*1 courts ask it in another state nary or, way, prudence, of their own negli- reason undo what have done they or carelessness.” gence failed to this have prove
The case absolutely appellants The bill. their alleged charges against appellee his him to dollars Yeatman thirty-five payment by but as liberal, be somewhat services may regarded his him in had been advance amount specific promised he him what not known to rendered, services as it was ren- such were would be therefor after services until paid can only to him of dollars dered, the payment thirty-five Martin. attributed to of Mr. liberality dismissing The of the learned chancellor below decree bill will be affirmed. with costs.
Decree affirmed, TRUST v. H. MEHRING CENTRAL COMPANY B.
COMPANY et al. 91, October Term, [No. 1927.] *2 9th, 1928. Decided February *3 Pattison, Bowd,
The cause C. J., was before argued JJ. Sloaet, Adktks, Oeeutt, Diggkes, Parke, Leslie N. Coblentz and Leo Weinberg, appellant. Brown, Albert 8. with D. whom were Arthur Willard Q. Urner, Jr., Milton on Com- H. B. brief, Mehring and others. pany
W. Clinton A. for Charles Jr. McSherry, Opel, J., delivered in Offutt, the following opinion, J., concurred. Sloak, was
The and Manufacturing Company American Foundry in of iron and 1910 to 1915 the manufacture from engaged Frederick Whether it was in City, Maryland. steel products it that for does appear ever successful dotes appear, had December it been suffering time 15th, 1925, some prior its was that that date credit losses, crippled, heavy the interest on bonds to meet roll, aggre- it was unable its pay of trust on its a deed mortgage secured $44,000, gating it meet its was unable to current overdue, was property, it in working and was need of additional obligations, urgent capital.
In that crisis some conceived the idea interested persons that if a receiver were to take appointed charge that could secure sufficient operate working he company, issuance of receiver’s certificates capital through carry it on at a it and that would that be carried over profit way its difficulties. A. on Dеcember Charles
Accordingly, 25th, 1925, Opel, filed a Jr., stockholder and creditor of the company, creditor’s bill Court for Frederick Circuit against the facts he which, above, addition to stated County, alleged:
“The officers and directors of the ñave company in negotiation been with an experienced operator an iron and se- foundry, steel whose services can be cured and they operation believe continued defendant sale company plan can which will be of material benefit developed advantage to the defendant its creditors company, For for the reasons here- stockholders. this reason and so your charges inafter stated believes and complainant your that it is and essential absolutely imperative Honorable intervene preserve property Court order defendant as a concern in company going pre- out the and in order to carry proposed plan *4 bondholders, serve to and company the defendant to vital important creditors and stockholders the most its wit, good asset of to company: the defendant large will. That company employs the defendant class of amount of skilled labor in industry, its through- is at time greatly present labor demand if to permitted out the and that be country plant fields shut this labor will seek other down, promptly another asset important of with the result that work, lost. of the defendant will be company “Your further states complainant to court that the defendant is also company extensively engaged and unfilled contracts orders and that much completing of its to material these contracts and complete orders is in of the process manufacture and shipment and that in the it could complete event not so its orders and contracts great loss would be entailed reason of of the lack value the unfinished material damages would result reason of hy its failure so to * * * unfilled complete its orders and contracts.
“That as heretofore stated the actively company in the engaged manufacture of its that products, hut has means with which to meet current pay- nor to roll, the means material to buy necessary carry on business; its that some of the other creditors are now company pressing payment your as one of the complainant substantial creditors company feels that the to only way save company its assets for of all its preserve the benefit cred- itors, stockholders and bondholders, appoint- ment a receiver Court with by your Honorable proper to authority power continue operations company going concern to collect and pre- its under serve assets and the direction the court to carry out its contracts and its unfilled complete orders and if consummate a deemed advisable to reоr- ganization company.” sale And in that bill he asked:
“That a receiver or receivers to may be appointed take possession control of, hold, and manage the prop- erty and assets belonging within the defendant, jurisdiction of this and for that court, purpose all appoint necessary agents and attorneys may he necessary collect all outstanding accounts and bills receivable, prosecute and defend suits in which the may defendant be interested.
