Jones v. Arena Publishing Co.

171 Mass. 22 | Mass. | 1898

Barker, J.

The first question is whether the rights of the parties should be adjusted as of the date of the filing of the bill, or as of the date of the appointment of the receiver. In similar bills, where the jurisdiction is given by statute, the usual course here has been to adopt the date of the filing of the bill, or of the issuing of the injunction. Atlas Bank v. Nahant Bank, 23 Pick. 480. Colt v. Brown, 12 Gray, 283. Burdon v. Massachusetts Safety Bund Association, 147 Mass. 360. Merrill v. Commonwealth Ins. Co. 166 Mass. 238. Williams v. United Reserve Bund Associates, 166 Mass. 450. The date of the filing of the bill has also been adopted in some instances where the bill was filed under general equity powersi See Fogg v. United Order of the Golden Lion, 156 Mass. 431; Garham v. Mutual Aid Society, 161 Mass. 357.

But in Merrill v. Commonwealth Ins. Co., ubi supra, it was said that the court had no occasion then to consider what the rule should be in cases where receivers are appointed under general equity powers, and we think that there is no settled rule which forbids the adoption of the date of the appointment of the receiver where the bill is entertained under general equity powers. The more usual rule elsewhere seems to be that in such cases the date of the appointment of the receiver should be adopted. High, Receivers, §§ 136 et seq. Beach, Receivers, (2d ed.) §§ 217 et seq. Smith, Receiverships, § 17. Gluck & Becker, Receivers, § 89. Thompson, Corp. § 6919. Without intending to prescribe a fixed rule, we think that in the present case the adoption of the date of the appointment of the receiver will be more fair to all parties than that of the filing of the bill, and that the decree in this respect should be affirmed. There was no injunction issued upon the filing of the bill, the corporation continued its business as usual, and those who dealt with it in the interim did so without being influenced, so far as appears, by the fact that the suit was pending, and in the interim no attachments or other liens were placed upon the property. In this particular case, the only effect of holding that the proceedings should relate back to the filing of the bill would be to raise the question whether bills contracted by the corporation during the interim, not upon faith in the proceedings, but upon the ordinaiy credit of the corporation, should be treated as if incurred by the receivers in execution of the powers afterwards given to them, or should go wholly unpaid.

The questions whether taxes and debts due to workmen for labor are entitled to priority may be considered together. The relief sought is merely the getting in and the distribution of what are known in equity as legal assets. “In the course of the administration of assets, courts of equity follow- the same rules in regard to legal assets which are adopted by courts of law, and give the same priority to the different classes of creditors which is enjoyed at law, thus maintaining a practical exposition of the maxim, 'œsquitas sequitur legem.'” Story, Eq. Jur. § 553. Morrice v. Bank of England, Cas. temp. Talbot, 218, 220, 221. And it makes no difference whether the general rules and policy of the law to which equity conforms are stated in the common or the statute law. Pomeroy, Eq. Jur. § 425. It would be a plain injustice if a general creditor, by resorting-to equity for the administration of his debtor’s goods, merely for the reason that by the aid of equity the amount to be divided would be larger, could gain a further advantage by reducing to the level of common creditors workmen whose wages would have priority if the assets were left to be administered at law, or could thus place his own debts upon an equality with taxes which would have been paid in full had not equity intervened. The defendant corporation was subjected to our insolvency law by force of St. 1890, c. 321, and if equity had not come in to conserve and distribute its legal assets, the wages of its workmen and the taxes due from it would have priority in the distribution of its assets by the usual agencies of common law. Those agencies could not keep its business going at the time when the bill was filed. For this reason only, the creditors, merely to increase the amount of the fund, asked equity to interfere in behalf of all creditors alike. It would be unjust if that interference should be at the sole cost of the workmen and of the public, through depriving claims for labor and taxes of the priority of payment which they would have had if equity had not intervened. As a precedent in this Commonwealth, the question is not now of great importance, as the Legislature by St. 1897, c. 400, has declared that in the settlement of estates by receivers such claims shall have priority. In the present case that statute does not control, but without it, in administering merely legal assets because our aid has been asked for a merely incidental matter, we may say that wages and taxes shall not lose the priority they would have at law merely by the change in the tribunal which deals with the assets.

