115 Ala. 592 | Ala. | 1896
Lead Opinion
The Mary Lee Coal and Railway Company having made default in the payment of the interest on its bonded indebtedness, the trustee in the mortgages executed by said company to secure its said indebtedness, seasonably after such default made, filed a bill in the city court of Birmingham praying the appointment of a receiver “with full power and authority to demand, sue for, collect, receive and take into his possession the goods, chattels, rights, credits, moneys and effects, lands, tenements, books, papers and property belonging to the said Mary Lee Coal and Railway Company, and that said receiver may receive from the said court, in addition to the ordinary powers possessed by such receivers, full power and authority to manage, run and operate said property, and to carry out any and all contracts that said company may have made (and to renew the same), connected with the conduct of their business, and especially the contract with T. G. Bush, Receiver, if essential thereto to pay to the said Bush, Receiver, any indebtedness which may now be due him, and to preserve and protect the corporate franchises, privileges and property, and to preserve the corporate existence of the said company, and to preserve all corporate property from being sacrificed under any proceeding which can or may be taken and would be likely to prejudice or sacrifice the same and that an injunction may issue against the said defendant company and all persons claiming to act by, through or under it, and all other persons, to restrain them from interfering with the said receiver’s taking possession of and managing the said property.” The further prayer of the bill is for the ascertainment of the mortgage indebtedness, principal and interest, a decree requiring the defendant to pay
The premises embraced in the mortgages, and for which a receiver and sale are thus prayed, consisted of a coal mine and plant complete, coking ovens and a railway in Jefferson county. The railway was six or seven miles in length, built primarily, it may be admitted, for the development and to be used in the working of defendant’s said mine, but defendant’s charter, which authorized the construction and operation of this railway, required that defendant should transport persons and the property of others upon it, so that as to this road the defendant corporation was a common carrier.
A receiver was appointed in accordance with the prayer of the bill, and took possession of all the property and effects of the respondent corporation. The bill was filed and the appointment made on November 28th, 1893.
On February 20th, 1894, Drennen & Company filed a petition in the cause, which, as finally amended, presents the following averments: That the defendant, The Mary Lee Ooal and Railway Company, is indebted to petitioners in the sum of $14,697.52, including interest to time of filing the petition, and that all this indebtedness had accrued during the months of August, September, October and November, 1893 ; that, as shown by the bill, said defendant owned and operated a coal mine, coke ovens and a railway in Jefferson county at the time of the appointment of the receiver under said bill, and that the defendant had carried on these operations for six months prior to such appointment, and that the company then owed a large amount of back wages to its employes and operatives, a great part of which was due to them for work and labor done in said mine and in and about said coke ovens and railway ; that the amount alleged to be due petitioners from said company is a part of such back wages due by defendant to its said employes and operatives for work and labor done and performed for the defendant during the
To this petition the complainant in the cause interposed a demurrer assigning numerous grounds of objection to its sufficiency. The assignments chiefly relied on may be summarized as follows : (1.) That the petition fails to show that the Mary Lee Coal and Railway Co. is a railroad corporation. (2.) That the petition fails to show that the receivers have any money in their hands subject to the payment of petitioners’ claim; or that complainant or the bondholders ever received any moneys that should have been paid to the petitioners ; or that they were ever paid anything on their bond's after the accrual of the claims of petitioners ; or that the security afforded by said mortgages was enhanced or improved in value by the rendition of the services referred to in the petition. (3.) That the petition fails to show that the Mary Lee Coal and Railway Co. ever diverted any of its gross earnings from the payment of its running expenses either for the improvement or betterment of its said railroad or other property, or for the payment of interest on any of the bonds secured by said deeds of trust, or any of the other charges secured by either of said deeds. And there are other assignments, based on the grounds above stated, going separately to the particular claims of petitioners for work, &c., done on the railroad, on the coke ovens and in manufacturing and shipping coke, and in the mine, severally. These need not be further set out at this place.
