Court Opinion

ID: 6655122
Source: CourtListenerOpinion
Date Created: 2022-07-20 20:57:12.400688+00
Date Added: 2024-06-11T09:04:10.944190
License: Public Domain

The following opinion on rehearing was filed December 2,1903. Judgment of reversal adhered to:
7. Stare Decisis. The former judgment of reversal in Vila v. Grand Island Electric Eighty Ice & Gold Storage Go., ante, 222, adhered to.
Holcomb, J.
A rehearing having been granted, this cause has been submitted on oral arguments and printed briefs for further consideration. The opinion heretofore formulated, prepared by one of the commissioners, is found under the title Vila v. Grand Island Electric Light, Ice & Cold Storage Co. and others, as interveners, ante, p. 222. The case is there quite fully stated and a repetition will here be avoided as far asis consistent with a proper discussion of the subject in the present opinion. Gauged by the pleadings, and the proeedings had and done thereunder, the suit appears to have been instituted by a mortgagee of the plant and property of the defendant corporation for the purpose of having its property sequestrated, and, through the aid of a receiver, its affairs wound up by a sale of the property and a division of the assets among those entitled thereto. The suit in its practical workings has many of the .earmarks of a proceeding had under, our statute for the appointment of a receiver and the winding-up of the business of an insolvent banking corporation incorporated under the laws of this state. The plaintiffs, as trustee and cestid que trust, were the owners and holders of certain bonds executed and delivered by the defendant company, and secured by a mortgage on its plant, consisting of both real and personal property. The defendant company at the time of the institution of the suit filed its answer, admitting the truth of the allegations of the petition and consenting to the appointment of a receiver as therein prayed for. The essential averments of the petition which it seems advisable here to state for the purpose of the further discussion of the case are in substance as follows: That it was agreed by the defendant when the loan was made, evidenced by the bonds executed at the *235time and described in -the petition, that the proceeds should be used to pay off a prior mortgage, and the balance for the completion of the plant; that prior to the inception of the litigation, the plaintiff learned for the first time that a large proportion of the proceeds of the loan so made had been misappropriated and used for other purposes, and that the plant remained in an unfinished and incomplete condition; that the defendant was at the time, and would be, wholly unable to pay the interest or any part thereof thereafter and within a short time to become due on the mortgaged indebtedness, and' was wholly without ability to pay any part of its floating indebtedness, amounting to a large sum, and that its creditors were threatening to attach the mortgaged property; that the defendant was entirely Avithout credit, unable to purchase supplies needed in its business, was Avithout money, and that its business Avas likely to be stopped either by attachment suits or because of its inability to procure the necessary materials and appliances; and that should the business be discontinued, the value of the property Avould be greatly diminished, the public put to great inconvenience and great financial loss ensue. The mortgage, it Aims averred, contained the following provisions: That the defendant agreed to keep all the buildings, machinery, engines, etc., in good repair and condition, and. that such agreement had not been kept; that the mortgage also provided that in case of default in the payment of the bonds or interest, or failure to comply with, any of its terms, the trustee should thereupon become entitled to the appointment of a receiver to take possession of the property, manage and operate the business, collect the income and profits, apply the same on the expenses and charges for maintaining the plant and business, and paying the obligations secured by such mortgage. Wherefore it is prayed that a receiver be appointed and given authority to do each and all of the things mentioned in the mortgage, to wit, to take possession of the property covered by the mortgage and manage and operate the bnsi*236ness, collect its income and profits, and apply the same upon expenses and charges for maintaining and operating the business, and in paying the obligations secured by plaintiff’s mortgage, and for such other and further relief as to the court may seem meet and proper. Upon the filing of the petition and the answer of the defendant company, a receiver was appointed, who qualified, took possession of the property of the defendant corporation and managed its business until it was sold at receiver’s sale under order of court, which sale was afterward confirmed, and from which orders and decrees an appeal is prosecuted by the interveners, one a stockholder of the corporation, and the others general creditors who had reduced their demands to judgment before intervening in the action. To the report of the receiver advising a sale of the property and the order of the court directing the sale and the confirmation thereof when made, the interveners objected, protested, and excepted, but without avail.
