Clarke v. Wheatley

Lumpkin, P. J. This court, at its March term, 1899, in the case of Clarke, trustee, et al. v. Ingram et al., rendered a decision declaring that a conveyance which had been made by the Bank of Americus to W. W. Elannagan, a non-resident of this State, as trustee for three other banks in that conveyance named, was void. See 107 Ga. 565. Eor convenience, we will hereinafter refer to this conveyance as the “deed of trust,” and to the three banks for whose benefit it was executed as the “ foreign hanks.” The opinion filed in that case sets forth in full the nature of the litigation upon which the decision mentioned arose. Before it was announced, Elannagan, while assuming to act as trustee, and W. E. Clarke, who upon Elannagan’s resignation as such had been appointed trustee in his stead, made divers collections of money upon choses in action belonging to the Americus bank, which had come into their hands under the deed of trust, and also sold to various persons much of the property which that deed purported to convey to Elannagan, as trustee. Shortly after the remittitur from this court had been entered in the court below, Thornton Wheatley, the receiver of the Americus bank, filed in that court an equitable petition in which Clarke was named as the sole defendant. This petition set forth a history of the litigation which had been had in the original case, stated the result thereof as above indicated, and contained prayers for direction and for an accounting and settlement by Clarke for and in respect of all the assets which had come into his hands as the successor of Elannagan in the alleged trust. The receiver subsequently filed an amendment to his petition, wherein he prayed “ the court — 1076 — to grant an order authorizing him to institute suits to recover the? property specified in the ” deed of trust “ which had not come into-his hands as receiver, and to give him such instructions and directions in the premises ” as might be proper. Clarke filed an answer-in which he undertook to set forth a full report of all his actings- and doings while assuming to act as trustee. This report disclosed, what assets of the Americus bank had been turned over to him by Flannagan, what sums of money had been realized therefrom, and the disbursements which had been made out of the- fund thus arising, etc., etc. By way of defense, Clarke alleged that he had in-good faith made collections upon divers choses in action coming' into his hands as trustee, and had sold certain property, both real and personal, described in the deed of trust, and therefore was not-in a position to turn over to the receiver all of the assets of the Americus bank which had come into his possession as trustee. He-undertook to assert, in this connection, that, as the sales of property made by himself and Flannagan were fairly conducted and-the sums of money thereby realized represented the highest price-for which the property could have been sold,it was “to the interest of all parties that the acts of said trustees in making sales and collections under said trust deed should be solemnly decreed by the court to be ratified and confirmed, so as to quiet the titles of the various purchasers and promptly set at rest all question of litigation concerning the same.” By way of conclusion, Clarke further alleged that he was “ready to account for all property and moneys that have come into his hands, and has been ready and willing to come to a prompt settlement with said receiver from the túne he was advised of the decision of the Supreme Court in this cause;' but the said receiver has never called upon him for such settlement,, unless this petition, which is a wholly unnecessary proceeding, is to-be so regarded.” The only specific prayer contained in Clarke’s answer was in the following words: “ And, having fully answered,, respondent prays that he be hence discharged.” To this answer Wheatley, the receiver, demurred upon the following grounds: “First: There is no tender into court of any of the proceeds realized from the sale of the real estate or the collections of the choses in action, . . and the trustee has no right to ask that the collections of money from the sale of real and personal property and choses in action be withheld and the disposition — 1077 — thereof be confirmed by the court. Second: The answer and response are wholly insufficient in law and equity,” in that “the respondent does not propose to do equity in order to have his acts .and conduct ratified in the premises, equity requiring immediate surrender of any and all assets, or the proceeds thereof, which have passed through his hands or his predecessor’s hands, before confirmation of his actings and doings in the premises. Third: His report shows that the larger part of the assets realized out of the .assets derived from the Bank of Americus are in the hands of the beneficiaries mentioned in the deed of trust, who are non-residents, .and that the said assets are not proposed to be subject to the jurisdiction of the court.” Before the case came on for trial, the foreign banks presented to the court a petition