McDougal v. Huntingdon & Broad Top Mountain Railroad & Coal Co.

• Decision Date: 30 June 1928
• Docket Number: 20
• Citation: 294 Pa. 108,143 A. 574
• Parties: McDougall et al., Appellants, v. Huntingdon and Broad Top R. & C. Co
• Court: Pennsylvania Supreme Court

143 A. 574

294 Pa. 108

McDougall et al., Appellants, v. Huntingdon and Broad Top R. & C. Co

No. 20

Supreme Court of Pennsylvania

June 30, 1928

Argued May 14, 1928

Appeal, No. 20, Jan. T., 1929, by plaintiffs, from decree of C.P. Huntingdon Co., May T., 1926, No. 280, dismissing bill in equity, in case of George W. McDougal et al. v. Huntingdon & Broad Top Mountain Railroad & Coal Co. Affirmed.

Bill for receivership. Before BAILEY, P.J. and BARNETT, P.J. specially presiding.

The opinion of the Supreme Court states the facts.

Bill dismissed. Plaintiffs appealed.

Error assigned, inter alia, was decree, quoting record.

Decree modified and affirmed at cost of appellants.

J. W. McWilliams, with him G. A. Troutman, C. D. Fetterhoof and Charles S. Wesley, for appellants. -- Plaintiff bondholders, who secured judgments on their overdue bonds, possess all the rights and equities and are on the same plane as any creditor who has reduced his claim to judgment: Com. v. R.R., 122 Pa. 306; Phila. v. R.R., 5 Pa. 127.

Judgment creditors of a railroad corporation who issued executions on their judgments and who are unable to enforce collection of their judgments by any process of execution at law, are entitled as a matter of right to the appointment of a receiver to conserve and administer the defendant's property and assets, so as to provide for the ultimate payment of their judgments: Bachrach v. R. & C. Co., Leitz v. R. & C. Co., 286 Pa. 325; Western Pa. Hospital v. Library Hall Co., 189 Pa. 269; Com. v. R.R., 122 Pa. 306; Sage v. R.R., 125 U.S. 361; Bailey v. R.R., 139 Pa. 213; Pusey & Jones v. Hanssen, 261 U.S. 491; Shields v. Pittsburgh, 252 Pa. 74; Harper v. Rubber Co., 284 Pa. 444.

Plaintiff bondholders who own matured and unpaid mortgage bonds possess a participating interest in a lien upon defendant's property created by express contract and an interest therein which entitles them to seek relief in equity.

The following cases respecting the appointment of receivers for railroad corporations are authority for the appointment of a receiver in the case at bar: Taylor v. R.R., 14 Phila. 451; Sage v. R.R., 125 U.S. 361.

Walter Biddle Saul, Joseph R. Embery, Warren M. Henderson and Robert J. Dodds, for appellee, were not heard.

Before MOSCHZISKER, C.J., FRAZER, WALLING, SIMPSON, KEPHART, SADLER and SCHAFFER, JJ.

OPINION

MR. JUSTICE KEPHART:

This appeal is from an order refusing to appoint a receiver. Appellee is a common carrier, incorporated as a railroad by an act of the legislature, with capital stock of $3,371,750, a mortgage indebtedness of $2,270,500, and an unfunded debt, represented by demand notes, of $1,000,000. The road runs from Huntingdon to Mount Dallas, a distance of 45 miles, with numerous branches.

All the property of the corporation, real and personal, and its future income, are covered by mortgages, the first, dated August 8, 1854, for $406,000, the second, dated January 13, 1857, for $367,500, and the third, dated March 1, 1865, for $1,497,000. All these mortgages have matured but their payment has been extended from time to time, the last maturity date of the first and third mortgages being March 31, 1925, and of the second, February 1, 1925. Another extension to April 1, 1940, was proposed by the company. The plan was accepted by the holders of 98% of the bonds. Appellants are the holders of $21,000 of the second mortgage bonds, and $159,000 of the third mortgage bonds, and have refused to extend the maturity dates of their bonds. They have demanded payment of both principal and interest. No interest has been paid on these bonds since 1925 because the company refused payment unless the holders agreed to accept the plan for extension of the bonds, though a sum has been set aside for the payment of this interest. The bondholders extending the due date of their bonds have continuously received semiannual interest. Four of the bondholders owning third mortgage bonds, whose interest was not paid, acting under the authority of one of our cases, reduced their overdue obligations to judgment; the trial court limited the execution upon these judgments to property not encumbered by mortgage liens; this ruling was correct: Bachrach v. Huntingdon & Broad Top Mountain R.R. & C. Co., 286 Pa. 325. No such property owned by appellee was found by the sheriff.