Counsel for appellee devote a portion of their argument to the question of whether these intervening parties can be heard to' complain on appeal after going into court and asking to have their judgments satisfied out of the corporate property, and after, as is claimed, ’the stockholder had assisted in and consented to the appointment of a receiver. This phase-of the case may, we think, be properly disposed of by the suggestion that in our judgment the pivotal point of the whole controversy and the chief inquiry to be made are with relation to the sufficiency of the petition filed in the case, and whether or not it states a cause of action or discloses equitable grounds for the granting of the relief prayed for or granted to the plaintiffs.
It has frequently been held that the question of the sufficiency of a petition, and whether it states a cause of action, may be raised at any step of the proceedings, even in the supreme court on an appeal, and is open for consideration in the appellate court at any time until and including the filing of a motion for a rehearing. Kemper v. Renshaw, *23758 Neb. 513; State v. Moores, 58 Neb. 285. If tbe petition filed in this case does not state a cause of action, if it is defective in substance, if its allegations do not warrant the granting of any equitable relief, then such defect is open for consideration, and the participation of the interveners and appellants in the proceedings had in the court below can in no wise preclude them from urging the insufficiency of the petition to support the orders, decrees and judgment of the court entertaining jurisdiction and trying the cause below. While the prayer to the petition contains a request for general equitable relief, it must, we think, be admitted that it can not be extended so as to warrant the granting of relief not embraced within or comprehended by the allegations of the pleading. To be sure, the prayer for relief is a part of the petition, but it is no portion of the statement of facts required to constitute a cause of action. Consequently, while it may be broader than the allegations of the petition, the cause of action pleaded can not be enlarged or made the basis for the granting of relief other than that warranted by the allegations of facts. Fox v. Graves, 46 Neb. 812, 816, and authorities cited therein.
An examination of the petition in the case at bar renders it obvious that no cause of action is stated therein disclosing a right to the recovery of a money judgment for the amount called for by the bonds, or any portion thereof, or for a foreclosure of the mortgage in satisfaction of any sum which might be found to be due; in other words, none of the debt secured by the mortgage had at the time matured, and there was no breach nor default in the conditions of the mortgage disclosed by the pleadings warranting a foreclosure of the title to and equity of redemption of the property mortgaged, owned and held by the defendant company. This, manifestly, is the view taken by the parties to the suit and the trial court, since no attempt was made to enforce the obligation secured by the mortgage, or for the sale of the property of the defendant company and the application of its proceeds in satisfac*238tion thereof. What was in fact done was to seize all the property of the corporation, place it in custodia legis by means of the receivership, manage it under the direction of the court for a short period of time, and then dispose of it at receiver’s sale subject to' the mortgage and the indebtedness secured thereby, mentioned in the pleadings as being held and owned by the plaintiffs. The cause of action, therefore, stated or attempted to be stated, was not in respect of plaintiff’s right to collect its indebtedness held against the defendant and enforce their mortgage lien, but their right under the allegations of the petition to have a receiver appointed to take charge of and manage the property and business of the defendant company, and to wind up its affairs by a sale of the plant subject to plaintiff’s lien, and the distribution of the proceeds, after paying the costs and charges of the receivership, to those I'ound entitled thereto.
