Atlanta Trust Co. v. National Bondholders Corp.

• Decision Date: 15 September 1939
• Docket Number: 12942.
• Citation: 4 S.E.2d 644,188 Ga. 761
• Parties: ATLANTA TRUST CO. et al. v. NATIONAL BONDHOLDERS CORPORATION.
• Court: Georgia Supreme Court

4 S.E.2d 644

188 Ga. 761

ATLANTA TRUST CO. et al. v. NATIONAL BONDHOLDERS CORPORATION.

No. 12942.

Supreme Court of Georgia

September 15, 1939

Syllabus by the Court.

1. The objection to the allowance of the amendment to the petition, on the ground that it introduced a separate and distinct cause of action, was properly overruled.

2. A petition wherein it is alleged that under a written agreement between a mortgage company and a trust company the latter was made trustee with certain duties as to the collateral deposited with it for the benefit of the holders of the bonds to secure which the collateral was deposited and that the latter on the termination of the trust fails to account to the petitioner, the holder of all of the bonds and has been guilty of certain breaches of trust, and praying for an accounting, sets forth a cause of action against the trust company.

3. All persons aiding and assisting trustees of any character with a knowledge of their misconduct, in misapplying assets, are directly accountable to the persons injured.

4. In such a case the person injured by the misconduct may join in one suit the person occupying the fiduciary relationship and one who aids and assists him in so doing.

5. The special demurrers addressed to paragraphs 14 and 15 of the petition were without merit.

National Bondholders Corporation sued Atlanta Trust Company and Citizens & Southern National Bank, alleging as follows: On April 1, 1926, Mortgage Bond & Trust Company and Atlanta Trust Company entered into a collateral trust agreement for the purpose of securing certain bonds, known as guaranteed trust mortgage collateral gold bonds, a copy of the said agreement being set forth. Pursuant to said agreement certain bonds were issued. National Bondholders Corporation is the owner of all of said bonds now outstanding. It was provided and agreed in and by the trust indenture that the mortgage company transferred to the trust company in trust certain notes, bonds, mortgages, deeds of trust and other collateral, together with collateral thereafter to be deposited under the trust indenture, which collateral the mortgage company warranted was and would be of the character and kind in the trust indenture described, to have and to hold in trust for the common and equal use, benefit, and security of all and singular the person or persons, firm or firms, body or bodies politic or corporate, which should from time to time be holders of the bonds or coupons thereto appertaining, to be issued under and pursuant to the trust indenture of the respective series for which the collateral was or should be deposited as security. The collateral originally deposited and pledged to secure these bonds was of the type generally known as first-mortgage loans on real estate, but various forms of instruments were used by the mortgage company in making said loans. In some instances the conventional form of deed to secure debt, security deed, or loan deed was employed, but in other instances the promissory notes of the borrowers were secured by a deed of trust in which the title to real property was conveyed to named trustees, who held the title to the property in trust for the benefit of the holders and owners of the notes. Practically all of these security deeds, or deeds of trust, contained powers of sale, authorizing a sale of the property by the holder, assignee, or trustee, after advertising the time, terms, and place of sale for specified periods, and further authorized the execution and delivery of deeds conveying titles to the purchasers at such sale, the grantee or trustee in the security deeds or deeds of trust being authorized to become the purchasers of the properties at said sales under power; and the trust indenture contained provisions and requirements relating to the eligibility, deposit, release, substitution, enforcement, and nature of the collateral, substantially as set forth in the exhibit attached to and made a part of the petition.

