The former proceedings in this case are reported in13 R.I. 442 sq. The circumstances of the present hearing are detailed in the concurring opinion of CARPENTER, J. In determining the particular question now before the court, although a merely interlocutory motion, it is proper to consider and have in mind the entire situation of the parties before us.
That situation in brief is this: In November, 1873, the A. W. Sprague Manufacturing Company, A. W. Sprague, and Amasa Sprague, William Sprague, Fanny Sprague, and Mary Sprague, individually, all defendants in this bill, had become financially embarrassed and were unable to meet their liabilities.
Wishing to fund their indebtedness, and at the same time to preserve intact their vast manufacturing properties and to continue their business, that being deemed for the best interest of both creditors and debtors, they made and executed to the complainant, Zechariah Chafee, a trust mortgage deed of all their property and estate as security for the payment of their debts, excepting from said conveyance all shares of capital stock in any and every corporation wherever located, belonging to any or either of the grantors in said trust mortgage deed, but at the same time and in the same instrument agreeing to transfer all of said stock to said Chafee, upon his request in writing, "by way of pledge and collateral security, to secure the performance of the conditions of this instrument."
In pursuance of this stipulation, request was thereafter promptly made, and all of the capital stock of the grantors in the Quidnick Company was transferred to said Chafee by way of collateral security to said trust mortgage deed, the equity of redemption in *Page 77 said stock only remaining in the grantors thereof, which said equity of redemption was immediately thereafterwards transferred as follows: Amasa Sprague, William Sprague, Mary Sprague, and the A. W. Sprague Manufacturing Company each transferred to Fanny Sprague their respective shares for the equal benefit of their respective creditors, and said Fanny Sprague in like manner transferred her remaining right in her shares to said Mary Sprague in trust for the equal benefit of all her creditors.
By subsequent deeds of assignment Amasa Sprague and William Sprague respectively conveyed all of their individual estate and property, not exempt by law, to said Zechariah Chafee in trust for the benefit of their creditors.
The amount of stock of the Quidnick Company thus transferred to Chafee, as collateral to the trust mortgage deed, was 4,022 shares, which he still holds for the purposes specified in the deed and transfer.
The entire number of outstanding shares of the capital stock of said Quidnick Company is 4,349; so that said complainant Chafee holds all but 327 shares of the entire amount for the benefit of creditors under the trust deed.
The bill alleges that Claudius B. Farnsworth, administrator of the estate of Edwin Hoyt, owns said 327 shares, so that upon the face of the bill the entire capital stock of the debt corporation is represented by Chafee, trustee, and Farnsworth, administrator. The conditions of the trust mortgage deed aforesaid have long since been broken. Both the interest and principal of the extension notes issued in pursuance of said deed are long overdue and unpaid.
The property in the hands of the trustee, exclusive of the Quidnick stock held as collateral under the deed, is wholly insufficient to pay the indebtedness, and the trustee has brought his bill in equity, which is now pending in this court, to foreclose said stock in order that he may realize thereon for the benefit of the long delayed creditors.
The trustee is bound to sell this stock to the best possible advantage. The debtors as well as the creditors are entitled to the largest possible benefit which can be reaped from the sale of this security. And it is just here that, as it is claimed, the practical *Page 78 difficulty arises. The complainant Chafee, trustee, holds the beneficial interest in all of the stock of the Quidnick Company, excepting said 327 shares held by Farnsworth, administrator, who represents the creditors of Hoyt, with authority to sell the same; but one not a stockholder, though holding the office of President, namely, William Sprague, one of the defendants, who, the complainant avers, is adversary to the interests of the creditors, is in the actual possession of the property which that stock represents.
Whereupon, the complainant avers and charges that as a result of this fact and of other facts set forth in the bill, the value of the stock held by him for the purposes set forth in said trust deed "is rendered uncertain, is being daily reduced and deteriorated, and that the sale thereof by him under and pursuant to his said trusts is hindered and rendered impracticable for any sum at all commensurate with the just value of the same."
He also makes said Farnsworth, administrator, a party defendant to this bill, and avers that the value of the stock held by him is also affected in the same manner as that held by the complainant. Farnsworth makes answer admitting the facts as alleged, and joins in the prayer for relief.
Upon the sworn allegations and averments set forth in the bill, the complainants recently filed a motion for the appointment of a receiver pendente lite, to take possession of all the property and estate of the defendant corporation, the Quidnick Company, and hold and manage the same under the authority and direction of the court.
