Blake v. Gorsuch

Adkins, J., delivered the opinion of the Court. The question upon which the decision of the case depends is: Can creditors, who, although notified of the appointment of receivers, failed to object for seventeen months thereafter, during which time property of an insolvent debtor has been ⁶⁴⁹ transferred, and obligations have- been incurred, by tbe receivers, and other creditors have filed their claims in the receivership proceedings, and the objecting creditors have obtained judgments on their claim, and thus attempted to secure preferences, have the proceedings vacated on the ground that the court erred in appointing receivers at the instance of a simple contract creditor who liad not obtained a judgment on her claim ? The proceeding sought to be vacated was begun by a bill filed on July 25th, 3 932, by Mary A. Gorsuch against her husband, Frank M. Gorsuch. The hill alleged that the defendant was indebted to the plaintiff in the sum of $12,000, with interest, on an unpaid demand note, and is also indebted to other persons and corporations in largo sums of money, most of which indebtedness is long overdue; that the bill is filed on behalf of plaintiff and other creditors who may desire to intervene; that the assets of the defendant consist of real estate in Baltimore City and elsewhere, which real estate is valuable, but at the present time unproductive .and with no ready market for the sale thereof; that while the aggregate assets of the defendant greatly exceed the aggregate of his liabilities, nevertheless, because of the nature of his assets, and the large amount of his indebtedness, he is unable to meet the claims of his creditors in the due and ordinary course of business as they become due; that plaintiff recently demanded payment of her overdue note and was informed by defendant that he was. unable to* pay same, and plaintiff therefore charges that defendant is unable to meet his obligations in the due and ordinary course of business; that if the defendant is permitted to go on in his present condition, it will subject his assets to tbe liabilities of separate suits and will therefore subject said assets to. the payment of certain claims in prejudice of the claims of all his creditor’s.

The prayer of the bill is: (1) For the appointment of receivers “to take charge of the assets of every kind and description, properties, books, papers of accounts, goods and effects ⁶⁵⁰ of and belonging to said defendant and to collect, the debts dne to said defendant and to receive and dispose of the same under the direction of this Honorable Court”; (2) to apply the same to the payment of debts; (3) for general relief. On the same day the defendant answered admitting all the allegations of the bill, and a receiver was appointed. On September 9th, 1932, the receiver was authorized to have the real estate in Maryland appraised, and to' borrow $1,000 to pay interest on mortgages. The appraisement showed a total value of approximately $59,800, against which there are mortgages of $20,500.

Subsequently, on petition of two other creditors in the amount of $43,900, an additional receiver was appointed. Notice to creditors was duly published. • One improved lot appraised at $4,000 was transferred to the holder of a mortgage thereon for the amount of the mortgage, $5,000, and a right of way through a 118-acre farm was conveyed to the State’s Roads Commission in connection with the improvement of the Bel Air Road. On August 30th, 1933, an order was passed authorizing and directing the receivers “to sell at public auction such portion or all of the real estate located in Baltimore City and Baltimore County, Maryland, constituting a part of the assets of this estate, as in their opinion may be necessary and proper,” after advertisement in a daily newspaper published in Baltimore City and a weekly newspaper published in Baltimore County, and to bring into court “all moneys arising therefrom in order to pay the necessary liens and' fixed charges thereon and distribute the balance to the creditors.” The receivers reported on November 9th, 1933, that they had offered at public sale a valuable farm in Baltimore County and at the same time offered the chattels, live stock, and personal property located thereon; that they were unable to obtain a satisfactory price for the farm and were compelled to withdraw the same, but sold the personal property for $554.05. The sale of the personal property was duly ratified.

On November 21st, 1933, they asked for authority to sell at private sale a lot with a one-story brick building and a cor ⁶⁵¹ rugatecl metal building, both in a dilapidated condition and unoccupied since the appointment of the receivers, situated on the north side of East Baltimore Street in the 4000 block, for $7,500, less commission to broker. The property is assessed at $13,750, and its present value appraised at $8,000. In their petition the receivers state that taxes for 1932 and 1933 on all the property in the receivership are unpaid and none of it is bringing in an income; that the debts are in excess of the present value of the property; that in the opinion of the receivers the offer of $7,500 is more than the. said lot and improvements would produce at public sale after deducting expenses. The court authorized a report of said sale, which was filed on the same day.