in the nature of an intervention, praying that they be made parties and that they be granted certain relief to which, for reasons assigned, they alleged they were entitled. After ■characterizing their petition as an “intervention in the nature of .an answer to the above-mentioned petition of said receiver,” they ■proceeded to staté that “ Your respondents hereby adopt the answer of their corespondent, W. E. Clarke, so far as the same is pertinent to this their answer.” The averments therein set forth were, in substance, as follows: The receiver has no right to proceed against Clarke for an accounting and settlement, since, as is fully shown by his report, “there has been no sale made and no collection made under the terms of said trust deed that is attacked . . or is sought to be set aside and cancelled on any grounds whatever.” ■On the contrary, “all the acts of said Clarke and his predecessor, Flannagan, as disclosed by the report attached to said Clarke’s answer, have been in an economical and orderly administration of said trust, and have been a prudent and skillful realization of funds from” the assets of the Americus bank; and accordingly, “the acts ■of said Clarke and Flannagan should, in the interest of all parties in this litigation, be ratified ” and confirmed by the court. “ The said Thornton Wheatley, receiver, has in his possession money and other assets which were never covered by the said trust deed and which should be fully reported to the court, with an accurate estimate of the value thereof, before any order or judgment is passed under the receiver’s petition; ” and he “ should be required, before ,-such judgment is rendered, to come to a settlement with the said — 1078 — W.' F. Clarke, receiving from him all the money and the assets now in his hands which have not been paid over to these respondents-as the beneficiaries under the said trust deed, which unadministered assets are fully shown by his report, and said receiver should then report such assets to the court, with an accurate estimate of the-value thereof. Or, these defendants submit that even a better course to be pursued would be for the said receiver, under the order of the-court, to convert all such assets into cash and then report the sarne-to the court before any order or decree is rendered upon the said receiver’s petition.” The court should then “finally determine and fix the various allowances to be made to the receiver and the counsel in this case, and ascertain the court costs and all other expenses of administration, so as to know the aggregate amount thereof to-be paid out of the said funds.” The court should also undertake to “ ascertain the various amounts that have been received by these-respondents upon their respective claims arising from the properties covered by said trust deed, so as to definitely ascertain the percentage or proportion of the credits that the respondents have heretofore received from said source.” They “have received, approximately, seventeen thousand dollars through the hands of Flannagan and Clarke, trustees, which amounts have been entered as credits upon their respective claims; and they now and here propose to submit to the court, for the most careful scrutiny and examination,., the entire transactions of the said Flannagan, former trustee, and of said Clarke, showing the sales and collections made, the disbursements of necessary expenses, and the actual amount paid over to these respondents as a credit upon their respective claims. Respondents submit that this examination should be had and the respective amounts determined before the prayers of the receiver’s petition should be allowed by the court. Respondents further aver that the funds which will be in the said receiver’s hands after all the unadministered assets described above have been converted into-money will be sufficient, even after allowing reasonable compensation to the various officers and counsel, to pay to the general creditors, other than these respondents, an amount sufficient to make-that class of creditors equal, in the pro rata amounts received upon their respective debts, to these respondents; ” and therefore no “ decree should be rendered upon said receiver’s petition, either authorizing him to repudiate the sales and collections made by thfr — 1079 — said trustees and bring suit to recover the said assets, or . . requiring these respondents to pay back into the said receiver’s hands the said sum of seventeen thousand dollars received by them as above stated, until the said receiver shall make it affirmatively appear to the court, by competent evidence, that the funds in his hands, after a full settlement with W. F. Clarke, trustee, will not be sufficient to equalize with these respondents those creditors who have not yet received any payments upon their demands.” In the event the receiver should, “upon the hearing of his said petition, show to the court that the funds in his hands are not sufficient for the purpose above recited, then he should” be required to further show “the extent of said deficiency and what amount it was necessary for these respondents