the trust estate. Newbold v. Peoria & Springfield R. R. Co., 5 Bradw., 367. He had no authority to issue the notes purchased by the appellants, and had the appellants examined the notes and the accompanying papers before purchasing them, they would have discovered that they did not purport to be issued by authority of the court While it would not be incumbent upon the holders of notes, or certificates issued by the receiver pursuant to the order of the court to show that the proceeds of the sale were devoted by him for the benefit of the road, the same rule can not be held to' apply to the holders of notes issued without authority. The holder of such notes must at least show that his money was used for the benefit of the estate before he can make a claim for equitable relief. The receiver had exhausted his powers when he issued the amount of notes provided for in the order; and when he assumed to issue the notes purchased by the appellants, he was acting outside of the power conferred upon him; and to permit the holders of such notes to participate in the assets of the company upon an equality with those holding genuine notes would destroy the market value of genuine certificates or notes issued by receivers under the order of a court, to allow such instruments to take precedence of existing mortgages would destroy the market value of such securities. The cases to which we are referred, where courts have given relief to the holders of stock and instruments improperly issued by directors of corporations, the corporations were held liable for the reason that the improper conduct was that of their agents or representatives. The receiver here was not the representative in that sense of the corporation, he was simply the instrume'nt employed by the court to take charge of the corpus of the estate pending the litigation. We know of no principle upon which plaintiff's notes ean be reformed so as to make them appear to have been issued by order of the court. ■ The only remedy open to the appellants is against the receiver personally. The judgment appealed from should be affirmed with costs.

Dwight, P. J., Haight and Bradley, JJ., concur.  