Exchange Bank v. Macon Const. Co.

• Citation: 25 S.E. 326,97 Ga. 1
• Parties: EXCHANGE BANK OF MACON v. MACON CONSTRUCTION CO. et al.
• Decision Date: 05 October 1895
• Court: Supreme Court of Georgia

25 S.E. 326

97 Ga. 1

EXCHANGE BANK OF MACON v. MACON CONSTRUCTION CO. et al.

Supreme Court of Georgia

October 5, 1895

Syllabus by the Court.

1. The fact that one corporation owns the entire capital stock of another does not vest in the former the legal title to the property of the latter, nor render the two corporations identical. On the contrary, they are separate and distinct legal entities.

2. Accordingly, though one who lends money to a corporation which owns all of the capital stock of a railroad company may, under some circumstances, subject to the payment of the loan the property of the railroad company as equitable assets of the borrower, the lender in such case cannot, in preference to the lien of a valid mortgage executed by the railroad company to secure an issue of bonds, even in equity have his claim paid out of money realized by a receiver from the sale of the property of that company.

3. Nor under the facts recited, can the lender, as a party to an equitable proceeding, be allowed, by virtue of his rights as an alleged creditor of the railroad company, under a decree disposing of the assets of the latter alone, payment of the loan out of earnings of the railroad company which came into the hands of the receiver while it was being operated by him and this is so although the receiver may have previously used portions of such earnings in paying interest to the bondholders secured by the mortgages, and in making betterments and improvements upon the railroad property, which largely increased the value of the bondholders' security.

Error from superior court, Bibb county; C. C. Smith, Judge.

Action by McTighe & Co. against the Macon Construction Company and the Georgia Southern & Florida Railroad Company for the appointment of a receiver. The Exchange Bank of Macon filed separate interventions, seeking to have its claim against the construction company paid as a debt of the railroad company out of the proceeds of the sale of the property of the latter by the receiver, or from its earnings while the receiver was operating it. The interventions were consolidated, and there was a judgment against intervener, from which it brings error. Affirmed.

Bacon & Miller, for plaintiff in error.

Gustin, Guerry & Hall, Hoke Smith, and Dessau & Hodges, for defendants in error.

LUMPKIN J.

The affairs of three corporations, viz. the Exchange Bank of Macon, the Macon Construction Company, and the Georgia Southern & Florida Railroad Company, are involved in this case. For convenience, and for the sake of brevity, they will be respectively designated the "Bank," the "Construction Company," and the "Railroad Company." The railroad of the company last named was built by the construction company under a contract between the two companies, by the terms of which all the stock of the railroad company became and was the property of the construction company; and it appears that after its completion the railroad was operated exclusively by the construction company, but the organization of the railroad company was kept complete and intact. Before the indebtedness of the construction company to the bank, which will presently be mentioned, had been incurred, the railroad company, in its corporate name and capacity, had issued and negotiated a large number of bonds, and secured the same by a deed of trust conveying all of its property, and the present controversy is between the trustee of the holders of these bonds and the bank. The nature and extent of this controversy, so far as material to this discussion, will appear from the following statement: The bank at different times loaned to the construction company, and upon its credit, large sums of money, portions of which were to be used, and were in fact used, in paying the employés operating the railroad their wages, and in paying off an indebtedness incurred by the construction company in purchasing equipments for the railroad. There were no direct dealings between the bank and the railroad company, and no contractual relations whatever existed between these two corporations. The construction company gave its promissory notes to the bank for the sums borrowed as above stated; and as to some or all of the indebtedness thus created agreed to deposit in the bank, to be applied in its reimbursement, the daily earnings of the railroad. A portion of the construction company's indebtedness to the bank was also secured by the deposit of collaterals, upon which a considerable sum was realized, and credited upon that indebtedness. In view of the principles by which, in our judgment, this case is controlled, it is not now important to determine definitely whether the agreement of the construction company to deposit for the security of the bank the earnings of the railroad related to the whole or only to a part of the indebtedness of the former to the latter; nor whether all of these earnings were to be applied to the satisfaction of the notes of the construction company, or only such portions of the earnings as could be used for this purpose after excepting so much of the same as were necessarily withdrawn in order to keep the railroad in operation; nor whether or not the bank, with the means for so doing in its hands, neglected to make the proper application of the same, and thus obtain full payment from the construction company. Whatever the truth as to these several matters may be, the fact remained that the construction company was still very largely indebted to the bank for money borrowed and used as above stated, when, upon the petition of McTighe & Co., all the property of both the construction company and the railroad company was placed in the hands of a receiver, thus making a case which resulted in prolonged and complicated litigation. The bank filed in this case two separate interventions, in which it set forth its claims in substance as hereinbefore recited, showing the balances due to it, and seeking, among other things, to have the same paid as debts of the railroad company out of the proceeds of the sale of its property by the receiver, or from its earnings while he was operating it under the orders of the court; the bank contending that, under the facts as stated, it was really a creditor of the railroad company, and as such entitled to priority of payment as against the claims of its bondholders. The trustee of the bondholders, who was also a party to the case, on the other hand, contended that the bank was in no sense a creditor of the railroad company, but of the construction company alone; that the bank, therefore, had no lien, either...