We are thus brought to a consideration of the proposilión as to whether the plaintiff was Avarranted in asking solely for the appointment of a receiver to take charge of and administer the corporate estate and to sell the same as was done, and Avhether the court Avas authorized to make such appointment and to enter the orders and «decree thereafter made and rendered in the further proceedings, to which exceptions are taken. It is to this proposition that counsel, have devoted most of their arguments and to which our attention will noAV be directed. In the former opinion, it Avas held that a receivership is a purely ancillary remedy and can not be maintained in a proceeding instituted solely for that purpose. The enunciation of this proposition is vigorously challenged by appellees’ counsel, but a full investigation and consideration of the subject has dispelled from our minds all doubts, if any have heretofore existed, as to its being a correct and sound declaration of the principles of equity governing and controlling a suit when applied to a condition of facts such as are presented by the record in the case at bar. Of course, Avhere the statute authorizes it, and in some well-recog*239nized exceptions to the general rule, the appointment of a receiver may he and is the main object and purpose of the suit or proceedings. It is likewise true that in some cases of extraordinary character affecting quasi-public corporations, and where public interests are so involved as to demand the extension of the equitable principles applicable to receiverships so as .to protect such interests, some courts have assumed jurisdiction, and claim authority to appoint a receiver where that is the main purpose of the suit, yet such cases have been characterized as announcing a doctrine both novel and unusual. In all such cases the object of such appointment is to preserve and hold intact the property intrusted to the receiver, and not to destroy, dismember, or by receiver’s sale dispossess the corporation of its property and franchise. Possibly the subject may be made a little clearer by some reference to the nature and character of receiverships and the principles underlying the subject, as gathered from the text-writers and the decisions of the courts of last resort. A receiver by his appointment does not become a litigant in the action, nor does he represent one more than the other of any of the parties to the controversy. He, Avhen appointed, takes possession of the property as the right arm of the court for the benefit of the party ultimately entitled to it. Beach, Receivers, sec. 2. “A receiver is,” says the same author, “a ministerial officer of a court of chancery, appointed, as an indifferent person between the parties to a suit merely to take possession of and preserve, pendente lite, the fund or property in litigation.” 2 Beach, Private Corporations, sec. 772. The sequestration of property by a receiver in a suit in equity is analogous to the seizure of property by attachment in an action at law. The appointment of receivers, says the supreme court of Ohio, is classed as one of the provisional remedies, like the proceedings by injunction or in attachment. Says the court: “A provisional receivership is, in effect, an injunction, and something more stringent still. It is to be granted with great caution, and only in a case of apparent pressing *240necessity. Edwards, Receivers, 13. The appointment of a receiver is an equitable remedy, and bears a similar relation to courts of equity that proceedings in attachment bear to courts of law. Hence the appointment of a receiver has been said to be an equitable execution. Jeremy, Equity Jurisdiction, 249.” Cincinnati, S. & C. R. Co. v. Sloan, 31 Ohio St. 1, 7. See also Davis v. Gray, 83 U. S. 203, 217, 21 L. ed. 447. It must be made to appear affirmatively that there is a reasonable possibility that the plaintiff will ultimately succeed in obtaining the general relief sought in the suit in which the receivership is asked. Smith, Receiverships, sec. 5 (6); Beach, Receivers, sec. 48. “The appointment of a receiver,” says the supreme court of Pennsylvania, “is the exercise of a power in aid of a proceeding in equity, and is the subject of sound discretion.” Chicago & Allegheny Oil & Mining Co. v. United States Petroleum Co., 57 Pa. St. 83.
“The law of receiverships is peculiar in its nature in that it belongs to that class of remedies which are wholly ancillary or provisional, and the appointment of a receiver does not affect, either directly or indirectly, the nature of any primary right but is simply a means by which primary rights may be more efficiently preserved, protected and enforced in judicial proceedings. It adjudicates and determines the rights of no party to the proceeding and grants no final relief directly or indirectly.” Smith, Receiverships, sec. 2; Beach, Receivers, sec. 51; Pomeroy, Equity Jurisprudence, secs. 171, 1319, 1330; Miller v. Bowles, 58 N. Y. 253. In support of the rule announced by the text-writers to the effect that generally the appointment of receivers at the instance of private parties is an ancillary remedy administered by the court, provisional in character, and in aid of the primary object of the litigation, may be cited French Bank Case, 53 Cal. 495, 550; Jones v. Bank of Leadville, 10 Colo. 464; Union Mutual Life Ins. Co. v. Union Mills Plaster Co., 37 Fed. 286; Wallace v. Pierce-Wallace Publishing Co., 101 Ia. 313, 38 L. R. A. 122, 63 Am. St. Rep. 389; Barry v. Briggs, 22 Mich. 201; People v. Weigley, 155 Ill. 491.