The equitable doctrine, whereby employes of railway corporations which have passed into the hands of receivers, on bills for foreclosure and the like filed by or in behalf of the holders of their bonded indebtedness secured by mortgage or deed of trust, are given a preference and priority of payment over the bondholders in respect of wages earned within a short period — generally said to be six months — before the appointment of the receiver, is thoroughly well established in other jurisdictions, and especially in the decisions of the Supreme Court of the United States.—Fosdick v. Schall, 99 U. S. 235; Miltenberger v. Logansport R’y Co., 106 U. S. 286; Burnham v. Bowen, 111 U. S. 776 ; Kneeland v. American Loan Co., 136 U. S. 39 ; Trust Co. v. Ill. Mid. R. R. Co., 117 U. S. 434; Farmers’ Loan & Trust Co. v. K. C., W. & N. W. R’y Co., 53 Fed. Rep. 182 ; Poland v. Lamoille Valley R. R. Co., 52 Vt. 144; Litzenberger v. Jarvis, &c., Mortgage Trust Co., 28 Pac. Rep. 871; Union Trust Co. v. Souther, 107 U. S. 591; Morgan’s R. R. & S. S. Co. v. Texas Central R’y Co., 137 U. S. 171; Hale v. Frost, 99 U. S. 389.
The grounds of this doctrine, audits extent and limitations, are nowhere more lucidly and forcibly stated than in the opinion of Chief Justice Waite in Fosdick v. Schall, supra, where it is, we believe, first clearly expounded and declared; and we cannot do better here than to quote the language of that learned judge : “As to the second question, we have no doubt that when a court of chancery is asked by railroad mortgagees to appoint a receiver of railroad property, pending proceedings for foreclosure, the court, in the exercise of a sound judicial discretion, may, as a condition of issuing the necessary order, impose such terms in reference to the payment from the income during the receivership of outstanding debts for labor, supplies, equipment, or permanent improvement of the mortgaged property as may, under the circumstances of the particular case, appear to be reasonable. Eailroad mortgages and the rights of railroad mortgagees are comparatively new in the history of judicial proceedings. They are peculiar in their character and affect peculiar interests. The
“The business of all railroad companies is done to a greater or less extent on credit. This credit is longer or shorter, as the necessities of the case require ; and when companies become pecuniarily embarrassed, it frequently happens that debts for labor, supplies, equipment, and improvements, are permitted to accumulate, in order that bonded interest may be paid and a disastrous foreclosure postponed, if not altogether avoided. In this way the daily and monthly earnings, which ordinarily should go to pay the daily and monthly expenses, are kept from those to whom in equity they belong, and used to pay the mortgage debt. The income out of which the mortgagee is to be paid is the net income obtained by deducting from the gross earnings what is required for necessary operating and managing expenses, proper equipment, and useful improvements. Every railroad mortgagee in accepting his security iim pliedly agrees that the current debt made in the ordinary course of business shall be paid from the current receipts before he has any claim upon the income. If for the convenience of the moment something is taken from what may not improperly be called the current debt fund, and put into that which belongs to the mortgage creditors, it certainly is not inequitable for the court, when asked by the mortgagees to take possession of the future income and hold it for their benefit, to require as a condition of such an order that what is due from the earnings to the current debt shall be paid by the court from the future current receipts before anything derived from that source goes to the mortgagees. In this way the court will only do what, if a receiver should not be appointed, the company ought itself to do. For even though the mortgage may in terms give a lien upon the profits and income, until possession of the mortgaged
“The mortgagee\has his strict rights which he may enforce in the ordinary way. If he asks no favors he need grant none. But if he calls upon a court of chancery to put forth its extraordinary powers and grant him purely equitable relief, he may with propriety be required to submit to the operation of a rule which always applies in such cases, and do equity in order to get equity. The appointment of a receiver is not a matter of strict right. Such an application always calls for the exercise of j udicial discretion ; and the chancellor should so mould his order that while favoring one, injustice is not done to another. If this cannot be accomplished, the application should ordinarily .be denied.