On December 9th, 1933, two creditors, Warren A. Blake and the Equitable Trust Company, “appearing specially and solely for the purpose of contesting the validity of these proceedings and the appointment of receivers in this cause,” filed a petition in which they recite the filing of the bill and answer and the appointment of the receivers, and allege that the said trust. company on August 21st, 1932, brought suit against Gorsuch and his wife and on January 26th, 1933, obtained a judgment by default for $10,886.54, and that on October 22nd, 1932, the said Blake had entered a judgment on a judgment note against said Gorsuch for $5,093.33; that said judgments are liens on all the property owned bv said Gorsuch in Baltimore County and in Baltimore City referred to in these proceedings; that the said Mary A. Gorsuch is an unsecured creditor of said defendant, as alleged in said bill of complaint; that she had not before, and has not since, the filing of said bill procured judgment on her said claim, and did not allege in her bill of complaint that she had pursued any of the usual remedies at law available to' her for the collection of her alleged claim, and that there is no evidencie that she has ever done so; that the purpose of filing said bill of complaint, and invoking the jurisdiction of a court of equity for the appointment of a receiver by consent was to enable the said Frank M'. Gorsuch to remain in possession and control of his properties and to prevent petitioners from en ⁶⁵² forcing judgments on their claims against the properties; that the said Frank M. Gorsuch has remained in control of all of said properties except the property in Baltimore County, which he vacated in October, 1933, and has been collecting- the rents and income from said properties; that the appointment of receivers and the assumption by the court of jurisdiction over said property has prevented petitioners from proceeding by way of execution against said property, and that the filing of these proceedings and the appointment of receivers has had the effect of hindering, delaying, and otherwise prejudicing petitioners in the lawful enforcement of their judgments; that the court was without authority to assume jurisdiction over the assets of the defendant, and to appoint a receiver under the allegations of the bill of complaint and the consent of the defendant; that the receivers on November 21st, 1933, reported a sale of the fee simple property of the defendant on the north side of East Baltimore Street, known as 4000 East Baltimore -Street, for $7,500, which sale is subject to the usual order of ratification; that the court is without power and. authority in these proceedings to authorize the sale of any property of the- defendant and the reported sale is invalid, and any and all other acts attempted to be performed by the receivers in these proceedings are invalid, and that petitioners are- about to- file exceptions- to- the ratification of said sale. The prayer of the petition is that the proceedings be dismissed and that the- order appointing the receivers be vacated and the- receivers discharged. On the same day exceptions were filed to said sale and the court passed a show cause order on the petition.

On December 26th, 1933, Mary A. Gorsuch and Frank M. Gorsuch and the receivers answered, and in their answer deny that these- proceedings were instituted so- that the defendant might remain in possession and control of the property, and that he- has been in control of any of the assets. They aver that he was allowed to take- care of the- farm in Baltimore County and to preserve the dwelling house and other buildings from depredation and vandalism by living in ⁶⁵³ the dwelling house; that he- has had nothing whatever to do with any of the other property, except that he has been employed by the Equitable Trust Company in liquidating the assets of the Mallory Machinery Company held hy said trust company as collateral upon his indebtedness to it, for which its judgment was obtained; that most of the properties have been vacant for a long time, and that any and all rents collected belong to the estate and will be accounted for by the receivers; that this is entirely and solely a creditor’s proceeding and that other creditors have intervened and filed their claims; that it would bo inequitable and unjust to allow the petitioning creditors, who stood hy and had full knowledge of the administering of the estate by the court for a period of seventeen months, to procure preferences against the rights of other creditors hereto, and to attack the validity of these proceedings; that the attack upon the proceedings is solely for the purpose of procuring preferences for their judgments over other creditors; that this proceeding was instituted for the purpose of procuring an equitable distribution of the assets of the defendant amongst the creditors-without preference or priority; that the proceedings are legal and valid; that the properties of the estate are not subject to liens, of the judgments of the petitioning creditors, and that these proceedings have not had the effect of