Alabama National Bank v. Mary Lee Coal & Railway Co. , 108 Ala. 288 ( 1895 )

McOLELLAN. J.

The deeds of trust executed by the Mary Lee Coal & Railway Co. to the Mercantile Trust & Deposit Co. to .secure bonds do not, in our opinion, cover or embrace the rents, incomes, profits or proceeds of the property which is expressly granted, or of the business of mining coal, &c., which the grantor was to carry on. They in terms embrace all the “personal property of every kind now owned or- hereafter to be acquired and owned ‘and used,, whether by purchase or ¡otherwise, in connection with-and for use in developing and operating fits said coal mines-or other works of improvement now on or hereafter to be opened upon said ■lands or any part thereof.” : This clause manifestly refers, not to the product or incomefrom said mines, but to chattels used in carrying on. the raining operations and in operating in connection therewith the railway covered by the instrument, such as engines, cars, live stock, mining implements, and the like. All which is made the more obvious by reference to the provisions of the deeds bearing upon the status of the property before default made in the payment of the bonds, &c., where it is stipulated that until such default and possession taken by or for the trustee on account thereof, the Mary Lee Company shall be permitted and suffered to possess, manage, operate, use and enjoy the property, real and personal, rights and franchises thereby conveyed and to contract for the use of the same, and to take, receive and use the rents, incomes profits and tolls thereof, thus making a clear distinction between the personal property rights and franchises which are covered by the deeds, and the rents, incomes, &c., &e., which are not; and cumulatively providing that the latter should enure an l belong to the grantor. The other references in the deeds to rents, incomes, &c., relate alone to the rights of the trustee, should he take possession of the property, or of a receiver, should one be appointed to receive the rents, incomes, profits, tolls, &c.-, which should arise from the continued operation of the works by the trustee after taking possession or by the receiver under orders of the court, the latter’s right being'expressly limited to the incomes of the property during the pendency of the suit in which he is appointed.

The property described in complainant’s bill as certain coal which had been mined and certain coke which had been manufactured and certain pig iron, all which was in the possession of the Mary Lee Co. when the receiver was appointed, and also certain bills receivable filed by said company at that time representing the proceeds of the sale of products of its mine and coke ovens constituted in part the rents, incomes, profits, tolls, &c. of the property which was embraced in the deeds of trust but was itself not so embraced. Of course, therefore, these deeds could not have been rendered fraudulent as to other creditors by the fact that this property Was allowed to remain in the possession and at the unfettered disposal of the Mary Lee Co., the grantor therein.

This property not being embraced in these deeds— mortgages,jwe will call them — and. being rents, profits or incomes which had accrued prior to the appointment of the receiver, the trustee — mortgagee—was without right or power to intercept id, and have it applied to the mortgage indebtedness directly, or indirectly through the use of it in operating the mines and railroad of the mortgagor by the receiver for the benefit of the bondholders. The rule is well established in such cases, that until the mortgagee does actively intervene for the purpose of intercepting the rents, incomes and profits of the mortgaged estate, these belong to the mortgagor, and upon such intervention after the law day, either by notice to tenants of the mortgagor to pay rents to the mortgagee, by the latter’s entry for condition broken, or by the appointment of a receiver at the suit of the mortgagee on a bill averring insufficiency of the mortgaged property to pay the debt, and praying the interception of the rents "for that purpose, such only of the rents, incomes and profits as have not accrued, such only as do accrue after such notice, or entry, or appointment of a receiver may thus be intercepted and be applied to the mortgage debt. — Scott v. Ware, 65 Ala. 174 ; Johnston & Stewart v. Riddle, 70 Ala. 219 ; Lehman Brothers v. Tallassee Manufacturing Co., 64 Ala. 567 ; Childs v. Hurd, 9 S. E. Rep. (W. Va.) 362 ; Ohmer v. Boyer, 89 Ala. 273, 281 ; Falkner v. Campbell Manufacturing Co., 74 Ala. 359 ; Comer v. Sheehan, I b. 452 ; McMillan v. Otis, I b. 560.

All the property described in complainant’s bill, constituting, as it did, rents, incomes and profits of the mortgaged estate, but no part of said estate, had accrued to the mortgagor and been reduced to possession before there was any intervention by the mortgagee. It therefore belonged to and was the property of the mortgagor as fully as if it had not issued out of the mortgaged property at all but had come to him from another and entirely independent source. The mortgages or trust deeds involved here in terms recognize this and expressly limit the receivers right to after accruing rents and incomes, as we have seen. Whether rents and incomes thus ac 5ruing before the appointment of the receiver might be intercepted by him when the mortgage expressly em maces them, is not a question in this case.

