Turner v. Bank of Avera

Cook, J., delivered the opinion of the court. This is an appeal from a decree of the chancery court of Greene county, rendered in a suit of appellant against C. C. Harvey and in the receivership proceedings involved in said suit; said decree allowing the claims of appellees filed in said receivership proceedings, and allowing the claim of appellant in such proceedings, but denying him a paramount lien on the funds in the hands of the receiver, and directing that all creditors.who had validly propounded their claims in said proceeding should share ratably in such funds. . ' The facts involved in this litigation are substantially as follows: C. C. Harvey, a citizen of Greene county, purchased certain sawmill property, including a mer *11 cantile business and standing timber. Being in need of funds to pay a part of the purchase price and to meet outstanding obligations, he applied to Horace S. Turner for a loan of twenty-one thousand dollars. He represented to Turner that this sum would pay up all his debts, and he furnished a timber estimate showing a total of three million three hundred 'and fifty thousand feet of stumpage owned by him. Horace Turner arranged with his brother, J. Tyler Turner, of Mobile, Ala., appellant herein, to make the loan tó Harvey, and, in order to secure the payment of the loan, it was agreed that Harvey should convey to the appellant all the properties connected with the said sawmill and mercantile business, while the appellant would execute a contract to resell to Harvey the same properties for a sum equal to the amount of the loan and an extra charge of three thousand three hundred and twenty-five dollars, making a total sum of twenty-four thousand three hundred and twenty-five dollars. These papers were duly executed; the contract providing that the consideration for this resale should be evidenced by ten promissory notes, including a note for this extra charge of three thousand three hundred and twenty-five dollars, all the notes being payable to the appellant at the Merchants’ Bank of Mobile. There was a conflict in the evidence as to what this extra charge represented. The defendant, Harvey, contended that it was in the nature of a charge for the use of the money and therefore interest, while Horace Turner contended that this charge was understood between the parties to cover services which he himself was to perform for Harvey in the supervision of Harvey’s mill operations and lumber sales, and in the furnishing of orders for lumber from the files of the Turner Timber Company, then operating at Avera, and of which Horace Turner was the principal owner and manager. The record shows that, at the time of these transactions between Harvey and the Turners, Harvey was largely indebted to the appellees herein, and that no. part *12 of this indebtedness to these appellees has been paid. The contract provided that all invoices for lumber sold by ITarvey should be assigned to and deposited with the Bank of Avera, and when collected that eight dollars per thousand feet should be deposited to the credit of appellant for credit on the notes due by Harvey to appellant. Harvey operated the business for several months and paid to the appellant the sum of about seven thousand dollars, when it developed that the amount of the standing timber involved had been overestimated to the extent of a million or more feet, and that it would be impossible to pay the amount due the appellant out of the sawmill operation. Thereupon Harvey absconded, leaving the business without any one in charge thereof. The appellant then filed his bill of complaint in the chancery court of Greene county, setting up the contract existing between him and the said Harvey, alleging that Harvey was in default on one or more payments, had breached his contract in other respects, had absconded to parts unknown, and left the properties in incompetent hands and going to waste, that he was insolvent, and that the complainant was entitled to the possession of the property or to a paramount lien thereon. The bill was framed upon the idea that this contract between the parties was a conditional sale, and that complainant was entitled to the possession of the property, but prayed in the alternative that he be decreed to have a paramount lien upon the property, and that it be sold to satisfy complainant’s claim for the unpaid balance due on said notes, and also prayed that a receiver be appointed to take charge of the property and preserve the same until further order of the court. Upon the bill of complaint a receiver was appointed without notice and authorized to take charge of all the properties described in the bill of complaint and covered by appellant’s said contract. This receiver, Horace Turner, brother of the appellant, and, as the record shows, the owner of the three thousand three hundred and twenty-five dollar note already referred to, qualified and took charge of the properties. *13 Thereafter the receiver applied to the court for authority to sell the properties^ in his hands, and was authorized by appropriate decree to sell for cash all properties in his hands or under his control. Early in the proceedings, upon application of the receiver, an order was entered by the court directing that notice be given to all creditors of the estate of C. • C. Harvey, and ail persons having any claims or liens in and to the property described in the bill of complaint, or to any funds in the hands of the receiver, to file said claims with the chancery clerk on or before the second Monday of January, 1923, and advising such creditors that all claims not filed on or before said date would be disallowed and barred from participating in any of the assets or property. ' Due notice of this order was given by publication, and at the January, 1923, term of the court a decree was entered granting extensions of time for filing answers and claims, etc., which is not here