“That the said receiver may authorized and directed under the order of this court to continue the business the defendant company as a going concern until further order of the court premises, and to money borrow receivers’ certificates purpose.” *5 admitted the
The on the same defendant day, appeared and consented to bill, allegations appointment on the same William receiver, and court day appointed to take of and A. Riddell receiver charge operate Riddell took of the company, charge company. qualified, and it until the when was operated following September, after filed shut down. On his Riddell day appointment, he the case had no for the stating petition money roll and that he had on unfilled which hand contracts pay he could not because he had not either the neces- complete, or the with it. material which sary money buy Upon the court the material order, petition passed part is as follows: A. “That the said William as and Riddell, receiver, and empowered not authorized bor- individually, row the sum five thousand dollars ($5,000.00) his to issue five certain (5) certificates, therefor receiver, in the sum of one thousand dollars each interest at the rate of six bearing per ($1,000.00), on from date and per maturing cent. (6%) annum certificates are 1926; 15th said day March, the funds singular a first lien on all and hereby created from the coming oper- the hands of said receiver into American ation of said said business of the plant and and on Eoundry Manufacturing Company, existing subject other of said company, assets liens.” filed, were similar to time other petitions
Erom time re- on to borrow money the receiver authorized the court had bor- and he it had authorized until certificates, ceivers’ at intervals between certificates, maturing $18,000 rowed and all this 1926, inclusive, 1st, 15th and October March Trust Mary- the Central Company was loaned by money also the deed of trust, mortgage under the trustee land, The dates secured thereby. of the bonds a owner part were as follows: De- orders, these named of amounts 7th, $5,000; $5,000; January 1926, 16th, cember 30th, 1926, $5,000. July 1926, $3,000; 3rd, July
483 learn, So far we can from the record, which is not very much, his Riddell during received plant about and in cash $160,000, over spent $151,000, something at and the close of ho owed various operations persons who had him furnished with material about and he $10,262.28, had hand available distribution $9,331.59.
On October a he 9th, he filed 1926, petition asking be directed to cease he had operating plant (which and that the already affairs both the done) receivership and the be wound on same company and an order up, day to that effect was further was done until passed. Nothing when 14th, the receiver a May 192V, filed alleging petition insolvency and that the case receivership, asking to referred the auditor for the statement of a distribution account. Reference was made, and the auditor accordingly directed to “state account the above entitled cause court costs and the allowing costs commis- receivership, sions been waived having receiver, and that distri- by bution of the balance be made three allow- ways. First, ing holders of receiver’s priority certificates. Second, unto holders allowing of receiver’s certificates and creditors for materials, etc., a rata dividend. pro Third, allowing preferenсe creditors of the receivers for priority raw etc.” materials,
In accordance with that instruction the June on auditor, 7th, filed an account in which the fund was distrib uted under these three alternative “To the Central plans: (1) Trust Company Maryland part payment receivership certificates, with together interest, there due $18,726.00, whole balance of “to all $9,331.59”; (2) cent, creditors of the receiver of their twenty-five per claims”; “to creditors the receiver (8) allowing to creditors for materials rata preference pro supplies the holders of certificates, to them distributing cent, of their claims.” seventy-five per were Exceptions II. B. to the entire audit by filed Mehring Company, that there some on the was creditor, error in ground trifling 484 that its form 1 No. especially ground
figures it in the Central Trust claim should be allowed to full; by 3 on the that was to forms Eos. ground Company certificates; entitled to the fund under the receivers whole L. A. Benson to forms 1 and 2 on the ground Company that it and other creditors were entitled to preference A. over the trust Charles Jr., company, Opel, to form because it whole audit and Eo. allowed especially *7 3 to 2 to forms Eos. because of nothing him, alleged than after these errors in amount. More a month exceptions filed the receiver his which he were filed report, gave and which in said: he history receivership, part cap- it was to have necessary working “At outset of ital take roll to order pay pay help to care suffi- purchase maintain the morale and to proper to raw on eco- carry manufacturing cient materials to time to- and to so receiver from nomically, do your certificates, time the issuance of requested Trust from the Central which he secured money of sum to extent the total of'Maryland Company * * * of dollars ($18,000.00). thousand eighteen receiver for the your period receipts “The tоtal out he $160,047.89 paid to operation amounted —and raw and for $79,053.84, for labor and management items in which etc., $72,016.25, materials, supplies, Central $1,540 are paid included expenditure in- accrued Trustee, Company Maryland, Trust to City terest on bonds and to Frederick $2,684.12.” in the form of taxes County Frederick the case or hearing, that without record, testimony Upon and on decree, August to have been submitted appears a final decree ratifying the court entered 12th, 1927, ex audit, form No. but sustaining affirming 2. The effect of that form No. 1 and form No. ceptions the entire fund to creditors, to distribute general was of the receiver’s certificates to exclude the holders from is from -therein. The present appeal any participation order.
