Citation Numbers: 21 F. 738
Judges: Hammond
Filed Date: 10/6/1884
Status: Precedential
Modified Date: 9/9/2022
The objection that this bill does not show conformity to the ninety-fourth equity rule cannot, I think, be maintained. The bill was filed April 1, 1882, and if we date the alleged dissolution of the corporation at the time of the foreclosure sale on August 27, 1877, which is the very earliest date at which it can be said to have been dissolved, the suit was commenced within the five years allowed by our statutes for a dissolved corporation to bring suits in its corporate name, notwithstanding the dissolution. Tenn. Code, 1492-1497; Rogersville & Jefferson R. R. v. Kyle, 9 Lea, 691; Kelley v. Mississippi Cent. R. Co. 2 Flippin, 581; S. C. 10 Cent. Law J. 286; S. C. 1 Fed. Rep. 564. But if a later date be fixed, such as the confirmation of the sale or the final decree in the foreclosure suit, which would bring the date of the suit beyond the five years of the statute, it is clear the ninety-fourth equity rule does not apply, if it be conceded that it applies during the five years to a dissolved corporation with continuing power to sue under the peculiar features of the above-cited Tennessee statutes, as to which I express no opinion. 'The rule does not, in terms, include a dissolved corporation, (Jones, Rules, 151,) and it seems settled that the dissolution of a corporation, and its inability to proceed by suit, does not deprive the shareholders of a remedy in their own name in a court of equity. Rogersville, etc., R. R. v. Kyle, supra, at p. 698; Shields v. Ohio, 95 U. S. 319, 324; Bacon v. Robertson, 18 How. 480; Lum v. Robertson, 6 Wall. 277. Of course, when the functions of the directors, managers, and shareholders have closed by dissolution, they no longer occupy that relation, and it is in their own right as individuals that the shareholders must seek redress. It cannot be, therefore, that in such a case the ninety-fourth rule was intended to operate. Greenwood v. Freight Co. 105 U. S. 13, 16. Conceding, however, that the rule extends to a Tennessee corporation during the five years of posthumous existence granted to it by the state statutes, the amendment shows that the plaintiffs have done everything that they could reasonably be required to do, under the existing circumstances, to comply with the rule. Affidavit is made that
Now, by the Tennessee Code, “the managers of the business of such corporation at the time of its dissolution, by whatever name known, are the trustees of the stockholders and creditors,” authorized by these statutes to settle its affairs and “sue for and recover the debts and property of such dissolved corporation in its corporate name.” Tenn. Code, §§ 1494, 1495.
The principal defendant, Neely, was himself, at the time of the dissolution of this corporation, the statutory receiver appointed by the governor under the act of February 11, 1852, c. 151, § 5, p. 207, (Code, § 1101,) “to take possession and control of said railroad and all the assets thereof, and manage the same, etc., and to continue in possession of said road, fixtures, and equipments, and run the same, and manage the entire road” until the debt to the state was paid. State v. E. & K. R. R. 6 Lea, 353, 355; Erwin v. Davenport, 9 Heisk. 44. If this was not the “annihilation of all corporate powers,” it certainly did, in fact, as appears by this bill, paralyze those corporate powers; for the road was surrendered by him to the purchasers under the foreclosure sale, he accounted only to the governor or these purchasers, and the directors or stockholders have not since attempted any corporate action or kept up any corporate organization. Either Neely was himself the person to whom, under this rule and these state statutes, application should have been made to bring this suit in the corporate name,—which were a vain thing to
•The plaintiffs insist that at all events the corporation w.as, and now they are, entitled to an account against their trustee, this statutory receiver of their property. Certainly I have been unable to find any case where the trustee can refuse to account because the beneficiary would get nothing if an account were had, by reason of his inability to respond, which is not set up here, however, or any other reason, such as that there are judgments against the beneficiary which would absorb the products of the account, as has been stated is the case Here, inasmuch as there is an immense amount of the mortgage debt unpaid, for which there is a judgment of this court still unsatisfied. The valueless character of such litigation is set out in Bayliss v. Lafayette, etc., Ry. 8 Biss. 193, but evidently the court hesitated to dismiss the application, and was content to advise the parties that if the litigation should bo fruitless, thero was no practical value in it. I cannot assent to the doctrine that a trustee may thus escape an account, any more than that a court should refuse a judgment because it appeared that the execution would be returned nulla bona. An account against a trasteo is almost always a matter of course. Pulliam v. Pulliam, 10 Fed. Rep. 23, 26. It will, however, only be granted at the suit of one having a right to the fund of which an account is asked. Neither can the fact that the defendant accounted with the governor, and received his commendation for the faithful discharge of a trust, assuming that wo take judicial notice of the executive action in this regard, avail him as a defense. The act of 1852, under which he held his trust, does not make the executive department the exclusive arbiter of this trust, nor authorize it to acquit the trustee of all liability by approving his accounts. There seems to be no intention to deprive the courts of their powers in such matters, and the remedy on the bond of the receiver can only be concurrent with that of compelling a settlement through the medium of
Other objections to the bill have been taken by the demurrer and in argument, which, for the present, at least, we will pass, and come to the substantial controversy between these parties upon this demurrer; and that is, the contention that the facts disclosed by the bill show that the plaintiffs have really no interest in the funds for which they allege the defendants are liable. Why take this account, say the defendants, when it appeal's that, as between the plaintiffs and the foreclosure purchasers, the funds in the hands of the receiver were the property of .those purchasers ? They insist that it is not pretended that he withholds them, or has appropriated them to his own use, but only that he has improperly turned them over to those purchasers, and that, even if he still retains them, they do not belong to.the plaintiffs. If this be so, undoubtedly this bill should Be dismissed. But there is some difficulty in determining it upon demurrer, by reason of the somewhat meager and indefinite statements of the bill as to the precise facts of the case, though both parties seem desirous of having the question determined, and have endeavored, by amendment, to make the bill more definite.