The bill filed by the Mercantile Trust & Deposit Co., trustee, for the appointment of a receiver, foreclosure of said mortgages, &a., avers “that there are sundry notes and obligations of the said Mary Lee Coal & Railway Company due and unpaid, and also that there is due a large amount of back wages to the employes and operatives of said company that it has made default both in providing a sinking fund as required by said deeds and in the payment of the interest on the bonds secured thereby, that said deeds cover the rents, toils and incomes of the said company, and that under these circumstances the intervention of a court of equity for the enforcement and protection of the rights of bondholders is imperatively required, “and especially for the immediate appointment of a receiver, to take charge of, keep aud preserve the said mortgaged property, to continue the business of the said company, and to receive and properly appropriate its income until the final decree of this honorable court in the premises.” The following is a part of the prayer of the bill filed by the trustee: “That a receiver or receivers may be appointed with full power and authority to demand, sue for, collect, receive and take into his possession the goods, chattels, rights, credits, moneys and effects, lands, tenements, books, papers and property of every description belonging to the said Mary Lee Coal & Railway Company, and that said receiver or receivers may receive from the said court, in addition to the ordinary powers possessed by such receivers, full power and authority to manage, run and operate said company, and to carry out any and all contracts said company may have made (and to renew the same), connected with the conduct of their business, especially the contract with T. G-. Bush, Receiver, and if essential thereto to pay to the said Bush, Receiver, any indebtedness which may now be due him, and to preserve and protect the corporate franchises, privileges and property and to preserve the corporate existence of said company and to preserve all corporate property from being sacrificed under any proceeding which can or may be taken and would be likely to prejudice or sacrifice the same, and that an injunction may issue against the said defendant company, and all persons claiming to act by, through or under it, and all other persons, to restrain them from interfering with the said receivers taking possession of and managing the said property.”

The present bill of the Alabama National Bank alleges that the bill of the Mercantile Trust & Deposit Co. against the Mary Lee Coal & Railway Co. was prepared in the city of Baltimore, Maryland, where the complainant corporation therein is located, and that an answer was at the same time and by the same' attorneys who wrote the bill prepared for the Mary Lee Coal and Railway Company. The present bill farther avers “that immediately upon the filing of said bill [of said trustee in the city court of Birmingham] the said Mary Lee Coal & Railway Company, on the same day of the filing of said bill, filed a short answer, which complainant is informed and believes was prepared by the same attorneys who prepared the original bill, in which answer said company, while not admitting the allegations of said bill (that portion of the prepared answer being erased) consented to the appointment of receivers ‘until some arrangement can be made with its creditors and its financial embarrassment be removed so as to enable it to properly conduct its operations.’ Complainant avers that upon the filing of said answer, and upon the same day, a decree was rendered by consent of said Mary Lee Coal & Railway Co. appointing ***** receivers of said company, and directing them to take charge ‘of all and singular the mortgaged premises specified ancl described in the deeds of trust referred to in complainant’s bill all the books, papers and records of said company; all and singular the stock, tools, machinery, engines and all other property of every kind and description of said company wherever situated, and that thereupon the said receivers did take charge of all the property of said Mary Lee Coal & Railway Company,” including the coal, c >ke, iron and bills receivable to which we have referred as contstituting rents, incomes, &e., &c.”

Upon these facts and averments, the position of the Alabama National Bank, complainant here, is that the decree, in so far as it authorized and required the receivers to take the property last mentioned in their possession, was collusive and fraudulent being prayed by the complainant and consented to by the respondent in that bill for the purpose of hindering, delaying and defrauding the general creditors, of whom the bank is one, of the Mary Lee Company. We think the- position well taken. As has been made to appear,' the mortgagee in its bill for a receiver and foreclosure prayed that the receiver should be invested with full power and authority to demand, sue for, &c., and take into his possession all the property of the Mary Lee Company, as well that which was not covered by the mortgages as that which was embraced in them, and full power and authority to carry on the business and works of that company and to preserve and protect the corporate franchises, privileges and property, and to preserve the corporate existence of said company, and to preserve all corporate property from being sacrificed under any proceeding which' can or may be taken and would likely prejudice or sacrifice the same; and that an injunction may issue against the Mary Lee Co. and all persons claiming to act by, through or under it, and all other persons to restrain them from interfering with the said receivers taking possession of and managing the said property. The averment that the Mary Lee Co. owned sundry past due notes and a large sum as back wages to its employes seems to have been made as a predicate for this extraordinary prayer that property not covered by the mortgages should be taken into possession by the receiver that it might be “preserved” from all proceedings by such other creditors to collect their debts; and the solicitude of the complainant mortgagee that the corporate existence of the respondent morigagor should be preserved by the receiver is unaccountable save upon the theory that it was contemplated that by thus holding such creditors off said property until financial arrangements could be made, or creditors could be compromised with, or results attained in operating the respondent’s works by means of this other property which would enable the corporation to resume business in its own name. And all this is made clear by the answer of the Mary Lee Co. prepared by the attorneys who drafted the bill in Baltimore, and at the same time, and filed immediately upon the filing of the bill. The brevity of this paper is only surpassed by its candor. Written as a consent to the granting of the prayer of the bill in respect of the appointment of a receiver, and obviously in line with the purposes and objects of the bill as they were understood by the persons who wrote both, it admits that the interest of all parties will be promoted by the appointment of a receiver to take charge and control of all its property and to manage the same under the orders of the court until some arrangement can be made with its creditors — as for instance, compromises ruinous to them and into which they would probably be induced to enter because the debtor’s property had thus been put beyond their reach — and its financial embarrassment removed so as to enable it properly to conduct its operations, and failing such arrangement, that is if the general creditors would not Submit to being thus hindered, delayed and defrauded, or would not barter away their rights for a song on account of their debtor’s property being out of the reach of the ordinary process of the law, this respondent consents to the receivership till a sale can be made. The complainant in that bill having no more right to the property in controversy, no more right to have a receiver appointed to take it into possession, no more lien or claim upon it than if it had had no connection at any time with the mortgaged property or than if said complainant had not had a mortgage on any property of the Mary Lee Co., the case presented is a clear one of a collusive and fraudulent decree prayed by the complainant and consented to by the respondent for the purpose of hindering, delaying and defrauding the latter’s general creditors, and, so far as this property is involved, is void under the well settled principles reiterated by this court in the case of Little Warrior Coal Co. et al. v. Hooper, 105 Ala. 665.