The issues are whether the Cen- presented by appeal tral Trust as a holder of Company, certificates which by “a, court’s order were declared to be first lien all and singular funds into the hands of said reсeiver coming from the said plant and business Amer- ican Foundry is entitled Manufacturing Company,” preferred creditors general of the receivership, whether the entire fund is to be distributed the general creditors to the exclusion of the Central Trust Company, whether the fund should be distributed in to their proportion respective claims all the equally among creditors of the receivership.
The learned chancellor who decided the case adopted second and distributed the proposition whole fund to the general creditors, exclusion of the trust company.
The consideration of em these issues is to some degree barrassed the consideration from the opin appears ion of the learned and able who heard this below case judge that he inwas possession certain facts which have not *8 been disclosed to this as court, and there is some doubt the effect precise of the recitals of faсt in Tho that opinion. itself opinion forms no of the in record this court part (Millers par. since Equity, the is not 260), appeal taken from it v. (Hobbs 127 Md. it Payne, and, although 290), was in held Robertson, Johnson v. 31 Md. that “matters formal” a recital merely of fact in the of a body decree in the absence would, of “all direct to the proof” contrary, as it accepted true, was also held there that no
such conclusive effect would be a recital given of a juris dictional even fact, when made in a decree.
It from no the docket in this case that appears entries kind was offered in connection with the proof any excep- hut tions, it is said that “while bill opinion was filed in the a creditor, name of complaint general was who proceeding bondholders, actually promoted by secured in advance the consent of the subsequently appointed serve in receiver to that It has been in practical capacity. * * * In my оpinion bondholders’ purpose receivership. of the the claims in this case support equities strongly in busi- creditors. all of them are engaged Nearly supply none this locality, ness at distance from considerable available to of them had the benefit of the opportunities condition enterprise bondholders to know real the receiver. As between which was conducted being local and finance a bondholders who promote for of their and re- interests, the conservation pre-existing who furnish materials creditors required prose- mote of such a I the latter cution think policy purpose, claimants are entitled to be justly preferred.”
In view of for that the fact counsel admits appellant it is a bondholder, the recital of that fact bemay accepted, but since there was no taken deem it below, we testimony our recited in that other facts beyond power accept which we havе referred, part opinion especially since form the decretal order and are not they part embodied but will confine to the therein, record inquiry before us. it alone that the the record appears preference
Looking in form 3 is not confined to accorded the creditors listed it includes two claims creditors, material but supply claim for for insurance and one for water rent, insurance was filed complainant original by Opel, It that the creditors should be general bill. contended because it was the real and trust company preferred of a actor substantial proceeding appointment if the trust reason receiver, good excluding it is difficult to see was not why equally good company, a stockholder who was only for excluding Opel, a reason *9 complainant actual and only who was the company, the re- the that, question But disregarding named in the bill. from any be precluded the trust cоmpany should mains, why that saying ? answer by fund Appellees participation its to serve purposes, instituted it had the litigation of subordinated rights therefore be its should rights 487 creditors who furnished the material and from which supplies the realized the appellee funds he has his only possession. That contention treats re- the orders court declaring ceiver’s certificates a first lien on funds receivership and our first nullities, therefore What is mean- inquiry is, and effect of those ing orders of the Circuit Court for .Fred- erick which declared the certificates be County, receiver’s to a first “all funds into the hands of said coming receiver from said said business.” operation plant The learned chancellor said in his “The object opinion: * * * of that was to the certificates provision give priority net upon of the business conducted proceeds by it receiver, but was not full designed prevent payment him his essential But there operating expenses.” whatever in limitа- nothing the order itself to support tion, and as we confined to the since, have we are said, we must record, take the its it order at face value. When said that the certificates should lien” “all “first and singular the funds” into re- hands coming ceiver, meant that should be dis- they preferred any tribution of the estate such claim, except any as were for taxes governmental costs, judicial charges, our it is to no other construc- opinion open tion. The then becomes one of question Did power.
