Chatham Bank & Trust Co. v. Ocilla Southern Railroad , 153 Ga. 37 ( 1922 )

Hines, J.

(After stating the foregoing facts.)

1. The petition in this ease sets up causes of action. About this there can not be even a fanciful doubt; but counsel for the defendants insist, that, as the property of the Ocilla Southern Kailroad Compaixy, including that embraced in the plaintiff’s mortgages, had been placed in the hands of receivers, the plaintiff can only prosecute these causes of action in the receivership case by intervention, and not by an independent proceeding of foreclosure and for receiver. In reply to this position counsel for the plaintiff contends that the receivership proceedings should be treated as a mere nullity, because there is nothing in that case to support a receivership, there being no controversy between the parties, no justiciable question involved, and the application for a receiver, by a minority stockholder of the corporation, based on loose and general allegations of mismanagement of its affairs by its general manager in conspiracy with its security holders, being colorable and collusive.

2. The general rule is, that, where property of a corporation has been placed in the hands of a receiver, persons seeking to assert equitable remedies against its assets should become parties to the cause by intervention and prosecute their remedies therein. Civil Code, § 5478; National Bank of Augusta v. Richmond Factory, 91 Ga. 284 (18 S. E. 160); Empire Lumber Co. v. Kiser, 91 Ga. 643 (17 S. E. 972).

To this general rule, as to all general rules, there are exceptions. It is probably impossible to find any general statement of the law so inclusive and exclusive as admit of no exceptions.

In the first place this principle is applicable to creditors’ bills and similar suits to wind up the affairs of insolvent corporations and others, and to distribute their assets among creditors, stockholders, and others entitled thereto. National Bank of Augusta v. Richmond Factory, supra. So proceedings, authorized by statute to forfeit the charter and franchises of an insolvent corporation, to appoint a receiver to take charge of its assets, and to wind up and distribute its assets, are exceptions to the general rule. People v. New York City Ry. Co., 57 Misc. 114 (107 N. Y. Supp. 247); State v. Port Royal & Augusta Ry. Co., 45 S. C. 470 (23 S. E. 383); Herring v. N. Y., L. E. & W. R. Co., 105 N. Y. 340 (12 N. E. 763); In re Kittanning Ins. Co., 146 Pa. 102 (23 Atl. 336); St. Louis Car Co. v. Stillwater Ry. Co., 53 Minn. 129 (54 N. W. 1064); Texas Trunk Ry. Co. v. Texas, 83 Tex. 1 (18 S. W. 199); City Water Co. v. Texas, 88 Tex. 600 (32 S. W. 1033); De La Vergne Ref. Mach. Co. v. Palmetto Brewing Co. (C. C.), 72 Fed. 579; Met. T. Co. v. Lake Cities Elec. Ry. Co. (C. C.), 100 Fed, 879; Merchants’ &c. Bank v. Trustees of Masonic Hall, 63 Ga. 549; People v. Hasbrouck, 57 Misc. 130 (107 N. Y. Supp. 257); Hitchcock v. American Pipe &c. Co. (N. J.), 105 Atl. 655; Taber v. Royal Ins. Co., 124 Ala. 681 (26 So. 252).

So there is an exception where one party "becomes the sole party in interest and dominus litis on both sides.” Cleveland v. Chamberlain, 1 Black, 419 (17 L. ed. 93).

The case at bar is stronger. From the beginning the interests of the plaintiff and the defendant in the receivership proceedings were identical. The proceedings were colorable and collusive, and are an exception to the general rule that parties must intervene in receivership proceedings to enforce liens on the property in the hands of the receiver. Lord v. Veazie, 8 How. 251 (12 L. ed. 1067); Harp v. Abbeville Investment &c. Co., 108 Ga. 168 (33 S. E. 998); May v. Printup, 59 Ga. 128; Merchants’ &c. Bank v. Trustees, 63 Ga. 549.

This is especially so, when by collusion the receiver was appointed to head off the plaintiff from proceeding to foreclose its mortgages and obtain a receiver. Merchants’ &c. Bank v. Trustees, supra.

A cásual inspection of the record in this case shows the proceedings under which the receiver was appointed were collusive and colorable. The allegations of mismanagement are very loose and general. No application was made to the directors and stockholders of the corporation for redress. Civil Code, § 2224; Alexander v. Searcy, 81 Ga. 536 (8 S. E. 630, 12 Am. St. R. 337). If the general manager of this corporation was mismanaging its affairs, he could have been removed by the directors. Yet no relief was sought at the hands of the directors. The application for a receiver was avowedly made to head off the plaintiff from foreclosing its mortgages, and from obtaining from the court in which the proceedings were instituted such rights as the plaintiff was entitled to. In its answer the company joined in the prayer for a receiver; and the appointment of the receivers was by consent.

An inspection of the minutes of the meeting of the stockholders of this companjr, at which a resolution was passed endorsing this Garbutt petition for a receivership, will show that these proceedings were collusive and intended to prevent the bondholders having the road put in the hands of a receiver in the United States district court, and possibly securing an order for dismantling it. Mr. Elkins, of counsel for Garbutt, stated to' this meeting that probably some of the Garbutt petition for a receiver was camouflage; but its main purpose was as above stated. The general manager was not even made a party to the proceeding.

As the application and appointment of a receiver were color-able and collusive, we think that this constitutes an exception to the general rule requiring persons who have liens on corporate property in the hands of a receiver to intervene and prosecute the same in the case in which the receiver was appointed.

Furthermore, the receivership in the Garbutt case was for one purpose only, and that was to operate this railroad. The plaintiff seeks a receiver for another and distinct purpose. The receiver-ships were for separate and distinct purposes.

So we are of the opinion that the plaintiff could file an independent proceeding to foreclose its mortgages, to have a receiver appointed, and to request the court to pass an order to require the present receiver to turn over the property of this railroad to the receiver appointed in this cause.

3. The plaintiff could file this proceeding 'without first obtaining an order from the court permitting its prosecution. Such order was unnecessary. Harp v. Abbeville Inv. &c. Co., supra. If such order was necessary, the sanction of the petition by the court before it was filed was tantamount to the granting of such authority by the court. Vestel v. Tasker, 123 Ga. 213 (51 S. E. 300); Donehoo v. Rogers, 146 Ga. 75 (3), 76 (90 S. E. 382).

Judgment reversed.-

All the Justices concur.