Sinclair v. Moore Central Railroad

45 S.E.2d 555, 228 N.C. 389, 1947 N.C. LEXIS 342

• Court: Supreme Court of North Carolina
• Decided: December 19, 1947
• Status: Published

Opinion

Barnhill, J.

At the time Pittman, J., issued notice to the defendants to appear and show cause why a permanent operating receiver should not be appointed for the corporate defendant and on 6 March 1947, the return date of said notice, when an order appointing such receiver was entered, this cause was pending in this Court on the appeal of plaintiffs from the decree of 30 December 1946. The judge was at that time, in respect to this action, functus officio, and said order is void and of no effect. Hoke v. Greyhound Corp., 227 N. C., 374, and cited cases.

For a further reason said order, in so far as it undertakes to strike the bond filed by defendants and release the surety thereon, is invalid. G. S. 1-503 was enacted for the benefit and protection of a defendant against whom an application for a receiver is prosecuted. It authorizes the judge in his discretion, upon the filing of the undertaking therein stipulated, “to refuse the appointment of a receiver.” The undertaking was tendered, accepted, and approved by the court at the 30 December hearing and it, in its discretion, denied the application for a receiver. This, as to the original plaintiffs, was a substitute for the appointment of a receiver. Thereafter they were estopped by the order from further prosecution of their application for a receiver, and the court, of course, was without authority to revoke said order at a subsequent term, over the objection of defendants.

This brings us to the order entered at the May Term, 1947, exception to which raises the primary question sought to be presented 'on this appeal, to wit: "Was it error for the court below to appoint a permanent operating receiver for tbe railroad with authority to sell receiver’s certificates payable fifteen years after date; to use the proceeds thereof to reconstruct the physical property of the corporate defendant and put it in condition for operation; and thereafter to operate the same as a going-concern ?

On this question the findings of fact made by the court below are not binding on us. Coates v. Wilkes, 92 N. C., 376; Pearce v. Elwell, 116 N. C.; 595; Bank v. Royster, 194 N. C., 799, 139 S. E., 774. We must instead consider the record as a whole. On the facts therein appearing we are compelled to answer in the affirmative.

Barring the fact this action was pending in this Court at the time, the additional parties had the right to come in and make themselves parties plaintiff herein. The May Term order may be treated as a ratification thereof. Likewise it may be deemed that said order sufficiently ratifies the ineffective appointment of 0. W. Short as receiver.

That the orders (1) making new parties and permitting them to plead, (2) ratifying the appointment of a receiver, and (3) adjudging that the former appeal had been abandoned and reinstating the cause on the civil issue docket were all incorporated in one decree presents no particular difficulty, for we may presume that such orders were in fact entered in proper sequence.

The judge, upon the facts found and the admissions made by the original plaintiffs, had the right to adjudge that the appeal herein had been abandoned. Having so adjudged, by and with the consent of the appellants, he had the right to proceed as if no appeal had been taken. Hoke v. Greyhound Corp., supra, and eases cited.

The power of the court to appoint a receiver in proper cases and upon a proper showing is not limited by prevailing statutory provisions. G. S. 1-502, G. S. 55-147. It is one of the inherent powers of a court of equity. Jones v. Jones, 187 N. C., 589, 122 S. E., 370; Hurwitz v. Sand Co., 189 N. C., 1, 126 S. E., 171; McIntosh, N. C. P. & P., 999 et seq. Ordinarily it is not an end in itself but is only a means to reach some ultimate legitimate end sought in a court of equity and is ancillary to some other main equitable relief prayed. In brief, the purpose of a receivership is the preservation and proper disposition of the subject of litigation. 45 A. J., 16.

Some of the most common, but not exclusive, instances where the power is exercised are (1) to preserve, pendente lite, specific property which is the subject of litigation; (2) to tide an individual or corporation over a temporary period of financial embarrassment; and (3) as a State substitute for Federal bankruptcy, to prevent preferences and to assure the equitable distribution of the assets of an insolvent.

While the court has the power to, and sometimes does, appoint receivers with authority to continue the operation of a business, this power should be exercised with great caution, and courts generally are averse to exercising it. Booth v. Clark, 58 U. S., 322, 15 L. Ed., 164. Except in cases where a person or corporation is temporarily financially embarrassed and the temporary stay of creditor pressure is essential to the preservation of the business, the- power to appoint operating receivers is most commonly, if not exclusively, exercised in cases of financial embarrassment or impending insolvency of railroads and other public utilities. 45 A. J., 179.

While a public utility such as a railroad retains its franchise, it owes to the State and the public the duty of continuous operation. Commonwealth v. L. & N. R. Co., 85 S. W., 712 (Ky.). This duty to State and public is a prime consideration in determining whether the continuing operation under receivership shall be ordered; that is, considerations of public interest are controlling. Even then a railroad in the hands of a receiver should not be compelled to operate at a continuing loss because of lack of trafile or the dilapidated condition of its rolling stock and roadbed unless cessation of its operation is contrary to its charter. Nor should such operation be authorized when the chance of success is nothing more than a gamble. Hence, before decreeing the operation by receiver the court should ascertain whether such operation .will pay expenses and will be in the interest of. conservation rather than conducive to dissipation of the property. 44 A. J., 432; 45 A. J., 182; Anno. 12 A. L. R., 292; Anno. 50 A. L. R., 159; R. R. Com. of Texas v. R. R. Co., 258 U. S., 79, 68 L. Ed., 569.