The parties to that case cannot escape responsibility on the theory which they now suggest that the decree was the action of the court or judge. If so the action was directly superinduced by them ; and it might as well be said that no relief could be had against a collusive and fraudulent attachment or judgment at law because the writ is issued by an officer and the judgment is rendered by a court. But beyond this, a decree rendered by consent upon a collusive and fraudulent presentation of the case is to be taken as the act of the parties thereto and not as the judgment of the court. As said by Lord Brougham in Earl of Bandon v. Becher : “A sentence is a judicial determination of a cause agitated between real parties, upon which a real interest has been settled; in order to make a sentence, there must be a real interest, a real argument, a real prosecution, a real defense, a real decision. Of all these requisites, not one takes place in the case of a fraudulent and collusive suit; there is no judge, but a person, invested with the ensigns of a judicial office, is misemployed in listening to a fictitious cause proposed to him ; there is no party litigating ; there is no party defendant; no real interest brought into .question. ” — 3 Clark & Fin. 507 ; Lawrence Manufacturing Co. v. Janesville Cotton Mills. 138 U. S. 552 ; Tex. & Pac. Ry. Co. v. So. Pac. Co., 137 U. S. 48.

It is suggested also that the parties could not have intended to hinder or delay or defraud creditors by haying a receiver appointed for and put in possession of this property, since thereby the property is brought into possession of a court of chancery to be distributed, and when the bill alleging fraud shows on its face what and where the property is, and that from the reports of the receivers complainant acquired its information as to the character and whereabouts of the property. A complainant would know where property which had been c«>llusively attached or levied upon' under a collusive and void judgment was, and he would get this information from the return of the officer making the levy; but we are unable to see that this argues that the judgment or attachment was not collusive and fraudulent. And so the fact that the property in possession of the receiver may, at some time in the good pleasure of the mortgagor and the mortgagee, and when the hindrance and delay and defeat of the creditors’ ordinary and lawful remedies for the collection of their debts, have accomplished the illegal and fraudulent purposes of the parties to that suit, be distributed to the mortgagor and such of the original general creditors as have not been forced bjT these meretricious methods into sacrificing their demands, unless indeed in the meantime this fraudulent tieing up of the property has resulted, as intended, in arrangements, whereby the mortgagor is enabled “to properly conduct its operations,” can not exert any force upon the inquiry of fraud vel non in the procurement of the decree.

The complainant in the present bill' is entitled to relief against these collusive and fraudulent proceedings of the complainant and respondent in the bill on which the receivers were appointed, which proceedings have already doubtless delayed and hindered general credioors in the-assertion of their rights, and will continue to hinder and delay and ultimately defraud them if a remedy is not afforded. It is quite true that this complainant might intervene in the suit already pending by petition, but if the adequacy and completeness of that remedy be conceded, it is not exclusive. Notwithstanding the bank might thus have proceeded, it had also the right to proceed, as it has attempted to do, by an original bill.— Talladega Mercantile Co. v. Jenifer Iron Co., 102 Ala. 259. This bill pravs the extension of the receive'ship already in existence in the case of the Mercantile Trust & Deposit Co. v. The Mary Lee Coal & Railway Co., to the present bill and cause. It also prays for general relief. It is not necessary for us to determine on this appeal from a decree sustaining demurrers to the bill in what form the relief to which complainant is entitled should be administered. We deem it not improper to say, however, that the case made would seem to be one eminently appropriate for the extension of the receivership as specially prayed. — Scott v. Ware, 65 Ala. 174; Beach on Receivers, §§ 85, 788.

The decree of the court below sustaining the demurrer to the bill is reversed ; and a decree will be here entered overruling said demurrer.

Reversed and rendered.