Lubroline Oil Co. v. Athens Savings Bank

Fish, J. (After stating the foregoing facts.) 1. The view that we take of the law of this case makes it unnecessary to deal with the second and third assignments of error. The trust deed from the Athens Gas Light Co. to the Mercantile Trust and Deposit Co. contained a defeasance clause, and must be considered a mortgage. Pirkle v. Equitable Mortgage Co., 99 Ga. 524; Ward v. Lord, 100 Ga. 407. Besides, it was so recognized and foreclosed in this case by the Mercantile Trust & Deposit Co. and the beneficiaries under the instrument. As the mortgagee did not elect to take possession .of the property under the terms of the mortgage after default of payment, make income and appropriate the same to the bonds, but waited until after a receiver had been appointed at the instance of one of the bondholders and unsecured creditors,’ upon a petition filed under the “insolvent trader’s act,” and then intervened, it is clear that such mortgagee has not the same right to the income made by the receiver that it would have to income made by itself as mortgagee in possession. Green v. Coast Line R. Co., 97 Ga. 22. There can be no doubt that the resolutions passed at a meeting of the stockholders of the Athens Gas [381] Light Oo. were intended to give its president and board of directors authority to mortgage to the Mercantile Trust & Deposit Co. the future earnings and income of the Gas Light Co., because they were empowered to mortgage “the entire property . . now owned by it, or which hereafter may be acquired.”The resolution adopted at a meeting of the board of directors of the Gas Light Co. specified as a portion of its property to be so mortgaged, “all . .' tolls, revenues and income of the company.” .The question for our consideration is, did the Gas Light Co. have authority, under the law, to mortgage its earnings and income ? Counsel for defendants in error earnestly insisted in the argument here that no such point was raised in the court below by the pleadings; that the allegations in the original petition filed by the Athens Savings Bank, and in the interventions of the other defendants in error, as appears from the record, were to the effect that the mortgage to secure the bonds was upon all the tolls, revenues and income of the Gas Light Co., and that plaintiffs in error, in answering the petition, recognized such allegations to be true. AVe do not think the record sustains this contention. The plaintiffs in error, in their answer, charged that there were earnings in the hands of the receiver, more than enough to pay off all their claims, and insisted that their debts should be paid out of such earnings in his hands, in preference to the bonds. • The mere fact that they gave as a reason for such preference, that their debts were for operating expenses of the company, did not prevent them from contending before the court below that the mortgage did not legally cover the earnings and income, when the only authority shown by the defendants in error for the Gas Light Co. to mortgage its earnings and income was the resolution passed by its stockholders and board of directors. Counsel for defendants in error also insisted that the assignment of error did not make the point “that the company had no charter power to mortgage income.” The first assignment of error is, that “the court erred in holding that the mortgage or deed of trust was a lien at all on the income made by the receiver while operating the defendant’s property.” That the company had no charter power to mortgage its income was [382] simply a reason urged why it could not legally exercise such power. That a corporation of this State can not, in the absence of express legislative authority so to do, make a valid mortgage upon its earnings and income, has been held by this court in Georgia S. & F. Ry. Co. v. Barton, 101 Ga. 466. As was there said by Lumpkin, P. J., delivering the opinion of the court, “Whatever may be the law in other jurisdictions, we are satisfied that section 1954 of the Code of 1882 (which embodies the law of force when this mortgage was executed) settles this question adversely to the contention of counsel for the trustee of the bondholders. Under the provisions of that section, a mortgage can lawfully embrace only ‘property in possession, or to which the mortgagor has the right of possession at the time ’ of executing the mortgage, save only as to stocks of goods or other things in bulk but changing in specifics. Under this law, therefore, neither a corporation nor a natural person has the right to mortgage property which may be acquired after the execution of the mortgage.” As income to be made is necessarily in the nature of a future acquisition, it is clear that it can not be mortgaged without express legislative authority. In Vason v. Ball, 56 Ga. 268, it was held that a mortgagee out of possession has no lien on income, although it accrue from the property while in the hands of a receiver. It was not shown in the present case that the Athens Gas Light Co. had any express legislative power to mortgage its income. Therefore it follows that the mortgage it executed to the Mercantile Trust & Deposit Co., in so far as it sought to create a lien upon in-come, was inoperative and void as to third parties. 2. When a court of equity is administering the assets of a debtor through the medium of its receiver, the lien of judgments rendered against him before the appointment of the receiver will be preserved. Beach, Rec. (2d ed.) 194, 664; High, Rec. (3d ed.) 423; Gluck & B. Rec. (2d ed.) 22, 23. Where the receivership is under section 2716 et seq. of the Civil Code, all existing liens are preserved by express provision of section 2719. In Georgia S. & F. Ry. Co. v. Barton, supra, this court held that, relatively to Barton, the mortgage executed by the railway company to the Mercantile Trust & Deposit Co. [383] was not a valid lien upon the net income of the railway, made by the receiver, it having no express legislative authority, to mortgage its income, but that Barton's judgment constituted a valid lien upon all the property of the railway company, not, of course, enforceable by levy upon the money in the hands of the commissioners arising from income, but certainly capable of being made effectual by an appropriate equitable decree. In that case it will be noted that, as between the mortgagee and Barton, the case was treated in the light that Barton had obtained his judgment before the mortgagee began proceedings for foreclosure. In Green v. Coast Line R. Co., supra, this court said: “The lien of Mrs. Green’s judgment covers net income made by the receiver, . . and being statutory, it needs no aid from equity or equitable principles to render it a complete legal lien on income.” From these authorities the conclusion must follow that the lien of the judgments obtained against the Athens Gas Light Co., prior to the appointment of the receiver to take charge of its assets, attached to the net income made by the receiver in operating the plants of the Gas Light Co., to the extent at least of being made effectual by an appropriate equitable decree, and was entitled to preference over the claims of unsecured creditors of the Gas Light Co., and over the claims of the creditors of such company who obtained judgments against it after the appointment of the receiver, in suits pending at the date of such appointment, and also over the claims of creditors holding bonds of the Gas Light Co. secured by the mortgage to the Mercantile Trust & Deposit Co., the lien of which mortgage did not attach to the income for the reasons hereinbefore stated. The sta2iding of the claims of creditors who obtained judgments after the appointment of the receiver, upon suits pending at the time of such appointment, is fixed by the decision in Lang v. Macon Construction Co., 101 Ga. 343, the headnote of which is as follows: “Though an action was begun against an insolvent corporation before a receiver to take charge of its assets had been appointed under the provisions of section 2716 et seq. of the Civil Code, a judgment rendered in that action after the receiver’s appointment was not, in the distribution of funds arising from a sale by him of the corporate [384] assets, entitled to any priority over judgments rendered in favor of unsecured creditors in the equitable proceeding under which such receiver was appointed.” The fund in the hands of the receiver arising from the net earnings and income made by him should be distributed according to the principles of law herein decided. Judgment reversed. All the Justices concw'ring, except Cobb, J., disqualified.