Argument for Appellant.

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 head 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 intervenor 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.

Mr. George L. Paddock and Mr. Hiram T. Gilbert for appellant.

Opinion of the Court.

I. The lease was a contract proper for the receiver to make, and one which, if brought to the attention of the court when it was made, would not have been disapproved.

II. The lease was valid, in the absence of an express disapproval by the court. Cowdrey v. Railroad Co., 1 Woods, 336; Vanderbilt v. Central Railroad Co., 43 N. J. Eq. 669; Field v. Herrick, 101 Illinois, 110.

III. Even if the receiver exceeded his authority in making the lease, it was rendered valid by subsequent ratification by the court. Supervisors v. Schenck, 5 Wall. 772; Smith v. United States Express Co., 135 Illinois, 279, 280; Fisher v. Attleborough School District, 4 Cush. 494; Cowdrey v. Railroad Co., 1 Woods, 331, 336; Drakely v. Gregg, 8 Wall. 242; Stark v. Starr, 94 U. S. 477; Connett v. Chicago, 114 Illinois, 233, 239; Ward v. Williams, 26 Illinois, 447, 451; S. C. 79 Am. Dec. 385; Harrod v. McDaniels, 126 Mass. 413; Whitbread v. Jordan, 1 You. & Coll. (Exch.) 303.

IV. The parties interested in the foreclosure suit, the purchasers, the receiver, and the court itself, are estopped from insisting upon the invalidity of the lease. Rogers v. Burlington, 3 Wall. 654; Ottawa v. First Nat. Bank, 105 U. S. 342; Anderson County v. Beal, 113 U. S. 227.

V. The lessor is entitled to the payment of the rent stipulated in the lease.

Mr. Wells H. Blodgett for appellees.

MR. JUSTICE JACKSON, after stating the case, delivered the opinion of the court.

The proof fails to show, as said in the opinion of the court below, that the lease was ever reported to or confirmed by the court. The receiver's reports which were approved by the court did not disclose the fact of the existence of the lease, or its terms and provisions, in such manner as to make the court's approval of the reports a confirmation of the lease.

The question then remains whether the order appointing the receiver conferred upon him the requisite authority to

Opinion of the Court.

enter into a contract of lease, involving a large annual expenditure, and extending beyond the receivership so as to make the contract a proper charge against the trust property under the administration of the court?

While there is some want of harmony in the authorities upon the question as to how far a receiver may make and enter into contracts without the previous approval or subsequent ratification of the court, which shall be binding upon the trust, we are of opinion that the order appointing the receiver in this case was not broad enough in its terms to authorize him to enter into the lease in question so as to give it validity without the approval or confirmation of the court.

It is undoubtedly true that a receiver, without the previous sanction of the court, manifested by special orders, may incur ordinary expenses or liability for supplies, material, or labor needed in the daily administration of railroad property committed to his care as an officer of the court; but it seems equally well settled that the courts decline to sanction the exercise of this discretion on the part of receivers in respect to large outlays, or contracts extending beyond the receivership, and intended to be binding upon the trust. The receiver being an officer of the court, and acting under the court's direction and instructions, his powers are derived from and defined by the court under which he acts. He is not such a general agent as to have any implied power, and his authority to make expenditures and incur liabilities—like the one in question must be either found in the order of his appointment, or be approved by the court, before they acquire validity, and have any binding force upon the trust.

In Cowdrey v. Galveston, Houston &c. Railroad, 93 U. S. 352, it was held that a receiver is not authorized, without the previous direction of the court, to incur any expenses on account of property in his hands, beyond what is absolutely essential to its preservation and use, as contemplated by his appointment. Accordingly, the expenditures of a receiver to defeat a proposed subsidy from a city, to aid in the construction of a railroad parallel with the one in his hands, were properly disallowed in the settlement of his final account,

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Opinion of the Court.

although such road, if constructed, might have diminished the future earnings of the road in his charge.

This same general principle is recognized in Union Trust Co. v. Illinois Midland Co., 117 U. S. 434, 479, where debts for considerable sums of money, borrowed by the receiver without previous authority from the court, were not allowed any priority out of the trust fund, although the moneys. borrowed were applied to pay expenses of the receivership, such as supplies, repairs, and pay-rolls, and to replace moneys which had been so applied, for the reason that no order of the court had been obtained to borrow funds for those purposes.

In Lehigh Coal and Navigation Co. v. Central Railroad, 35 N. J. Eq. 426, it was said that "the receiver may undoubtedly appropriate moneys in his hands, belonging to the trust, to such purposes connected with the trust as he may think proper, always taking the risk that the court will finally ap prove his action; but he has no authority to bind the trust by contract without the authority of the court. Until his contracts are approved and ratified by the court the court is at liberty to deal with them as to it shall appear just, and may either modify them or disregard them entirely. All persons dealing with receivers do so at their peril, and are bound to take notice of their incapacity to conclude a binding contract without the sanction of the court."

This states the correct rule upon the subject, especially in respect to contracts involving large outlays, and which may extend beyond the life of the receivership. The same general rule is stated in Beach on Receivers, section 257, as follows: "But a receiver is not allowed to exercise his discretion in applying the funds in his hands. These he holds strictly subject to the direction of the court, and only to be disposed of upon its order. Neither can he enter into contracts without the approval of the court. Although, as receiver, he may enter into negotiations and make such agreements as would be binding upon him as an individual, yet, in order to affect the fund in his hands his acts must be ratified by the court. This rule is so well established that it has been decided that all persons contracting with a re

Opinion of the Court.

ceiver are chargeable with knowledge of his inability to contract, and enter into contracts with him at their own peril, and that the court has unquestioned power to modify or even vacate his agreements." To the like effect is a statement of the rule made in section 186 of High on Receivers.

What was said by Mr. Justice Bradley in Cowdrey v. Railroad Company, 1 Woods, 331, 336, and by the court in Vanderbilt v. Central Railroad, 43 N. J. Eq. 669, cited and relied on by the appellant, does not conflict with the general principle laid down in the authorities above referred to.

In respect to contracts which have been completely performed by a party dealing with a receiver, and when the claim is merely for compensation, equitable relief is often granted, although there was no previous approval or subsequent ratification of the receiver's act. This is pointed out by the chancellor in Vanderbilt v. Central Railroad, ubi supra.

In the case under consideration the intervening petitioner has been fully paid for the time that its premises were occupied for the benefit of the trust. The receiver not only had no authority to contract beyond that time, but by the order of his appointment his expenditure of the funds was limited and confined to designated objects and purposes. Under these circumstances the court was not bound to recognize any equitable right of the intervening petitioner to be paid for the unexpired term of a lease, which had no legal validity.

The position taken on behalf of the appellant that there was a confirmation of the lease growing out of the fact that the receiver's expenditures in the way of rental for general offices were approved, cannot be sustained. If the doctrine of ratification could be invoked, it would have no application in the present case, because there was no knowledge on the part of the court prior to the filing of the intervening petition that such a lease had been entered into by its receiver; and in respect to the remaining contention of the appellant, that the court and the purchasers under the foreclosure sale were estopped from denying the lease, there is nothing in the record on which to predicate such a proposition, even conceding that the doctrine of estoppel could be applied to courts.