material. The defendant, Harvey, appeared and filed an answer and cross-bill, averring, among other things, that the said nóte for three thousand three hundred and twenty-five dollars was an interest charge, and that this interest, in connection with the six per cent, interest borne on the face of the notes, amounted to more than twenty per cent., thereby rendering the contract illegal and forfeiting the principal. The several appellees filed, within the time allowed by the court, petitions presenting their claims for allowance, and in addition thereto adopting the allegations of the defendant’s answer charging that the complainant’s claim was usurious and asking its dis-allowance. These petitions further set up that all the properties of the defendant had been taken into the possession of the court through the receiver, sold and converted into cash, and that therefore the creditors were without remedy, except as against the funds in the hands of the receiver, and charging the' insolvency of the defendant and their right to participate in the funds in the hands of the receivers as creditors of the defendant. *14 At the July, 1923, term of the court, over the objection of the appellant, the appellees were permitted to amend their petitions and contests so as to charge that the transaction between the appellant and the defendant was a loan of money rather than a conditional sale, that the documents evidencing the transaction amounted simply to a mortgage to secure a loan of the amount advanced by the appellant, and that the mortgage thus attempted to be taken by the appellant was fraudulent and void as to creditors, because it covered a stock of merchandise and other property consumable in the use, which was left in the possession of the mortgagor, the defendant, with the right on his part to use, sell, and dispose of the same in the usual course of business. Thé cause then proceeded to trial, and upon the evidence a decree was entered in favor of the appellant on the question of usury raised by the answer and cross-bill, but reserved for further consideration and hearing the other questions involved, including the proper distribution of the funds in the hands of the receiver, and allowed further time in which the appellant might answer the petitions of appellees .contesting his claim to a lien on the funds. Within the time allowed, the appellant filed answers denying the claim of appellees that his asserted lien was void. At the succeeding term of the court the case was again called for hearing upon the petitions of appellees and upon the issues previously reserved by the court. At this hearing the appellant filed motions to be permitted to withdraw his answers filed to said petitions, and to- file demurrers thereto; the grounds thereof, among others, being: That “this is a suit between J. Tyler Turner as complainant and C. C. Harvey, defendant, and the petition of the s.aid Bank of Richton does not set up a state of facts that would entitle it to intervene in said cause over the objection of the complainant.” “The said Bank of Richton is neither a complainant or defendant in said cause and is a stranger thereto, and under the law it is' *15 not entitled to intervene in said canse. ” ‘£ That the questions at issue between the complainant and the said C. C. Harvey, defendant, have been adjudicated by this court, and to permit the said intervener to intervene in said cause would be permitting it to be substituted in the place and stead of said defendant, and cause the whole subject-matter to be relitigated with another defendant.” ‘£ That it does not appear by said petition of intervention that said intervener has any lien on any of the property or the money in the hands of the receiver in said cause, and he is therefore not entitled to intervene. ’ ’ And “that it is not shown from said petition of intervention that the right of the intervener, if any right it had, cannot be conserved without its interfering in this suit.” The court temporarily overruled these motions of appellant, reserving final decisions upon the merits of the motions and the demurrers tendered therewith until the final decision of the entire case'upon the merits. After the evidence had been heard, the court entered a decree adjudging that said demurrers were not well taken, and that the motions tendered therewith should be finally overruled; ordering that the claims of the appellees be allowed for the full amounts thereof as valid claims against the funds and property in the hands of the receiver, and that the claim, of the appellant be likewise allowed as a valid claim against said funds, and that all of said claims be allowed to participate ratably in any distribution of such funds; adjudging that the contract sued upon and exhibited with the bill was intended and was in fact security for a loan of money, that said security embraced a stock of merchandise and other property and was retained by the said Harvey with the right on his part to use and sell the same in the usual course of business, and that consequently the said security and lien claimed upon said property and upon the funds in the hands of the receiver was void as to creditors of Harvey, and especially as to those creditors whose claims had been properly presented and allowed in the cause. Other provisions of the decree are not here material. *16 The first assignment of error is based upon the action of the court in overruling the appellant’s motions for permission to file demurrers to the petitions of the intervening creditors, and in holding that the demurrers tendered were insufficient, thus, over the objection of the appellant, permitting these intervening creditors to become parties to the proceedings and to interpose therein a contest of the validity of appellant’s asserted secu rity, and in support of this assignment the appellant relies upon the case of Crystal Springs Bank v. Cattle Loan Co., 132 Miss. 52, 95 So. 520, as being