Upon the hearing of the parties upon the bill as it then stood, and without any denial of the averments therein set forth, the court granted the motion and appointed C.B. Farnsworth receiver.
The particular motion now before us is that made by the Quidnick Company, as represented by those holding the legal title to a majority of the stock, to vacate the order and decree passed in pursuance to said motion, on the grounds, amongst others, that the court is without jurisdiction in the premises, upon the facts stated in the original bill; that the complainant Chafee is not a creditor of the company; that he is not a stockholder; that he has no equity to a receiver, and for other reasons. And first as to *Page 79 jurisdiction. The defendant says that "so far as the order proceeded upon the original bill, and the application of Chafee, it was improvidently allowed for want of jurisdiction in the court upon the facts stated to grant it."
But the order did not proceed upon the original bill alone. It proceeded upon the original bill as amended by the supplemental bill, which was duly incorporated into the original under a provision of our statutes, and therefore became, to all intents and purposes, a substantive part thereof.
The failure to state the specific grounds entitling the complainants to the relief prayed for, to which the defendant claims that the original bill is obnoxious, is fully remedied in the amended bill, which is now properly before us, by setting forth those grounds with great particularity. The amended bill also shows that the 327 shares of stock owned by the representative of the Hoyt heirs are now properly before the court.
Does the bill then, as it now stands, prima facie set forth a case within the jurisdiction of the court? We think it does. It charges "that since the filing of the bill the defendant William Sprague, and others acting by his direction and for him, have been and are in the possession and control of all the real estate, mills, and property of the Quidnick Company, and are running the same for his or their own benefit, without paying the Quidnick Company any rent; that he or they are renting and receiving rent for tenement houses and other property of the company; and that he is allowing the property to deteriorate by neglect and want of care. And all this while the money of the Quidnick Company, by the custodian of its personal property, is paying the taxes and insurance upon the entire property.
The bill also charges that as a result of the facts set forth the value of the stock held by the complainant Chafee in his said capacity is rendered uncertain, and is being reduced and deteriorated, and that the sale thereof by him is hindered and rendered impracticable for any sum at all commensurate with its true value, c., as before stated.
Is the complainant Chafee in a position, upon the face of the bill, which entitles him to ask for this interference of the court?
The defendant argues that he is not: first, because he is not a *Page 80 creditor of the defendant corporation; and second, because he is not the owner of the stock held by him.
As to the first, although it is true that Chafee is not a creditor technically, yet he is one equitably, and, as such, entitled upon a proper showing to the assistance of the Court of Equity by the appointment of a receiver. As pledgee of a large majority of the stock, he may be regarded as an equitable creditor having an interest in the property of the company, which, in connection with Farnsworth, who represents other creditors and the balance of the stock, he is entitled to have protected from alienation and depletion, for the reason that, not being a stockholder, he cannot protect it by his vote, and Farnsworth, holding only a minority of the shares of stock, is powerless as against the majority.
And as to the second point, although it is true that the complainant is not the owner of the legal title to the stock, he is the owner of the equitable title thereto, which, together with the fact that the owner of the balance of the stock joins with him in the prayer for relief, thereby representing the entire stock of the corporation, is prima facie sufficient to give him a standing in court.
The rule as laid down by Kerr on Receivers, pp. 7, 8, is that "If it appears to the court that the plaintiff has established a good prima facie equitable title, and that the property, the subject matter of the suit, is in danger if left in the possession of the party against whom the receiver is prayed until the hearing, or at least that there is reason to apprehend that the plaintiff will be in a worse situation if the appointment of a receiver be delayed, the appointment of a receiver is almost a matter of course."
Said Bowie, C.J., in State v. Northern Central RailwayCo. 18 Md. 193, 214: "In general, where personal property, or the rents and profits of real estate in dispute are in imminent danger of being wasted or lost, a receiver may be appointed to take care of it for the benefit of all concerned during the controversy. Lord Hardwicke considered this power of appointment to be of great importance and most beneficial tendency. It is a discretionary power exercised by the court, with as great utility to the subject as any authority which belongs to it, and is provisional only for the more speedy getting in of a party's estate and securing it for the benefit of such persons who shall appear to be entitled; and *Page 81 does not at all affect the right. Equity will appoint a receiver at the instance of parties beneficially interested where thereis no fraud or spoliation, if it can be satisfactorily established there is danger to the estate or fund, unless such step is taken." In the leading case of Clark et al. v.Ridgely, 1 Md. Ch. Decis. 70, quoted by Judge Bowie in the case just cited, it is laid down, p. 71, that "the authority and duty of the court to appoint or not to appoint a receiver depends upon the question whether the property is or is not in danger in the hands of the party who may at the time be in possession." And see, also, Davis v. Duke of Marlborough, 2 Swans. 145, 146, and 2 Daniell Chanc. Plead. Pract. 1716, as to cases in which receivers are granted.