Generally, the facts are that this railroad having been constructed under the internal improvement laws of Tennessee, more particularly considered in the case of Stevens v. L. & N. R. R. 3 Fed. Rep. 673; State v. E. & K. R. R. 6 Lea, supra, and Rogersville & J. R. R. v. Kyle, 9 Lea, supra, the state held a statutory lien for the aid extended to it, paramount to all other liens whatever. Being in default for the interest and sinking fund due, under those la.ws, upon the state bonds it had received, the defendant Neely was, by the governor, appointed receiver to take charge of the road, and discharge the duties required by those acts of the legislature. While he was so in control of the road, it was sold by a decree of this court, under a foreclosure suit, to satisfy a very largd mortgage debt, subordinate to the lien of the state for its debt. By ,the statutes and the decree, this sale was guin onere, and the purchasers took the title subject to the debt due the state. The purchasers organized a corporation, which, under authority of law, by subsequent consolidation and changes of name, became the present Illinois Central Bailroad Company, a defendant to this bill. These purchasers liquidated the debt due the state by paying it off, principal and interest; how, does not precisely appear by the bill, except that it was done by buying the bonds of the state secured by its lien, which were paid in and canceled, the bonds being purchased at a heavy discount. But it is seemingly agreed in argument that they did this by taking advantage of the act of February 25, 1869, c. 38, p. 50, which permitted any railroad company to pay the
It is not averred in the bill (except in a general charge “that he has received and has never accounted for many thousands of dollars of said funds”) that Neely received more or expended less than he reports to have done, and it is frankly conceded in argument that he is not accused of falsely stating this account. But it is insisted that he should have accounted, and should now be required to account more in detail and to file, his vouchers. Manifestly, in equity pleadings, general accusations of fraud and collusion are ineffective. 1 Daniell, Ch. Pr. (5th Ed.) 324, and notes; Riley v. Lyons, 11 Heisk. 251; Whitthorne v. St. Louis M. I. Co. 3 Tenn. Ch. 147. The pleader should state the facts, and not formulate mere epithetic “charges.” And it has been recently decided that the same rule applies at law. Hazard v. Griswold, 21 Fed. Rep. 178. If the facts are not to be ascertained by diligence, because of some obstruction, or if the evidence of them is in possession of the other side, this should be made to appear, with technical averments showing the necessity for discovery, where that is wanted; but a court cannot sustain a bill upon mere denunciatory statements of the plaintiff’s suspicions or belief. The best pleadings are those which state the inculpatory facts that carry with them their own conviction of the fraud, and by which the wrong-doing appears, without much necessity for characterizing it as such. Shepherd v. Shepherd, 12 Heisk. 276.