“We think, also, that-if no such order is made when the receiver is appointed, and it appears in the progress of the cause that bonded interest has been paid, additional equipment provided, or lasting and valuable impi’ovements made out of earnings which ought in equity to have been employed to keep down debts for labor, supplies, and the like, it is within the powrer of the court to use the income of the receivership to discharge obligations which, but for the diversion of funds, would have been paid in the ordinary course of business. This, not because the creditors to whom such debts are due have in law a lien upon the mortgaged property or the income, but because, in a sense, the officers of the company are trustees of the earnings for the benefit of the different classes of creditors and the stockholders; and if they give to one class of creditors that which properly belongs to another, the court may upon an adjustment of the accounts, so use the income which comes into its own hands as, if practicable, to restore the parties to their original equitable rights. While, ordinarily, this power is confined to the appropriation of the income of the receivership and the proceeds of moneyed assets that have been taken from the company, cases may arise where equity will require the use of the proceeds of the sale of the mortgaged property in the same way. Thus,
The subject matter involved in the case of Fosdick v. Scholl, was railroad property and stress is laid upon that fact in the opinion'. Morever, in all the cases cited above as sustaining this doctrine, the question arose between mortgagees of railroad property, or receivers of railroads, and persons who claimed to have furnished labor or supplies in the operation of the loan or to have put permanent improvements and betterments upon the property ; and this character of the property is not infrequently referred to in these cases as one'of the grounds or reasons for the existence of the doctrine ; nor is there lacking in
The doctrine proceeds on the broad principle, which underlies the administration of all law concerning property rights, that when one party has property which belongs to another restitution in some form or another must be adjudged or decreed by the courts upon proper and seasonable application by the party aggrieved. The theory is, to get nearer the case in hand, that the bondholders, or the receiver for them, have property or something of value to which the party invoking the court’s aid has a better abstract right, a superior equity. To state the proposition yet more concretely: The equity arises and is rested upon one or another of three following categories or states of fact: First, That the gross earnings of the corporation before the receivership, to which its operatives and laborers and persons furnishing necessary supplies are upon all the authorities entitled in preference and priority to the bondholders, have been diverted from the payment of their wages and accounts and paid to the bondholders, or are in the hands of the receiver to be paid to the bondholders, or to be expended by him in the further operation of the corporation’s works for the benefit of the bondholders, or have been expended either before or after receiver appointed in the improvement and betterment of the mortgaged property, whereby the security of the bonds is increased to the obvious advantage and benefit of the bondholders. Or, second, That, whether strictly speaking there has been any diversion of gross earnings from the employes directly or indirectly to the bondholders or not, the operatives and laborers have performed services and labor in the improvement and betterment of the mortgaged property, so that such labor and services have inured directly to the benefit of the bondholders in the enhancement of the value of their security, and hence of their bonds, they thereby securing, in addition to the property embraced in their mortgages, the value of the services of the company’s operatives and laborers, which value belongs to such operatives and laborers, and would have been paid
And to the same effect, that it is not necessary to the application of this doctrine that there should be, strictly speaking, any diversion of income before the appointment of the receiver, are the opinions of Judge Thompson, expressed in his work on Corporations, and of Judge Caldwell on the circuit bench.—5 Thomp. Corp., § 7118; Farmers' Loan & Trust Co. v. Railroad Co., 53 Fed. Rep. 182.
Enough has, we think, been said by ourselves and
We have undertaken to state this doctrine as it has been declared in other jurisdictions, and there applied to railroad property ; and to give our reasons on general principles for the conclusion we have reached that that limitation of the doctrine is unsound, and that, of consequence, in our opinion, the equity is as salutary, and its effectuation is as practicable and necessary against the bondholders of private as against those of the public corporations. The argument against this wider application of the doctrine which is based on the supposed fact that such application has not heretofore been made, is the same argument that stood in the way of the conclusion in Fosdick v. Schall, and was in that case entirely
The broader application of the doctrine, which we are attempting to justify on what we regard as very plain and simple elementary principles of equity, will not lead to, involve or admit of any of the dire consequences which are suggested, as will be clearly seen upon reference to the limitations which those principles themselves involve and -which we have endeavored to state with care and precision. It will not take the place of mechanic lien laws and the like, nor obviate the necessity or policy of such enactments. It will not in any sense encroach upon vested or contractual securities or rights. The principles'upon which it rests, in the application of it which we are proposing, in and of themselves, mark a distinct line between the ■ particular corporation cases to which it applies and the ordinary cases of mortgages on property, whether of individuals or corporations, to secure the payment of debts ; and under it, there is not the slightest danger of the secured creditor in any case losing anything which he is entitled to on recognized principles of equity and good conscience.
We have examined all the authorities brought to light in the case, not to speak of the adjudications of this court, and none of them conflicts with ,our position except in matter of obvious dicta to which we have already referred. .