Plaintiffs, alleging insolvency and the failure to pay matured bonds, judgments, unfunded debts, gross misconduct in refusing to pay interest due, and the inequality of the extension agreement, asked for the appointment of a receiver to conserve and administer defendant's income, property and assets so as to provide for the ultimate payment of their claims. The court below found that the capital assets exceeded the liabilities by $241,554, and that the physical condition of the road is better today than it was some years ago. During the past years, the company has met all current liabilities as they accrued, and there is no present danger that the company will be unable to continue to operate its railroad as a common carrier by reason of the lack of current funds. While the road theoretically has suffered an operating loss, that loss has been brought about through arbitrary depreciation charges, which were unnecessary in fact. Appellee is insolvent in the sense that it is unable to discharge unsecured debts presently due and payable, and matured bonds. The unsecured creditors do not demand payment of their claims, and are content to wait for more favorable circumstances. There is no charge or evidence of fraud or mismanagement by the corporate officers. They are securing every dollar of return that is possible from the operation of the road, a sum sufficient to pay interest charges as well as all current liabilities and the upkeep of the road. There is not the slightest suggestion that any receiver selected could operate the road so as to secure larger returns, or that the road would be placed in a better position by his management. On the contrary, the road would suffer, as the present managers render their services for little or no compensation. The only complaining creditors are these bondholders, the principal plaintiff having purchased his bonds for speculative purposes. On these findings, the court below dismissed the bill. On this appeal, the questions for our consideration are, Should the rights, if any, of appellants be worked out through the medium of a receivership, or should the parties be left to other available remedies?

In many states the appointment of receivers is governed by statute. In Pennsylvania, however, we have no general statute on the subject, and the jurisdiction of our courts is governed by equitable principles. The jurisdiction of our courts generally to appoint a receiver for a corporation has not been discussed in any case, and, since it is denied in this case and in the City Park Brewing Case, immediately following, on different grounds, a brief discussion of the subject is necessary. In an early New York case, Chancellor Kent ruled that the court had no inherent jurisdiction to sequestrate the property of a corporation by means of a receiver, or to wind up its affairs, or to control the usurpation of franchise by corporate bodies: Attorney General v. Utica Ins. Co., 2 Johns. Ch. (N.Y.) 371. The decision does not reach the appointment of receivers in other cases, and its effect has been considerably modified in later years.

It was stated by Judge SERGEANT in Com. v. Bank, 3 W. & S. 193: " The equity powers of our court . . . over corporations . . . is general and unlimited: for by the 13th section of the Act of 16th June, 1836, the Supreme Court and the several courts of common pleas have the jurisdiction and powers of a court of chancery, as far as relates to the supervision and control of all corporations, other than those of a municipal character, and unincorporated societies or associations and partnerships. This gives the court all the powers and jurisdiction of a court of chancery over corporations, to be exercised in the ordinary mode in which a court of chancery acts, whether by bill, injunction or otherwise, as the equity of the case may require." This view has been repeatedly affirmed (Sanford v. Ry. Co., 24 Pa. 378; Big Mountain Improvement Company's App., 54 Pa. 361; Sarver's App., 81* Pa. 183; Tunis v. Passenger Ry. Co., 149 Pa. 70; Baptist Congregation v. Scannel, 3 Gr. 48), and it has never been qualified or questioned. The Constitution of 1874, in defining the scope of the jurisdiction of the several courts of common pleas, states that they shall have the powers and jurisdiction of a court of chancery, as it relates to (5) the supervision and control of all corporations, other than those of a municipal character or unincorporated societies, associations or partnerships, this to be exercised in the ordinary mode by which that court proceeds: Bevans v. The Turnpike, 10 Pa. 174, 176.

The principles of equity are broad and comprehensive. They come into existence as the progress of civilization requires, and are not to be denied merely because a new subject is to be considered. The jurisdiction of a court of chancery to appoint a receiver has been assumed for the advancement of justice; it is founded on the inadequacy of the remedy to be obtained in the courts of ordinary jurisdiction. There are few cases that can be stated in which the court has not jurisdiction where it is essential to the justice of the case to interfere to preserve the property for a party entitled Bainbrigge v. Baddeley, 3 Mac. & G. 413, 419, 42 Eng. Rep. 320, 323. To this may be added that, in this State, our visitorial powers over corporations would confer the authority. If our jurisdiction is unlimited with respect to...