court in the have the annex to a loan first place power to a receiver incident over all other creditors priority of that fund whose claims existed when the particular (a) loan was or whose claims accrued after made, that, (b) whether were secured liens or not ? they receivers’ certificates
Although practice issuing said be of recent the overwhelming comparatively origin, of courts to authorize weight authority supports power their note; issuance in a case Cas. (Ann. 1913C, proper L., C. them a 87; R. to make page 296), Cyc. at least assets and funds paramount charge upon income, derived from the estate the receivership (Ibid.; Bank, York Co. v. 118 Md. Hoblizell Nat. Mfg. 505), whether be a service corporation public corporation, *10 it time is
a mere
business
At
same
corporation.
private
a
that courts
create
held
cannot
preference
generally
of a
issued
the receiver
favor of the certificates
by
private
A.
liens
L. R.
over existing
(40
245),
corporation
for in
v.
this
Central
state,
view has been adopted
Hooper
Co.,
reference
Trust
81 Md.
this court said: “With
591, 593,
no
When
to the receiver’s certificates
have
difficulty.
we
of
has been
of
individuals
private corporations
property
for safe
in the hands of a receiver,
keep
expenses
placed
the income,
are
out of
payable
ing
рreservation
properly
then out
if
or if there be
of
none,
proceeds
there be any,
**
* It would be
sold.
of the estate when
corpus
to
to
court of
concede
equity
exceedingly dangerous
certificates, subsist
in favor
receiver’s
displace,
to
power
or of indi
liens on the
ing
private corporations,
property
it were
if
lien would ever be secure
viduals. No mortgage
created by
obligations
liable to be postponed
subsequent
of a
from the
at
case
receiver. If
exists
all, apart
the power
its
for denying
applica
there
no reason
railroad mortgage,
might
and mortgagee
mortgage,
bility
every species
ample
what he believed to
discover that
suddenly
inter
away
by
has
swept
been utterly destroyed
security
of the court.
an order
liens created
vening
by
subsequently,
And
to such a doctrine.”
We are unable to
our assent
give
exer
has been
seem
in cases where
that,
would
power
credit and
honor,
for the
cised,
faith and due regard
good
it to enforce
court
the lien
of the
dignity
creating
requires
as in
and the court,
it.
certificates are issued,
“Where such
faith
lien,
them a
good
this case, impresses upon
preferential
unless,
its
be redeemed,
per
should
requires
promise
The
was
fraudulent.