The other case referred to is that of Lehman Brothers v. Tallassee Manufacturing Co., 64 Ala. 567. In that case the equitable doctrine invoked by these petitioners was not only fully considered by this court, but it was reaffirmed and adopted, and its operation was expressly extended to the property of a manufacturing company then in the hands of a receiver appointed at the instance of the holders of the corporation’s bonds which were secured by a deed of trust or mortgage on its property. Brickell, Chief Justice, delivered the opinion of the court, and, after quoting with approval the following language from the opinion of Judge Waite in Fosdick v. Schall, viz.: “When a court of chancery is asked by railroad mortgagees to appoint a receiver of railroad property, pending proceedings for foreclosure, the court, in the exercise of a sound judicial discretion, may, as a
The case of Merchants’ Bank of Atlanta v. Moore et al., 106 Ala. 646, referred to above, goes upon certain dicta of Judge Brewer in Kneeland v. Trust Co., 136 U. S. 89, which we have already considered, to the conclusion that the doctrine under consideration cannot be applied to other than railroad corporations. That conclusion is, we think, at war with our own case of Lehman Bros. v. Tallassee Manufacturing Co., 64 Ala. 567, supra; and it appears to have been rendered without consideration, and certainly without discussion, of the broad and beneficent principles of equity which, not only support the doctrine in respect of railway corporations but, with
Nor do we find that a case is made under the third statement of facts supporting this equity above. It is said that the labor was necessary to continue the business of the corporation, but it is not shown either that such continuance was to the advantage of the bondholders, or necessary in conservation of their interests, or that any income, out of which, or because of the receipt of which, the wages for this labor should be paid, had been realized by the receiver from his administra
But we do find an averment on information and belief that “there was due to the defendant at and before the time of the appointment of said receiver the sum of about $40,000, which was due for coal and coke sold by the defendant, and which was taken from said mine and manufactured in said ovens, and that said $40,000 represented the gross earnings of the defendant into which the labor of said employes and.operatives entered, and that said employes performed work and labor in the mining of said coal and in manufacturing said coke, and which is referred to in this section.” This averment is not objectionable because of being made on information and belief.—Christian v. Amer. Freehold Land Mortgage Co., 92 Ala. 130 ; Lucas v. Oliver, 34 Ala. 626 ; Nix v. Winter, 25 Ala. 309. It is as definite as. to amount as if the language had been “a large sum, to-wit, $40,000,” which means about $40,000, and is a customary and sufficient mode of averring such facts. It is an averment that the company when the receiver was appointed held and owned claims for products sold, bills receivable, for about $40,000. Prima facie the pai*ties owing these bills were solvent and the amounts against them were good. It is shown that the receivers were authorized and directed to take into their possession all the property of the corporation, special reference being made to assets of this kind, and that they did take possession of all its property of every kind. It is probable these accounts have been collected,' but whether so or not, they or their proceeds constitute the “moneyed assets that have been taken from the company,” spoken of by Judge Waite as the class of assets upon which ordinarily the power to give laborers priority of payment over bondholders is exex-eised. The petition shows that these “moneyed assets” belonged to and were a part of the gross earnings of the corporation. They, therefore, belonged to the employe's in preference to the bondholders. If they are still uncollected in the hands of the receiver, the petitioners are entitled to have their claims charged upon them 'under the general prayer for relief. If they have been collected and the money is in the hands of the receiver--, ■ petitioners are entitled to
The claims of the petitioners being for labor done within six months before the appointment of the receiver come within the strictest rule declared by any of the cases as .to time. — 5 Thomp. Corp., § 7115.
No objection to the relief prayed can be based upon the fact that petitioners claim as assignees of the- employes. — 5 Thomp. Corp., § 7117.
The petition prays that notice of its filing be given to the parties to the pending suit. This was, in our opinion, sufficient in respect of making parties to the intervention, and the objection in this connection taken by the demurrer is untenable.
Finally, our conclusion is that the petition made a case for the relief as shown above, and the demurrer to it should not have been sustained. The decree of the city court is, therefore, reversed, the demurrer -to the petition as a whole is overruled, and the cause is remanded.
Reversed, rendered and remanded.