Having therefore come to the conclusion that the complainant Chafee is an equitable stockholder as well as creditor, it is unnecessary to consider the point made by the defendants that as stockholder he has no equity to a receiver.
But the defendant further argues that the "thing inlitigation" is the stock claimed by Chafee, and not the corporate property itself, and that therefore no receiver can be appointed in any event except of the stock. It seems to us that this is taking too narrow and technical a view of the matter before us. The stock which is held as collateral by Chafee is the mere representative of the property which is behind it. It stands for the property. It is utterly worthless without it. The stock cannot be sold for anything like its real value unless the purchasers can be reasonably assured that, by purchasing the stock, they will also obtain the control, use, and occupation of that which it represents without further litigation. Now if the creditors, together with the Hoyt heirs, represented by Farnsworth, administrator, practically own all of this stock by having the entire beneficial interest therein, then they also practically own the property which that stock represents, and are entitled in equity and good conscience to the benefit and enjoyment thereof.
Upon the face of the bill, Chafee, trustee, as representing all of the vast body of these creditors, together with Farnsworth, administrator, representing the Hoyt heirs, do own the entire beneficial interest, and so far as the 327 shares represented by said Farnsworth, administrator, are concerned, the legal interest in and *Page 82 to every share of the stock of the Quidnick Company. But while thus owning it, the complainants aver that they are entirely and absolutely deprived of all the use and benefit accruing therefrom, because another person is in the actual possession and enjoyment of the entire property which that stock represents, managing and running it for his own private benefit, or for the benefit of those whom he may represent, without making any returns whatsoever to the true owners.
So that, although the technical thing in controversy is the capital stock of the Quidnick Company, the real thing in controversy is the property of the Quidnick Company which that stock represents, and without which it is of no avail.
This was substantially the light in which we viewed the case as presented at the first hearing.
Upon the motion now before us, however, the case assumes a very different aspect from the facts which appear by the affidavit of Governor Sprague, which sets forth that after the decree of September 10, 1881, in this case, appointing Claudius B. Farnsworth custodian of the personal estate of the Quidnick Company, he, Governor Sprague, "entered into a contract with the Quidnick Company, as trustee for certain persons who agreed to and did furnish funds to start up and put the mills in operation; that said contract was to continue in force until the controversies, in which the said company was interested, were judicially determined." "That under said contract he entered into the possession and commenced the operation of the mills, and has been at great expense in collecting and filling the mills with help, and has expended large sums of money in accumulating stock, and in bringing the business operations of the mills into their present prosperous condition; that under his operations the mill property is in better condition to day than it has been for the last ten years, large sums of money having been expended by him in making such repairs as were necessary to put the mills in proper running condition; that the money so expended has been paid by him out of the funds of the persons for whom he is acting as trustee, and out of the business operations of the mills; that the mill property will not deteriorate so much with the mills in operation as if they were idle; that the mills are being run for *Page 83 the benefit of the stockholders, after payment of expenses incidental to the running of the mills, and for the use of the money advanced to put the mills in operation." The complainants offered no evidence to controvert these allegations, which are a complete answer, if true, to the averments of the bill upon which they mainly rely, and must rely, for the appointment of a receiver pendente lite, namely, that the property is being wasted by negligence and want of proper care; that it is daily deteriorating in value, and also that it is being managed by a stranger who is not acting in the interest of the Quidnick Company.
Upon the present state of the proof, therefore, no case is made out for the appointment of a receiver, or for the retaining of the one already appointed at the first hearing.
Furthermore, upon a more careful study of the bill before us, we are of opinion that the petition for a receiver is not ancillary to any relief sought to be obtained under the various prayers in the bill. The prayer for the receiver in the bill is without foundation and without meaning. There is no prayer for a foreclosure of the stock, or for the winding up of the corporation, nor is there any for the application of the property of the company as such to the payment of debts. So that, as the case now stands, the appointment of a receiver on final hearing would, so far as aught now appears, practically be the appointment of a receiver in perpetuum. For no final decree which can be properly made under the bill as now framed could dispose either of the stock of the Quidnick Company, or of the property which that stock represents, and thus relieve and discharge a receiver thereof who should now be appointed.
For these reasons, therefore, we are of opinion that the defendants' motion should be granted, and the decree vacated.