*241Aside from the question of the sufficiency of the petition because the appointment of a receiver is the sole and primary object of the suit, and no cause of .action or ground for equitable relief otherwise being stated, another insuperable obstacle, and one closely related to the subject heretofore discussed, is the fact that the jurisdiction of a court of equity is invoked for the purpose of seizing the- corporate property of the defendant company and winding up its affairs Avithout statutory authority therefor, and Avithout the case being brought Avithin equitable principles sanctioned and taken cognizance of by the courts of chancery of England, from Avhich the equity jurisdiction exercised by the courts of this state is derived. Some authorities are cited by counsel for appellees to the effect that a sale of all the corporate property does not necessarily work a- dissolution of the corporation or terminate its legal existence. This, doubtless, is true, and in the cases cited the property, in all probability, was properly seized in satisfaction of just obligations, leaving the corporate entity unaffected, and nothing further was attempted. It may be, and probably is, true that a dissolution of a corporation in a technical sense can be accomplished by the expiration of its charter or the decree of a court of competent jurisdiction forfeiting the same. Yet in the case at bar, in truth and substance, the corporation has been, through the instrumentality of a receiver and by the order and decrees complained of, stripped of its estate, divested.of its property and franchise, and its affairs brought to a final termination as completely and successfully as if its dissolution were the avowed object- and purpose of the suit.
In Neall v. Hill, 16 Cal. 145, 149, it is said: “We are also of opinion that the court erred in the appointment of a receiver, and in decreeing a sale of the property and a settlement of the affairs of the corporation. This decree, if permitted to stand, must result in the dissolution of the corporation; and in that event the court will have accomplished in an indirect mode that which, in this proceeding, *242it had no power to do directly.' It is well settled that a court of equity, as such, has no jurisdiction over corporate bodies, for the purpose of restraining their operations or winding up their concerns. We do not find that any such power has ever been exercised, in the absence of a statute conferring the jurisdiction.”
In Wallace v. Pierce-Wallace Publishing Co., 101 Ia. 313, 322, it is said: “It is certainly true that, in the absence of express statutory authority, jurisdiction of courts of equity does not exist over the corporate bodies to such an extent as to justify them in dissolving corporations, or of winding up their affairs and sequestrating their property. This seems to be so well settled, that there is scarcely a dissenting voice in authority.” See also, Wheeler v. Pullman Iron & Steel Co., 17 L. R. A. (Ill.) 818; Link Belt Machinery Co. v. Hughes, 63 N. E. (Ill.) 186; State v. Second Judicial District Court, 15 Mont. 324.
We have examined with diligence and care the many authorities cited by appellee in support of its contention as to the authority of the court on equitable grounds to appoint a receiver, the regularity of the appointment in' the case at bar, and the subsequent proceedings had, but we find none of them to give substantial support to the doctrine contended for. In each and all of the authorities save the exceptional cases heretofore referred to, the jurisdiction of the court in appointing a receiver was invoked as an exercise of power ancillary and incidental to the principal relief sought by the parties to the litigation. The parties all appear to have been either st.oclihol.ders or creditors who had an actual .and subsisting demand, a present right or claim which it was sought to have enforced, and the appointment of a receiver was in aid of and for the purpose of making effective a prospective judgment or decree to be rendered in the action which, prima facie, they were shown to be entitled to at the time of its commencement and the appointment of such receiver. We find no authority giving unqualified support to the doctrine that a mere mortgage of corporate prop*243erty, because of an anticipated default of tbe indebtedness, a possible inability to continue much longer the conduct of the business, threatened attachments, financial weakness or insolvency, and in the event of the suspension of business, a consequent depreciation of the value of the mortgaged property, may for these reasons, in an independent action and for no other purpose, have a receiver appointed, the corporate property sequestered, the business conducted by the receiver until by a receiver’s sale the estate may be sold subject to the mortgage indebtedness, and the. affairs of the corporation terminated. To establish such a doctrine in this jurisdiction is, in onr judgment, unwarranted, unsupported by authority and fraught Avith dangerous consequences.
The petition, Ave are satisfied, states no cause of action, nor warrants the granting of any equitable relief, and therefore the order of sale of the corporate property and the confirmation thereof, as well as the appointment of a receiver, was without authority, unsupported by the pleadings, and for such reasons, the judgment heretofore rendered reversing the orders and decrees so entered should be adhered to, which is accordingly done.
Former decision adhered to.