Dissenting Opinion
dissenting. — The Mary Lee Coal & Railway Company, a corporation, authorized by its charter to own and operate coal mines, coke ovens and a railway, in Jefferson county, to secure its bonded indebtedness executed a deed of trust to the Mercantile Trust & Deposit Company, the appellee, upon all its property., and tolls, charges, and its income. Having defaulted, the trustee filed a bill, praying for a receiver, and foreclosure of the mortgage. Pending the foreclosure bill, the appellants, Drennen & Company, by petition interposed a claim for fourteen thousand, -six hundred and ninety-seven dollars, and prayed that it be allowed as a preferred claim. The basis of this claim is, that it was “due for repairs and work and labor done and performed for the defendant, the Mary Lee Coal & Railway Company, during the months of July, August, September, October and November,” preceding the fil
New and useful inventions for the benefit of mankind are commendable, but the province of courts is to apply existing principles, and not create rules and principles which injuriously affect the rights of parties, acquired by contract. The province and power of courts of equity to intervene for the protection of right and prevention of wrong, and to invent remedies where none exist, to secure these ends, is one of its most useful attributes, and the exercise of this power on proper occasions, has developed into our present admirable system of equity jurisprudence ; but there is a great and irreconcilable difference between the application of a remedy, and the creation of a right and priority, which subverts and subordinates existing contractual interest. It has been truly said, that under some circumstances courts of equity may amplify remedies, but cannot dispense Avith legislation, nor amplify jurisdiction. The reasons now assigned for this new departure, have been obvious to the judicial mind for a century or more, and the very fact, that the conclusion has not hitherto been accepted as sound and permissible, of itself is full of warning to that conservatism which should characterize courts of
' The justification of the courts, denying a mortgagee his priority, has been rested mainly upon, first, the equitable doctrine, that he who seeks equity must do equity, and secondly, upon the equitable doctrine of estoppel, and thirdly, that the claim is one of abstract right arising from certain conditions and circumstances.
As to the first of these propositions, that he who seeks the aid of a court of equity, must do equity, the rule operates only between the parties to an agreement or transaction to prevent the one from taking an undue advantage of another, but can not be invoked by a stranger, who is not even a proper party to the suit. But the argument assumes the question in controversy, and that is, that these claimants have an equity peculiar to them because of the character of the claims. These claims must necessarily arise either from contract, express or implied, or from statute, or result into such superior claims as matter of law from facts. It is not pretended that the' right is of statutory creation, or of contract between the parties, the mortgagee and labor or material creditor, nor between the mortgagor as the agent of the mortgagee, and the labor or material creditor.
Is it a conclusion of law that a mortgagee guarantees to laborers and material-men, that the business of the company or corporation will be conducted on business principles, and the company never become insolvent? Is it a conclusion of law that a mortgagee’s lien shall be subordinate to claims for labor and material? Is it a conclusion of. law that a lien upon incomes acquired by solemn contract is subordinate to such claims ? And on the other hand, is the right of the laborer or material-man made by law to depend upon the skill and judgment of the employer, so that if permanent injury results his claim becomes thereby of a higher and superior character ? or does it depend upon how the gross -income be expended by the employer? If this be law, it is because the courts make it law, and in no sense is i-t the application of any just principle.
There is not a single element of an estoppel in the whole matter. Neither the laborer nor the material-man acts, or refrains from acting, at the instance of the mortgagee. It is a question of contract between them and the mortgagor in a matter not under the control or supervision of the mortgagee, and rendered with a full knowledge of the mortgagee’s lien. It would require affirmative action on the part of the mortgagee, inducing the labor and purchase', to raise an estoppel against him.
The new doctrine is a revolution in jurisprudence, subverting settled principles, and not the application of new remedies to existing rights, and it should be walled into the “exceptional cases ” declared to be such by Mr. Justice Brewer in Kneeland's Case, 136 U. S. 89, and re-asserted in Thomas v. Western Car Co. in 146 U. S. 95.
In the case of Wood v. Guarantee Co., 126 U. S. 416, 421, it was declared that three conditions must exist to justify the application of the rule of Fosdiclc v. Scholl-. first, it must be applied wholly to “ operating expenses,” and, second, only where there is a “diversion of the income of a going concern,” and third, “that it had never been applied in any case except that of a railroad, and that there was a broad distinction between such a case and that of a purely private concern.”