to refund or repay to him as receiver in order to equalize the class of creditors above described; and the court should then, in its decree upon his said petition, require these respondents to pay over to the said receiver only such amount as would be required for the purpose just named.” The estimates of value placed upon “ the properties covered by said trust deed ” at the time it was executed “were, in many instances, fictitious,” these properties not being, in point of fact, “ at any time worth the large sum which they were originally rated at.” On the contrary, “the said Clarke’s report is the highest and best proof of the actual values of said properties, as appears from the amounts realized therefrom.” Following the foregoing allegations was a prayer on the part of the foreign hanks “ that all of the steps above outlined by them in regard to ascertaining the true funds in the receiver’s hands from all of the assets of” the Americus bank "be allhad and taken before any decree ” was entered by the court, and that “ the relief claimed by them above be granted.” The trial judge, after hearing argument from them as to their right to become parties to the litigation with a view to securing the relief sought, refused to allow them to intervene; and to this ruling they excepted. He thereupon sustained the demurrer to the answer filed by Clarke, and entered a decree in favor of the receiver. Being dissatisfied with the disposition thus made of the case, Clarke also excepted. We shall first direct our attention to the complaint made by the foreign banks that the court erred in not-allowing them to intervene, and then dispose of the questions presented by the assignments of error upon which Clarke relies. — 1080 — 1. At the time Wheatley, as receiver, commenced proceedings against Clarke, it had already been finally adjudicated, not only as against him but also as against the three foreign banks, that the deed of trust above referred to was an absolute nullity. As a result of this adjudication, Clarke became liable to account for all the assets of the Americus bank which had come into his hands while assuming to act as trustee for the foreign banks. The receiver, as the representative of the creditors at whose instance this instrument was set aside, was under a positive duty to recover, if possible, the illegally scattered assets of the Americus bank, including those which passed into the possession of Clarke and for which he had failed to account. It was unquestionably proper for the receiver to endeavor to compel Clarke, as well as all others who had unlawfully acquired property belonging to that bank, to make prompt and full restitution. This the receiver was seeking to do when the foreign banks undertook to interpose and tie his hands. They were, it is true, creditors of the Americus bank, and, as such, had a right to object to the receiver’s taking steps which would operate to the prejudice of its unsecured creditors. But, as has been seen, the receiver was simply endeavoring to discharge his positive duty in the premises, and the proceeding instituted by him was, beyond all question, not only proper but essential to the protection of such creditors. Certain it is that the foreign banks failed signally to disclose any reason for apprehending that they, in their capacity of creditors, would be prejudiced in the event Clarke was made to account for property which had been illegally disposed of by him. Any suggestion that they might he would seem to be wholly without foundation. As matter of fact, they did not make any such claim. On the contrary, it was solely in their capacity as beneficiaries under the deed of trust that they asserted a right to intervene in the pending cause and arrest the action of the court upon the receiver’s petition. They were non-residents; he was not seeking to recover the money which had been turned over to them by Clarke, and no judgment against him could possibly affect their rights. This being so, it was not necessary to their protection that they should be allowed to become parties to the litigation; and, of course, it was not their privilege, as mere volunteers, to champion the cause of Clarke and lend him aid and comfort in his contest with the receiver. There is no force whatever in the argument that — 1081 — if judgment were rendered against Clarke and lie should be compelled to make restitution, he would have a right of action against the foreign banks to recover the money he had, while acting as their trustee, improperly paid over to them. If Clarke failed to interpose a proper defense and suffered judgment to be rendered against him upon a demand which he might have successfully resisted, these foreign banks would be in a position to assert that they could not justly be called upon to reimburse him for any loss thus ■sustained. On the other hand, if he should rightly be held to account for the assets coming into his hands, the proceeds of which he had in good faith, though improperly, delivered to them, they ■should, without forcing him to litigate further, restore to him the funds thus received by them. Our