The railroad here involved is for all practical purposes nonexistent as a going concern. It owns its right of way and franchise but to be operated it must be substantially rebuilt from the ground up. Plaintiffs seek, in fact, to resurrect and then to operate, Whether the revenues which may then be derived from its operation will be sufficient to pay operating expenses depends upon its ability to obtain for transportation substantially all the freight and express in and out of Carthage and the adjacent territory. In view of the modern-day truck transportation competition this is, to say the least, nothing more than a gamble.

But on this record this is not the most serious defect in the proceeding.

As a general rule a receiver for a corporation will not be appointed at the instance of.a simple contract creditor without a lien unless he has some peculiar equity or beneficial interest in the property of the corporation. 45 A. J., 21; 53 C. J., 27; 2 Clark on Receivers, 855. The reason is this: The action on the debt is an action at law, involving no equity, whereas receivership proceedings are equitable in nature and receivers are appointed by the court in the exercise of its equity jurisdiction In furtherance of some equitable relief to which the applicant establishes a prima facie right.

This rule, perhaps, has no application to a bill in equity maintained by unsecured contract creditors as a substitute for bankruptcy to prevent preferences and assure, through court action, the liquidation and equitable distribution of the assets of an insolvent.

But the intervening- plaintiffs do not occupy a position even as favorable as that of contract creditors. They assert unliquidated claims for damages and penalties arising out of the failure of the defendant to accept and transport merchandise, which refusal, on this record, necessarily occurred after the actual abandonment of operations. They allege also future irreparable damage which will accrue to them by the loss of transportation facilities and resultant depreciation of their property and the property of other citizens of the community.

It is a universally recognized rule that no private individual may complain because of consequential damages from the refusal to perform public or quasi-public duties, unless the damages which he sustains are peculiar and differ from those of other members of the public. Beatty v. L. & N. R. R., 195 S. W., 487 (Ky.).

The losses sustained by intervening plaintiffs, large consignors and consignees of merchandise, by reason of the abandonment of the operations by the defendant, may exceed those sustained by their neighbors and may be more easily identified. Nonetheless, they arise out of the failure of the defendant to perform its quasi-public duty. • The losses they sustain constitute a difference in degree but not in kind. Bryan v. L. & N. R. Co., 238 S. W., 484, 23 A. L. R., 537; Anno. 23 A. L. R., 556; Day v. Tacoma Ry. & Power Co., 141 P., 347; L. R. A. 1915 B, 547; H. & L. Smelting & R. Co. v. Northern P. R. Co., 204 P., 370, 23 A. L. R., 546. Even if recoverable at law, they cannot be made the basis of an application for the appointment of a receiver. ,

Speaking to the subject in Saylor v. Penn. Canal Co., 38 A., 598 (where a privately operated canal used as a public highway had been abandoned), the Court said:

“The business in which the plaintiff was engaged (the operation of a boat for the transportation of merchandise) was open to all persons using or desiring to use the canal for the purpose for which it was constructed. The privilege he exercised and enjoyed was not special or peculiar, nor was the injury he alleges he sustained by the neglect or failure of the company to repair or reconstruct, the highway it was required, as a purchaser, to maintain. The privilege was -such as any person who chose to exercise it was entitled to, and the injury done by the abandonment of the highway was not to the plaintiff alone, but to him in common with the public. The difference, if any, was only in degree, and this will not sustain his suit.” H. & L. Smelting & R. Co. v. Northern P. R. Co., supra; Anno. 23 A. L. R., 555.

With us the Utilities Commission has been vested with power to compel the operation of passenger and freight trains, Gr. S. 62-46, to inspect and require repair, Gr. S. 62-48, to compel efficient service, Gr. S. 62-14, to • require improvements and extensions of services, Gr. S. 62-37, to compel maintenance of facilities, Gr. S. 62-39, to supervise the services given, G. S. 62-30, and to authorize abandonment, Gr. S. 62-96. The Commission, “whenever in its judgment any public utility has violated any law,” shall notify the Attorney-General and furnish him with the facts in respect to such violation. Thereupon he must “take such proceedings thereon as he may deem expedient.” G. S. 62-63; Colorado v. United States, 271 U. S., 153, 70 L. Ed., 878.

Whether the last cited section, G. S. 62-63, requires the action to be maintained in the name of the State on the relation of the Attorney-General or Utilities Commission is not before us for decision. The exact title of the proceeding is not presently important. We will cross that bridge when we reach it. Suffice it to say that this and the other cited sections of the Code exclude the plaintiffs as proper parties plaintiff.

It follows that plaintiffs are not entitled to the appointment of a receiver as a remedy ancillary to their unliquidated claims for damages and penalties. If this is to be considered as an action in the public interest to compel the performance of a public duty, then it must be prosecuted by the official or agency whose duty it is to enforce the public right.

We do not mean to say, however, that plaintiffs may not apply for and obtain permission from the proper official or agency to prosecute an action with the same objective, as relators. 2 Elliott On Railroads, 3rd Ed., sec. 741. We merely decide that they may not do so in their own names as individual members of the public.

In this connection, however, it is a significant fact that although defendant has not operated its road for more than ten months the Commission has taken no action. Apparently it considers the facts such as to justify its acquiescence in the abandonment.

Furthermore, it may not be amiss to call attention to G. S. 62-89. It would seem that the Legislature by that Act has withdrawn from the courts the right to authorize the issuance of receiver’s certificates maturing more than two years after the date of issue.

On this record the appointment of a permanent receiver with authority to reconstruct and operate the railroad belonging to the corporate defendant and to issue receiver’s certificates must be held for error. However, the cause must be retained on the docket for further proceedings in respect to the several claims asserted by plaintiffs.

The cause is remanded to the end that a decree in conformance with this opinion may be duly entered.

Error and remanded.