it be shown that the issue
actually
haps,
like the
in a case
certificates,
pres
of the
issue
propriety
cir
court,
this
by
has been sustained
ent,
by
repeatedly
of the
courts
cuit
of the
States,
courts
United
Co.,&
“In matters which are formal, that in merely occur it has been held cause, that the progress recital of a all direct in thе absence of
fact in. the of the decree, body as sufficient evidence will be taken the contrary, proof Martin, 407, H. J. in 6 & v. the truth thereof. Thus Rigden Scott, in the decree Md. the statement in v. Scott sufficient; was held hearing stood ready that the cause McPherson, J. where the v. 9 G. & 71, and in Fitzhugh served, has been that an order duly decree stated pro confesso of the truth there thereof, being sufficient was considered no to the contrary. the record direct proof Here those cases have “But application present. in the omis- not consist error the decree does alleged cause, sion formal or of any preliminary proceeding or shown a recital such as be cured by presumption, may to the decree involves ques- the decree. The objection *12 bind court. To tion and jurisdiction of power the conclude their defendants, the or to rights non-resident that the notice shall be this, a like law requires proceeding the that the as given publication prescribed, proof by must the record.” law has been with appear complied and wished If relied those statements, the upon appellees have should the court, they to have them considered by them proof. supported by was from that assuming
But aside the that, that fact we do not see how could the procured by appellant, of the cer- it as a holder it the given deprive preference if one recital the the court, accept tificates we by which show have to others, we would also accept opinion the court knew that the the orders were that when passed to cash and that was them, was sup- expected appellant from other source, funds could be that procured posed the that after the order all assume passage we must receiver were with notice charged with the dealing persons first lien the certificates were а the fact that upon a of the receiver’s result operation received assets as. factory. had loaned the on a
If second money the trust company lien would have been its certainly given priority mortgage, over And creditors who such the mortgage. became after issuance conceding court to authorize power holders thereof is no reason there certificates, why than the holder should other or occupy any position different first order was created contract. When by was passed, manufacturing money without company it is credit, to assume it could have bor unreasonable that rowed more its it was unable to any plant, money its meet accrued. obligations they only possible The it could offer lender was the income security to pledge assets from continued the business accruing operation the receiver. The court sanctioned that and in its plan, order that directed rеceiver’s certificates issued to explicitly raise be a money business should first lien operate on the only the receiver property wit, could pledge, funds into his hands from the coming of the re and the ceivership, trust loaned its on that company money assurance. It is not the trust status apparent why comany’s should affected the consideration it was interested if preserving property protect bonds, its was a because fact, did not affect arrangement any existing creditors, and all subsequent creditors were with charged notice what was If records. spread public who mortgagee, because of his interest property to risk willing more its money preserve value, and who lends his for that money solemn very assur purpose upon *13 it ance that will be lien a first all future and upon additional assets the when told, he comes to collect company, it, the interest which induced the very loan, prevents him there from his would be few lenders. enforcing lien, Such Co., as v. cases 's Nat. Bank People Textile 104 Virginia Va. Co., Trust Co. v. T. &V. C. R. Metropolitan 34, the which announce doctrine 245, that, Y. where a N. re at the instance of for the ceiver benefit of appointed with the creditors and charged duty operating all benefit, for their proper charges, expenses, property incurred administration liabilities, receiver- shall first the current earn- be a ship, charge, only upon but also of the do not seem ings, estate, upon corpus because the here is not between point, controversy creditors liens and cred- holding antedating afterwards, itors who such between entirely became creditors who became such during And receivership. reasoning subjects mortgaged property at debts, incurred of the payment request mortgagee for its to the preservation, preference claim, mortgage does not to a case in which the furnishes apply mоrtgagee additional for the and the money purchase supplies pay- ment of labor after a receiver has been appointed, upon that his claim court’s therefor shall be express promise pre- ferred to those creditors to whom no such subsequent promise was made.
In our fund opinion, the distribution of the therefore, which the receiver holds as result of the factory during, claims of receivership, appellant based receiver’s certificates held it are to be. upon preferred all to claims of creditors after the date of the order accruing” v. the issuance of the certificates. Kampman authorizing Sullivan, 26 Civ. 63 S. W. Tex. 173. App.. 308,
But the record this case is silent singularly the claims of material and details supply particulars was the fund in the hands of the receiver creditors to whom they tell from it whether and it is distributed, impossible author- when the last order 30th, accrued prior July 1926, even certificates was the issuаnce of receiver’s passed, izing De- accrued to the of the order of whether they prior passage which first authorized the issuance of cember 16th, receiver certificates, although, qualified such after inferred that accrued reasonably they bemay day, material that some of these and supply that. But, assuming at time and were some claims existed payable were the issuance of receiver’s certificates authorizing orders Had the court the to subordi- is, the question right passed, of certificates to be issued nate those claims payment *14 ? in That it had no subordinate when right future claims lien contract to the of the certificates we by secured liens think limitation its extend clear, upon power is did claim of no contract but who having the creditors lien, to certain other classes of nevertheless, be would, preferred thp in distribution estate. creditors the in That the lien the fund creditors had a supply upon hands аuthor opinion receiver, in Homer is the decision Judge Sloan, by settled opinion Co., v. Balto. it is etc. 117 Md. where Refrig erating said: it is any contended that in event bond “Finally are entitled state, holders under decisions this of their with the unse extent to share deficiency, pari passu creditors the distribution or earnings cured profits before This cor made the intervention of the mortgagees. rect invoked unsecured against when those who are really here if Jones still creditors, would be were an applicable creditor. unsecured He taken out of that class of creditors Mr. Tome his note (to example belongs respects fox the rule a current creditor money loaned) by giving supply lien for furnished keep coal equitable company his for that his concern, upon going application relief, lien equitable before intervention earning's by is as effective unsecured creditors mortgagee, against ordinary as it is against mortgаgee.”