This report evidently is subject to the complaint that it does not state the accounts properly supported by vouchers; and, other questions aside, it would not satisfy a court of equity; but it was not intended as an accounting in the strict sense, but only as a report of the receiver to the accounting officer, who should unquestionably, if he did his duty as such, have more thoroughly inspected and audited these transactions of an agent of the state in which others than the state had an interest; and the complaints of the bill against the executive officers, if true, are well founded, and show neglect of the plaintiffs’ rights in the premises. And here I have hesitated whether or not a court of equity should not, for the mere satisfaction of complainants, require this receiver to pass his accounts in such a way that
We come, then, to the consideration of the questions growing out of the above-stated facts, which involve the substantial merits of this controversy. For tho plaintiffs it is contended with earnestness and force that, inasmuch as the mortgage for the bonded debt of the company which was foreclosed did not include the earnings of the road, those accumulated In Neely’s hands did not pass to the mortgagee or the purchaser, and when the sale took place, subject to a prior lien, the purchaser so regulated his bid as to obtain the property at a price which would enable him to discharge the prior lien and give that sum for it. In other words, that in buying the property subject to the prior lion tlieso purchasers assumed that debt, expected to pay it, and put their price accordingly, and now have no equity to demand that, as between them, the other property of the mortgagor shall be applied to ease their burden by paying the debt which they are equitably bound to pay out of their own means. For this principle the main case relied on is that of Pickett v. Merchants' Bank, 32 Ark. 346, which, so far as relates to this question, was a suit by the mortgagor against the mortgagee to overhaul a bank account for usury. There had been a sale of the mortgage property, and it had been purchased by the mortgagee under an agreement between the parties as to tho application of the proceeds of sale to certain prior incumbrances and then to the mortgagee’s own debt. But there was an incumbrance for delinquent and unpaid taxes, paid by tho mortgagee after the sale, which had not been included in the agreement, and when the mortgagee was about to enforce his lien upon other lands for the balance duo, the controversy arose as to the true amount of that balance. It was hold that the mortgagee had purchased cum onere, and was not entitled to a credit for the taxes paid. “When the warehouse property was sold,” says the court, “it was incumbered with unpaid taxes, and, as we presume, was purchased for less on that account. ” Other authorities are cited for this position, but it is not necessary to cite them here, as the court, for the purposes of this decision, fully concedes the force of tho position.
On the other hand, it is insisted that when a junior mortgagee purchases under a foreclosure sale the mortgagor’s equity'of redemp
But these two propositions of the plaintiffs and defendants, respectively, are not antagonistic to each other. While the purchaser buys the property cum onere, unless there is something in the agreement of the parties, as in Bank of U. S. v. Peter, 13 Pet. 123, and Belcher v. Wickersham, 9 Baxt. 111, or some other attending circumstance to control it, he only agrees to pay what is due to the prior mortgagee on a proper accounting with the mortgagor at the time of his purchase. Presumably,’ that is the sum he takes into his calculations when he makes his bid, and not a larger sum which may apparently be due; unless, as before stated, the amount is fixed beforehand, in which event that is the sum he must pay at all hazards. Assuming, then, that these purchasers bought the equity of redemption at the foreclosure sale, as we must if it was a foreclosure sale strictly considered, and that our statutory redemption has been by the decree barred, or has lapsed by the long time over the statutory two years allowed for redemption which have passed since the sale in August, 1877, it is the purchasers who are entitled to this account and the proceeds of it, and not the original mortgagor. In the Arkansas case
It is not necessary, if this be a correct view of the equities of the parties, to say more than that the result is that plaintiffs show no' such interest in the fund alleged to be due as entitles them to the account they seek, and consequently the demurrer should be sustained, and the bill dismissed for want of equity on the face of it. But, if we look at the equities of the parties in a broader view, the same judgment must be reached. Evidently, after paying out of the funds in his hands the balances duo by him for expenditures that will not be disputed, the receiver should have paid the remainder of the fund to the state on its claims for over-due interest and sinking fund. Instead of doing this he used the money to improve plaintiffs’ property, and presumably they got the benefit of it in a higher price, and consequent greater reduction of their mortgage debt. How can they complain at this ? Again, the receiver having allowed the interest claim of the state to remain unpaid to, at least, $85,000, and, perhaps, counting the sinking fund, largely more, these purchasers have paid it in order to relieve their property of the lion for it. Now, upon the plainest principles of subrogation, as between the mortgagor and these purchasers and this receiver, whatever be held in cash, or was liable for by improper management, was a fund primarily liable (and known to be such by tho purchasers when they made their bid) for payment of the accumulated interest and sinking fund, and they are entitled to have it so applied. The authorities already cited establish this. The mortgagor would be only entitled to the surplus, and it is plain there could be no surplus in this case on the facts already stated.
Now, this fund has been so applied, on an agreement between the state, the purchasers, and the receiver, by bis turning over the assets in his hands, and they paying the interest; and it is quite manifest that they have not received more than was due after paying the charges on the fund. That the receiver expended some of the money
Finally, this case has been heretofore considered under the general principles of equity governing the relation of the parties, but it is im- ^ possible to read the acts of the legislature already cited, which regulate the rights of these parties, and not feel that these, principles are greatly strengthened and enlarged by those acts. By the act of 1869 these purchasers were permitted, with the consent of the company, to • liquidate the debt due the state and be substituted to the state’s lien. They did liquidate that debt, obtaining presumably the plaintiffs’ consent through their corporate representatives; and to allow them now to divert this fund from the payment of the interest due the state, on the theory of this bill, would be to allow them to repudiate that consent and its consequences. This act substituted the purchasers to whatever right the state had to the funds in Neely’s hands, and there was not more than enough to pay the state, on the facts of this case.
There are- other grounds of demurrer, some relating to those plaintiffs who are creditors, but no further notice will be taken of them, since, on tho ground above indicated, the demurrer must be sustained, and the bill dismissed at the costs of the plaintiffs.
Decree accordingly.