In the case of the National Bank of Augusta v. Carolina Railroad, 63 Fed. Rep. 25, the application of the rule is limited to railroads. It is said: “The theory of the equity is this, it is the interest of the public, as well as all parties interested in a railroad, that it be kept a going concern. To do this there must be a ready supply of labor and material necessary to this end. If persons who give labor and materials were required in every instance to make careful examination into the condition of the company,so as to ascertain its solvency and capacity for paying debts, all of its operations might be brought to a
In the case of Hanna v. State Trust, 70 Fed. Rep. 2, an attempt was made to invoke and apply the rule of Fosdick v. Schall to a private company or corporation. It was said: “The doctrine of-these cases has no application to the case at bar. They rest upon the peculiar character of railroad property and railroad corporations. The distinction between railroad corporations, which are of a quasi public character, and purely private corporations has been often pointed out. It is enough to say that the Supreme Court itself has said, that the doctrine has only been applied in railroad cases.” A lengthy quotation is made in the opinion from the case of Raht v. Attrill, 106 N. Y. 423, in point, and quite a number of decisions from other courts are also cited.
In Coe v. Midland Railway Co., 31 N. J. Eq. 105, the question of the application of the rule to private business enterprises and the consequences is fully discussed and disapproved. Also in Poland, Trustee, v. Lamoille Valley R. R. Co., 52 Vermont, 144. Without a single exception, so far as the writer has been able to ascertain after a most diligent investigation, the courts are uniform in applying and limiting the rule wholly to railroad cases ; and in the case of Thomas v. The Western Car Co., 146 U. S. 95, believed tobe the last utterance of the Supreme Court of the United States on tire question, a lengthy quotation is made from the case of Kneeland, 136 U. S., supra, in which the warning given in that case, and the limitation placed upon the rule, was repeated with approbation and re-asserted.
The application of the rule was denied as to manufacturing corporations, in Fidelity Ins. Co. v. Shenandoah Iron Co., 42 Fed. Rep. 372, and in Bank v. Shenandoah Co., 35 Fed. Rep. 436. In Cook on Stockholders, section 861, p. 1402, it is said the rule “is extraordinary,” and “does not apply to manufacturing companies.” The principle is criticised as to its application in railroad cases, and it is held that it “ plainly impairs the
.If the equitable right exist as an abstract right, the parties themselves can come into the courts and insist upon its protection, and need not wait for the bondholder or mortgagee. That I have not overstated the position of this court, may be seen by a reference to the case of Merchants Bank v. Moore et al., 106 Ala. 646, which the present opinion and decision of the court declares to be unsound. In that case, there was no question of a bondholder or prior lien claimed by contract. A general creditors’ bill was filed on behalf of all creditors and a decree rendered, which declared a conveyance made by the defendant in favor of certain creditors to be a general assignment for the like benefit of all creditors. The defendant debtor had been engaged in sawing and planing lumber for a market, a mere private business concern. It was not continued or asked to be continued as a “going concern.” Moore and others filed their petition in which they claimed that the company was indebted to them for labor and materials, which entered into the “permanent improvement” of the property which had been assigned for the benefit of creditors, and which fact petitioners asserted gave them a priority over the other general creditors. There was no claim of priority by virtue of any contract or statutory lien ; but the contention was based purely and solely upon the one fact, that their labor and materials entered into the permanent improvement of the property. This court held that these facts did not entitle them to a priority over the other creditors. Certainly this has been the uniform holding of this court under like circumstances from its organization, and now it is proposed to declare different principles and annul long established rule of parties contracting on a personal credit, and lay dowm the new rule, that labor performed or materials furnished which enter into the improvement of property, creates a perfect equity, which entitles that class of creditors to a
What the attitude of this court should be when a case like that of Fosdick v. Schall comes before it, need not now be considered ; but in my opinion, the rule can not be extended to cases like that before us without violating the sacredness of contracts. The rule declared in Bank v. Moore, 106 Ala. 646, which strictly followed the decision of Meyer v. Johnston, ought to be adhered to. Certainly if there was any conflict between the case of The Bank v. Moore et al. and the case of In re Tallassee, the same conflict exists between the latter case and the case of Meyer v. Johnston, and which, if there be such conflict, was virtually overruled, without any reference