In the opinion of a majority court, however, the case last cited is not to that subject construction, reasons to be them, stated and the material and supply creditors whose claims are under consideration have no lien on the assets equal dignity of the holders of the receivers’ certificates, but in their opinion all claims evidenced such certificates are entitled to over priority claims of labor and creditors in the supply distribution of the receivership assets, whether such claims accrued before or after the issuance of the certificates. In that conclusion, Sloan and the author of this Judge opinion do not concur, because, assuming upon authority that case that those who furnished supplies were lien their creditors, claims could *15 issued certificates to tbe of be deferred payment
not properly the ex parte application by under an order passed upon them. notice to their consent and without without receiver, Alderson, L., & Assn. 89 Balto. Loan v. ; 23 R. C. page Bldg. 147. Fed. the chancellor ratified In from the the order appealed to which and with respect of costs expenses allowance Edwin sustained the filed; exception were and exceptions the foundry for labor done for C. that his claim Buch, so before the within three months appointment company full; in and question allowed reserved receiver was county municipal taxes, aggregating the allowance of interest the amount of accrued paid $2,684.12, determina- for final claims indebtedness, preferred bonded in be made in further proceedings. tion accounting since and, was conceded, that the claim of Buch It appears enable in record are not sufficient to contained the facts of on and no reserved to be disposed appeal, the questions in included expenses been made to the costs has objection was of the chancellor error ratification, only the order of method of distribution ratification in to the respect Therefore, account. in No. 3 of the auditor’s followed form in ex- be affirmed from will respects, the order appealed in the fund accordance distribution of in regard cept in not a distri- the error decreeing No. 3, and, with form the receiver- to the holder of funds remaining bution of the in them lien givn because of preferential certificates ship the chancellor the order of their issue, the order authorizing for further and the cause remanded in must be reversed part, with this in conformity opinion. proceedings in reversed part, Order affirmed,in part proceedings cause remanded further with the views accordance expressed court, costs to be appeal paid from in the hands receiver. fund in which delivered the J., following opinion, Bond, Parke, C. and which JJ., concurred; J., Pattison, Digges, on the of the instant case. Ameras, conсurred facts J., differ It seem that the for the writer’s only would reasons ence with the conclusions expressed opinion Judge J Offutt, which Sloan should he stated. udge concurred, author- The receiver in the was with instant ease appointed business cor- ity continue failing poration, public was service. On engaged any *16 the of the decree the receiver was day empowered by order thousand of the chancellor to borrow the sum five of certificates, and issue therefor five receiver dollars, to hearing interest and at a maturity. fixed The order specific- payable the a first ally provided that “certificates are created hereby lien on all singular and the funds into the of coming hands receiver from the said of said said busi- and plant of ness the American and Foundry Company, fflanufaeluring and on all other assets of exist- said to company, subject liens.” In one of the four ing every orders of court passed on Decembеr successively 16th, 1925, January 7th, July 3rd, and 1926, identical July 30th, cited found. provision
The affairs and property involved “were corporation and faith law, of the court was custody to who pledged those became the holders of these certificates to their according plain one dealt with the import. Every receiver with the charged knowledge the receiver was but the arm of court, its direction subject and control, without to act and its authorization. power except Any did one so so at risk his own with dealing respect of the court create power those priority among furnishing or labor material, money, administration. during Conse- if is done him the of a quently, injustice re- exigencies issuance with a ceivership certificates required in upon receipts property custody the court. And, States, Court of Supreme language United Luce, Kneeland v. 141 U. S. “Where such certificates are issued, court, as this case, impresses upon them faith lien, preferential good requires its promise should
be redeemed, it is shown unless, that the issue of perhaps, certificates was fraudulent.” where certifi- actually So, such cates are issued but in successively, a common pursuance and with a purpose, like with provision respect priority, for a every one valuable are all consideration, they treated none to have being equal dignity any prefer- ence over another, certificate of issue have every to- any priority to its terms according over claims of those who have dealt with the receiver as creditors. In general short, the creditors the certificates holding giving preferential lien would constitute one class, creditors general the receivers not such certificates would form a holding class; second and the claims of member of each class every would share the fund available for such equally class. This method of distribution assurеs to the member each class the of the doctrine that application equality equity, repudiation of the court’s prevents any possible express lien. promise a preferential A