controlling. In that case the appellee was seeking to foreclose a mortgage by a bill in equity. Pending the litigation, a receiver was appointed to take charge of the property covered by the mortgage, and, pursuant to an order of the court, this property was sold by the receiver and the proceeds of sale held to await the final decree of the court. During the trial, certain creditors filed a petition for intervention, attacking the validity of the mortgage upon several grounds. On appeal this court held that: “What the appellant is trying to do is to intervene and establish a claim to the money in the hands of the receiver adverse to both of the original litigants, and such practice, in the absence of a statute permitting it, is not permissible either at law or in equity. Its remedy, if any it had, was by an original bill. ’ ’ The appellees seek to differentiate the case at bar from the Crystal Springs Banlc case, supra, principally upon the grounds, first, that in the latter case there was a special receivership involving only the property covered by the mortgage, while in the case at bar the receivership is a general one, covering all the property of the defendant; and, second, that no notice advising and inviting creditors to file their claims was given in the Crystal Springs Bank case; and, third, that the proposed intervention in the latter case was not presented until the final submission of the cause. Considering these grounds of differentiation in the reverse order, we think it is manifest from the opinion in *17 the Crystal Springs Bank case that the fact that the proposed intervention was not featured until the final submission of the cause was not considered as controlling or influential in the decision of the question involved. The right of the creditors to intervene in the proceeding at all was the question decided, and the stage of the proceeding at which the petition was filed does not appear to have been considered. The next question for consideration is whether or not the right of appellees to intervene and contest the validity of appellant’s security is affected by the fact that the court ordered notice to be given to creditors inviting them so to do. We do not think the fact that this notice was given is decisive of the question involved. The notice did not create a right to so intervene over the objections of the complainant, and, if none existed otherwise, this notice had no effect upon the right of the parties, and especially of the complainant, who objected to the intervention. In the final analysis, the decisive question is whether- or not the receivership was a general one, or a special receivership in aid of the complainant’s asserted rights under the contract or mortgage upon which the suit was based. If this receivership can be treated as a general one for the benefit of creditors, then the notice to creditors to file their claims was proper, and the action of the court upon the demurrers was correct, since the creditors who appeared and proved their claims became parties in interest, and were entitled to contest with other creditors the validity of their claims. If the receivership was special or only ancillary to a proceeding to enforce certain rights asserted by the complainant against the defendant, under and by virtue of a contract between them, the rule announced in the case of Crystal Springs Bank v. Loan Co., supra, must control. It seems clear to us that the receivership in the ease at bar is special, and that, on the facts, it cannot be differentiated from the Crystal Springs Bank ease. The facts in the two cases *18 are practically identical, except that in the case at bar the contract or mortgage involved happens to cover all of the debtors’ property. This circumstance does not •change the character of the receivership involved. The complainant is asserting the rights of a lien creditor only upon the property covered by the contract, and the receivership was asked for and had only upon the property covered by the lien asserted under and by virtue of this contract. The appellees are common creditors, having no lien on the property in the hands of the receiver, who are, as said in the Crystal Springs Bank case: “Not attempting merely to share in the fund here in question, but to defeat the complainant’s claim to the exclusive right thereto.” To the rule that a person has no right to intervene as defendant in equity against the objection of-the complainant, there are two well-recognized exceptions—one growing out of trust relations, where the cestui que trust not being a party, shows that it is necessary to make him a party to protect his interests, and the other where there is a fund in court to be distributed, of which the intervener is entitled to a share (20 R. C. L. 683, 21 Cyc. 343); but in the Crystal Springs Bank Case, supra, it was expressly held that an attempt to defeat a complainant’s claim to the exclusive right to a fund in court does not come within the exception last above stated. The defendant to the original bill answered the bill, and made his answer a cross-bill, and all the issues raised by the answer and cross-bill were fully litigated.' In the decree adjudicating all issues between the complainant and the original defendant, over the objections of the complainant, the interveners were granted permission to amend their petition so as to raise other issues challenging the validity of the mortgage contract between the complainant and the defendant to the original bill. We think this was error, and that the petitioners ’ rights, if any, should have been presented by an original bill. For the'error of the court below in refusing to permit the complainant to withdraw his answers to the inter *19 vention petitions and to file demurrers thereto, on the ground that the demurrers tendered were insufficient and not well taken, the decree appealed from will he reversed, and the cause remanded. Reversed and remanded.