
    Columbian Insurance Co. v. Stevens and another.
    
    
      Liability of receiver for costs.
    
    Where a receiver prosecutes a pending action, and fails, the defendant is entitled to immediate payment of costs out of the fund; he is not bound to await a distribution.
    Appeal from the general term of the Supreme Court, in the first district, where an order denying a motion for the payment of costs out of the fund in the hands of the plaintiff’s receiver, had been affirmed.
    This was an ordinary suit at law by the Columbian Insurance Company against Samuel Stevens and Henry W. Peabody, for the recovery of money only. Shortly after its commencement, and before an appearance by the defendants, receivers were appointed by the supreme court of the plaintiff’s effects, and thereafter the action was prosecuted by them and their successor.
    On the trial of the cause before a referee, the latter reported a judgment in favor of the defendants, with costs. And after the entry of judgment upon the report, the defendants applied, by motion, for an order upon the receiver to pay the costs out of the funds in his hands; it being shown by affidavit that he had moneys in his possession, as such receiver, to a much larger amount. The motion, however, was denied; and the order having been affirmed at general term, the defendants appealed to this court.
    The nature of the’ receivership was not shown by the papers; nor did it appear to what extent there were claims of creditors or others to the funds in the nands of the receiver.
    Warren, for the appellants.
    
    Shearman, for the respondent.
    
      
       Also reported in 35 How. Pr. 101.
    
    
      
       The arguments of counsel will be found in 35 How. Pr. 102-5.
    
   *Woodruff, J.

The right of the defendants to have judgment for their costs in such an action as the present, brought against them for the recovery of money only, is absolute, as well by the law before as since the code of procedure. There is no claim, nor ground of claim, that the allowance of costs in the action was discretionary. The liability of the receiver in whom the alleged cause of action became vested, after the summons herein was served, and by whom the action was prosecuted, is made by § 321 of the Code, the same as if he had caused himself to be made a party. The 'questions here, are, therefore:

1. In an action prosecuted by receivers for the collection of alleged money demands, instituted or carried on for the enhancement of the fund, for the benefit of those to whom it is ultimately to be paid, is the defendant entitled to costs to be paid to him immediately, or must he stand as a general creditor to await the final administration and receive only (as the’ case may be) his distributive share of the fund pro rata, with those for whose benefit he has been subjected to a groundless litigation ?

2. Is the question stated addressed to the discretion of the court, in such sense that no appeal lies to this tribunal from the decision made below?

It was conceded on the argument, that the costs in question are chargeable upon and are to be collected out of the fund. This could not well be denied, and yet, in a case in which it does not appear by anything stated in the papers, that there are other claims on that fund, of any sort, except the interests of the stockholders of the company, it would seem to follow, as of course, that the receiver should have be^n directed to pay those costs. Such an order is the appropriate mode of reaching funds in the receiver’s hands. Not being in form a party to the action, no execution could reach the property he holds, and being the custodian of the fund, as an officer of the court, he is subject to immediate direction to pay it to a party entitled.

*If it be assumed, that the company was insolvent, and that the funds which the receiver holds or may collect may not prove sufficient to satisfy all the creditors of the company, this does not, in my opinion, upon clear and just rules governing the subject, impair the defendants’ right to be paid in full, the fund being confessedly sufficient. The receiver is pro hdc vice the representative of the company, its creditors and stockholders. The action is prosecuted for the increase of a fund which is to be paid to them. It is not according to any rule of justice or equity towards third parties, that actions like the present should be prosecuted by the company, or such representative, otherwise than at the expense and risk of the fund which it is sought thereby to increase.

In my opinion, the right of the defendants to this protection and indemnity against groundless prosecution is clear, and it is not necessary to invoke the 317th section of the Code for its maintenance, further than to say, that its provisions warrant the charge of these costs upon the fund; and such charge should be absolute and prior to the claims of those for whose benefit the action is prosecuted, if the rules of equity require it. Whether that section imperatively entitles the prevailing party to such priority of payment in all cases, mentioned in that section, it is unnecessary in this case to decide.

If the views thus expressed are in conformity with established rules relating to the subject, as they are, in my judgment, conformable to what is obviously just, then it was not a matter of discretion to refuse the order sought. The rule was applied by Chancellor Walworth to a case like the present, in which it did appear .that the corporation was insolvent (Camp v. Receivers of the Niagara Bank, 2 Paige 283), where the receivers continued the prosecution of a suit at law which was at issue before their appointment. In giving his opinion, he says: “If the receivers did not think it for the interest of the creditors to run the risk of having the costs charged upon the fund, they should have abandoned the suit, and then the petitioner would °n^ ^ave *^een entitled to share ratably with the other creditors. The petitioner is entitled to his costs down to the time of the nonsuit, to be paid out of the fund in the hands of the receivers.” And he made an order to that effect.

In my opinion, the scheme or principle proposed by the chapter of the Code, in relation to costs, is, that where costs are allowed, they shall be paid by the fund or party who would be benefited by a counter-judgment, and that this case is not within any exception to the rule.

To the suggestion that the statute (2 R. S. 470, § 79) will not permit the preference sought, it must suffice to say, that it is not sought to give a preference to the defendants in the payment of a debt of the company, as such; it is to require the fund to- bear and pay an expense incurred for its own benefit or increase. Nor is it any answer to say, that defendants often fail to collect their costs of a successful defence, where the plaintiff is insolvent, and, therefore, the order made below works no unusual hardship. Where the plaintiff has funds, the defendant is always entitled to collect, and does collect, his costs. Here, the beneficial party plaintiff has funds.

It may be said, that this rule places it in the power of receivers to waste the whole of the assets in their hands in groundless litigation, and successful defendants are paid their costs, while creditors may get nothing. On that subject, I answer, when the receiver’s accounts are passed, there will be abundant opportunity for creditors and others to inquire whether he has acted with due regard to their interests; and the right to require that he personally pay costs which he ought not to have incurred, is not confined to the parties to the action. (Colvard v. Oliver, 7 Wend. 497.)

The question whether an unreasonable allowance was or was not made to the defendants, is not before us. We must assume, that the case called for it. The order appealed from should be reversed.

Order reversed.  