conclusion therefore is, that the proposed intervention presented in behalf of the foreign banks amounted to neither more nor less than an effort on their part to force the receiver, against his will, to sue them for $17,000, to no ■other end than that they might thus be afforded an opportunity to interpose the wholly untenable defense that he had no right to recover any portion of that sum without showing that, as debtors, they were hable for an amount in excess of that which they, as unsecured creditors, would, on a final distribution amongst all creditors of the funds realized by the receiver from the assets of the insolvent Americus bank, ultimately be entitled to receive upon the claims which they held against it. Under the circumstances disclosed, the receiver certainly had the privilege of declining to bring ■a suit against the foreign banks, however much the latter may have ■desired the institution thereof. 2, 3. The defense relied on by Clarke was nothing short of remarkable. It was apparently based upon the theory that as he had, while assuming to act in behalf of the foreign banks, been faithful to the trust imposed upon him by the deed executed in their favor, he could not be legally called upon to account to the receiver for the misapplied assets of the Americus bank, notwithstanding that deed had been by the court declared wholly inoperative and void as against the creditors who prevailed in their •effort to have it set aside. In framing his answer, Clarke seems to have totally ignored the fact that, by reaáon of his alleged faithfulness as trustee, the major portion of the assets of that bank were illegally disposed of and the proceeds arising therefrom carried be — 1082 — yond the jurisdiction of the court and placed in the hands of parties-not entitled to receive the same. That the creditors in whose behalf the receiver sought to recover these assets, or the proceeds thereof, were dissatisfied with the disposition made by Clarke of property belonging to the insolvent bank which had been unlawfully delivered to him, does not afford cause for surprise. Whether or not he had been faithful to the foreign banks was a matter as to> which these creditors had no concern. He was not called upon • by the receiver to answer in what manner he had performed his duty as a trustee. On the contrary, he was called upon, as a person whom, the court had characterized as one who had without any shadow of authority intermeddled with the affairs of the Americus hank,, to account for assets belonging to it of which he had wrongfully acquired possession. He was, beyond the possibility of doubt, liable for all the assets of the bank thus coming under his control. While it was proper for him to state in his answer that it was' not-within his power to restore all of these assets, he clearly had no-right to ask that the court ratify and confirm his unauthorized disposition thereof, without at least offering to pay into the registry of the court the proceeds arising from the same, and assuming the burden of showing that the property disposed of by him did not exceed in value the amount realized thereon. When, by way of demurrer to his answer, his attention was called to the fact-that he had omitted to come up to this reasonable requirement, he displayed no disposition to do equity, and thereby forced the court to hold that there was no merit in the defense which he sought to interpose. It appears that when the case came on to be heard, the receiver elected to take the'assets of the Americus bank which still remain edl in the hands of Clarke, but “not to confirm the sale of the real and personal property or the collection of the choses in actions ” made, by him or by Flannagan. Accordingly the court, in framing its. decree, merely imposed upon Clarke the duty of surrendering possession of such only of the assets of that hank which he in his answer admitted were still in his hands, and expressly provided that-he should not be called upon to account for “ any proceeds derived from the sale of any of the real estate made hy ” him or by Flannagan. It will thus be seen that, relatively to the receiver, Clarke= practically escaped all liability growing out of his unauthorized dis — 1083 — position of property which was the subject-matter of controversy. Nevertheless he complains that the court further provided in its decree that the receiver should proceed against all other persons who held adversely to him assets of the Americus bank which were subject to the claims of its creditors. This direction to the ■ receiver was, Clarke contends, “ erroneous in that it makes him personally hable to all persons from whom he has made collections of money under the trust deed, whether in making 'sales or in collecting the choses in action.” The reply to this contention is, that one who, with however much good faith, undertakes .to sell or otherwise deal with property which does not belong to him can not reasonably hope to escape liability if, because of his unauthorized acts in relation thereto, innocent parties are made to suffer loss. Judgment affirmed. All the Justices concurring.