If, advanced to meet the during receivership, money B raw pay roll, coal, one supplied material, every share to his would because there equally according claim, *17 Z be no but if Y them, would and held priority among X, certificates which the court had declared to be lien on the receipts then and prior receivership, X, Y, Z be if the full, would were and paid receipts sufficient, B C the claims of and would be A, out of paid 'pari pasm if the residue of the those were insufficient receipts, to pay full. this method is assured mem By equality among of each of the two classes of bers, respectively, creditors, and the of the court is fulfilled. But if priority by promise were not to both classes in and full, receipts enough pay shared in the twо classes the whole fund to proportionately then claims, their respective promise by court of Z and X, Y, be preferential would repudiated and between and difference preferred unpreferred creditors would still be X arbitrarily ignored. Again, if assuming deficit, Y and held certificates issued receivership' on December 16th, Z one issued 1925, B January 7th, 1926, had
497 furnished coal December 16th 7th, after but before January B afterwards another and O a and, lot of coal quan- supplied if claim he B’s which had sold tity iron, then, coal, between the dates of issue of the certificates, two be subordinate to the first certificate, preferred either to or with the second it follow would that equal certificate, claim for the lot of coal B and second delivered Lie iron of would be purchased to both postponed only B issues but also to the for his first certificates, demand it coal. would that the delivery Thus happen pledge (a) the chаncellor that the would be certificates given prior liens would be either violated the second certifi- by deferring B cate to the claim for his first of coal or delivery placing this claim on with the for the second certificate equality with distribu- participation pari passu purpose tion; and the creditors of the same among (b) equality would rank since debt first B’s for the load destroyed, of coal would take over distribution B’s item precedence the second load of coal O’s the iron. demand for
It these multiply illustrations, unnecessary within promised demonstrate when it is give priority is the which at once power method chancery only maintains court’s assures integrity agreement those receiver business transactions with the holding measure of greatest among receivership creditors, equality are one class fall into classes of accordingly they creditors. view is har preferred unpreferred This Bank, York with Co. v. mony Hoblitzell 118 Md. Nаt. Mfg. Co., 505, 509, 511, Lewis v. Linden Steel supported by 183 Pa. Smith on 248; secs. Tardy's (2nd Receivers Ed.), n. 569, 575, 577, 578, 1; Felt Co. v. p. 1640, Lockport Co., Box 696; United etc. 74 N. J. Porch v. Eq. 686, Co., 66 N. J. 232. Agnew Eq. *18 Co.,
isNor Homer v. Balto. etc. Md. Refrigerating to the in this taken any way opposed position opinion. the This case did not involve lien created preferential receiver’s but certificates, whether, under the question default circumstances after to a prior of a financial affairs of and while the mortgaged property its owner were in of the corporate charge representatives bondholders of the and continuance of the operation was for the benefit of the holders of the bonds corporation which were secured or deed trust on the by mortgage real and leasehold of the their property corporation issues and from this income rents, profits, arising opera- tion when should, collected after receivership, appro- to the of the indebtеdness or to priated payment mortgage creditors of the general rather than to one corporation supply- coal to enable the business to be on for ing carried the benefit of the bondholders the one month during immediately pre- The ceding indebtedness was a receivership. mortgage lien both the real and leasehold upon corporate property rents, issues, therefrom, and profits mortgage deed after conferred, default, the trustee to right upon enter all income operate plant “receiving revenue after and, of use deducting expenses and opera- * ** tion net apply income and remaining with- revenue, out or preference, priority distinction to one bond or another, payment bonds secured mortgage method and order therein.” prescribed The trustee mortgage had not entered into actual nor possession property had a demand been madе for the rents, issues, profits until the so the receivership, court, distinguishing between rents and income or held that the profits, income gross earned before the but later collected receivership, the re- through would not be ceivership, impressed with the mortgage and that, while as unsecured against creditors the bondholders would be entitled extent of their to share deficiency pasm with the pari unsecured creditors in the distribution of profits made before earnings the intervention of the the rule did not mortgagee, as the coal apply dealer, against as he was not an unsecured the court creditor, saying: out of that class of creditors which for
“He is taken (to Mr. Tome his note for respects example belongs money a current the rule creditor an giving loaned) by supply *19 lien for coal furnished to a keep company equitable his for that concern, and his upon application relief, going before earnings intervention upon equitable is as against effective unsecured credi- mortgagee, ordinary as it tors is against mortgagee.”