It is further alleged: The Mortgage Company is insolvent. In various respects the Trust Company, in administering the trust was grossly negligent, and knowingly violated many named provisions of the agreement which were there inserted for the protection of the purchasers of these bonds, to the loss and damage of petitioner. At the time of the execution of the trust indenture and continually thereafter until December 29, 1929, the Trust Company was actively engaged in the banking business in the City of Atlanta, maintained a trust department, and carried on the usual functions of a trust company through its own officers, directors, and employees. On or about that date the Trust Company and the Citizens and Southern National Bank entered into certain contracts which are set forth. Pursuant to these contracts, upon execution of the same, the Trust Company closed its doors, vacated its building, ceased active business, and delivered to the Citizens & Southern National Bank its assets, books and records, including the books and records of its trust department. All assets, instruments, documents, and collateral theretofore held by the Trust Company in its trust department in trust for others were likewise delivered to and moved into the offices of the Citizens & Southern National Bank. From and after December 29, 1929, the trust department of the trust company, and its trust functions and trust business, were carried on under the directions, management, and control of the Citizens & Southern National Bank, and the officers of the trust company thereafter did only such things and performed their functions in such manner with reference to the trust department and the trust business as they were requested or directed to do or perform by the Citizens & Southern National Bank, and all fees and emoluments derived from such trust department and trust business were collected and taken by the Citizens & Southern National Bank and treated by it as its own. After December 29, 1929, the violations of the trust indenture, and the wrongful release, substitution, dissipation, waste and misapplication of the trust estates were participated in, directed, supervised, and committed and permitted by the Citizens & Southern National Bank. After December 29, 1929, that bank had equal opportunities with the trustee for knowing, and had equal knowledge of, all matters pertaining to or relating to said trust, and of the matters concerning which complaint is made. Petitioner avers that by reason of the matters alleged it is entitled to have the trustee and the Citizens & Southern National Bank make a full and complete accounting of their acts and conduct in the trusts, and to have and recover of the defendants such sum or sums as may, upon such accounting, be found to be justly due to petitioner. The trust company is now liquidating its assets, which are insufficient to compensate petitioner. The prayers were: That a full, just, and complete accounting be had of the trusteeship, of the acquisition, management, control, and disposition by each of the defendants, of all of the securities, collateral, properties, and moneys constituting the trust estate, as well as of the securities, collateral properties, and moneys which might have been received or held by the defendants, and each of them, as a part of said trust estate but for their gross neglect, breaches of trust, and misconduct in the administration of said trust; that petitioner recover of the defendants and each of them the amounts found, on the accounting, to be justly and equitable due by them to petitioner; that Atlanta Trust Company, its directors, officers, and employees, be enjoined from declaring dividends to its stockholders, and from distributing any of its assets to its stockholders by way of dividends or otherwise; and that petitioner have such further relief as may be equitable and just, etc.

Demurrers to the petition were interposed. The court, over objection, allowed an amendment the nature of which is stated in the opinion, and overruled the demurrers. The defendants excepted.

Alston, Foster, Moise & Sibley and Evins, Quillian & Evins, all of Atlanta, for plaintiffs in error.

Pearce Matthews and Shelton, Pharr & Long, all of Atlanta, for defendant in error.

GRICE Justice.

1. Before the allowance of the amendment, the defendants objected to the petition on the ground that it sought to set forth a cause of action against the trust company for an accounting from April 1, 1926, to the termination of the trust, and an entirely separate and distinct cause of action against the bank for participating in the alleged breach of trust from December 3, 1929, down to the termination of the trust; the petition thus setting forth two separate and distinct causes of action, and the amendment seeking to convert the petition thus containing these two distinct causes of action against both defendants jointly, but that this amendment introduced an entirely separate and distinct cause of action from those theretofore pleaded; 'for (a) the original petition is to be construed as one seeking an accounting from Atlanta Trust Company from April 1, 1926, to December 3, 1929, and an accounting from the Citizens &amp Southern National Bank from December 3, 1929, to the termination of the trust; thus the original petition contained two causes of action against two different trustees for different periods of time, and the amendment should not be allowed because it seeks an accounting from the trust company and the Citizens & Southern National Bank jointly for the second of these periods, which is a distinct cause of action; and (b) if the proper construction of the original petition is that the plaintiff seeks an accounting from the trust company for a period of from April 1, 1926, to the...