This broad is not of statement but is general application, limited its context and the matter of the subject opinion class to a of creditors a special particular corporate kind individual or unless both the creditor enterprise, and, the elements the rule enterprise possess announced prescribed, lias The case of Homer Balto. application. v. Refrigera Co., etc. anwas of a doctrine ting supra, application which, in terms all and without qualifications, its general may to be in stated the case of service that, a or public quasi public or the current which corporation enterprise, are expenses, in incurred course of and are business, its neces ordinary for its maintenance, arise within a reasonable time sary a are before over given preference receivership, recorded liens and unsecured creditors the distribution of general which was but not earned, income before receiver paid, Without reference other ship-. conditions the appli cation of this is rule, it that the claim of the necessary creditor be for a expenses current or public and against quasi service The doctrine public corporation. exception rule general of the common law all unsecured credi tors are entitled to have the fund rala to the applied pro satisfaction of their several claims without or preference Perkins, in As was v. 150 Md. said Warburlon priority. 304, “The of that rule has been rigidity severity modified, cases where the court has boon however, called to deal with the claims of creditors who have furnished current corporation dedicated to supplies service, public to the extent given has such claims a preferencе over other unsecured claims distribution of funds arising from the collection of service charges during receiver to this ship.” And, according decision, Homer v. Balto. Re Co., etc. supra, extended frigerating the rule “to quad public Page service 311. corporations.” tendency The courts has been to rather than to qualify enlarge scope of this and no case principle, its Maryland supports to a application corporate private enterprise affected In by public service or use. Homer v. Balto. Re *20 Co., etc. was a frigerating supra, corporation heating and which used the beds of the streets refrigerating company of Baltimore under a franchise therefrom for distributing mains and laid through under the street the heat it pipes generated and so it was held supply public, engaged in a public service, and it with fuel creditor, having supplied month one to the in order prior to enable it on its was a current сarry business, creditor, supply therefore the essentials were for the present application rule. in exception corporation As general the instant case was one of wholly private nature, a Co., from Homer v. Balto. language etc. quoted Refrigerating supra, has no application.
The in certificates the instant case were authorized chancellor for the purpose preserving property and will of the involved for the benefit good corporation general of all but all the which he parties interest, upon facts acted do not from the record so them before us appear bring for consideration; what we are and, manifestly, say about is not in sense comment what was done in the any upon a cause cer- court, before lower but is a simply repetition tain in future principles guidance litigation.
In the case of corporations or industrial enterprises which are in private engaged business, receivership' certificates, a those which especially give should preference, rarely resorted and then after to, only careful consideration and a reasonable assurance of their if and, payment; issued, the from chancellor, through reports the receiver and other avail- able should in close sources, keep contact with the affairs order that the receivership, certificates or their pro- ceeds be and that the receiver properly applied, assume no available beyond obligations present prospective resources venture in the assured. The outcome when reasonably business receiver is so pre private through unremit caution its authorization, carious great ac should characterize the its supervision, ting vigilance added that the tion of the court. It should be propriety review, certificates is a matter for of receivership issuance circumstances each the facts and and must depend Smith Receivers ed,), (2nd case. particular Tardy's sec. 561.
KATHERINE DAIGER v. JOHN M. DAIGER. S. Term, October 92-94, 1927.]
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