In Commonwealth v. Phœnix Bank, 11 Met. 129, the decision was upon other grounds, and this court has said, in holding that the same rule should be applied in ascertaining the balances due between a corporation whose affairs are being wound up in equity by receivers and its creditors and debtors as when its assets were to be dealt with in bankruptcy or insolvency, that equity will not permit the general rule to be affected by the question by whom or in what forum the proceedings are set in motion, and also that in ascertaining the amount due to any creditor the court will follow as far as practicable the rule established by statute in proceedings in insolvency or bankruptcy. Commonwealth v. Shoe & Leather Dealers' Ins. Co. 112 Mass. 131. Commonwealth v. Hide & Leather Ins. Co. 119 Mass. 155. Rather than to commit an injustice in the administration of the assets, the court might well decline to distribute the fund, and require the institution of proceedings in insolvency in order that the fund might be distributed by assignees. But we think the court has power to recognize priorities which would have obtained if the assets had been administered in common law tribunals, and that the Superior Court was right in so holding. The justice of the Superior Court gave directions upon these points which followed the insolvency statutes, and gave only such preferences as would have been given if the assets had been distributed in insolvency.

The directions upon the other questions were right. The business went on in good faith and without being in any way affected by the pendency of the bill until the appointment of the receiver. Notes given in the prosecution of the business up to that time should be allowed whenever they mature, with the addition or rebate of interest, as in insolvency proceedings. There is no reason why the claim of Skinner, Bartlett, and Company should have priority. The printing and binding for which they claim priority of payment was done in pursuance of a contract with the corporation made in 1896, and not at the request of the receiver nor for the purpose of aiding the court either in keeping the business álive or administering the assets of the corporation. Decree affirmed.

Field, C. J.

I am unable to assent to the opinion of the majority of the court conc'erning the priority or preference to be given to certain debts due from the defendant corporation. There was no statute in force when the suit was commenced, giving priority of one unsecured debt over another, which in terms seems to me applicable to the proceedings. The practice has obtained in the courts of the United States, in cases of receiverships of railroad corporations, particularly in suits brought by mortgagees for a foreclosure, for the court to authorize the payment as preferred debts of certain claims against the railroad company which had accrued before the appointment of the receiver, or before the bill was filed, and these claims have been allowed, not only against income, but sometimes against the corpus of the property in the hands of the receiver. The extent to which this practice has prevailed appears in the cases cited in Beach, Receivers, (Ald. ed.) §§ 394 et seq. There is no precedent for any such practice in this Commonwealth. So far as I am aware, this practice has obtained only in receiverships of railroad companies, and the decisions are not uniform upon the specific grounds on which the practice can be justified, or upon the extent to which it should be carried; and the practice has been much criticised. The practice has been defended largely upon the ground of the quasi public nature of railroad corporations, and it has not prevailed in receiverships of private corporations other than railroads. Wood v. Guarantee Trust Safe Deposit Co. 128 U. S. 416. Raht v. Attrill, 106 N. Y. 423. Merchants’ Bank v. Moore, 106 Ala. 646. Kneeland v. American Loan & Trust Co. 136 U. S. 89. In all the cases of receiverships before this court, so far as appears in the reports, there is no precedent for the allowance against a corporation of debts as preferred when the debts were due at the time when the bill was filed, unless the debts were liens on or were secured by the property of the corporation, or were entitled to a preference by the provisions of some statute applicable to the case, or by the general law. There is, I think, no general power in a court of equity to create a preference of one unsecured debt over another, when the debts existed at the time when the suit was brought, and by the general law were equally entitled to be paid without priority or preference on the part of one over another. Such a power is in its nature a legislative power. A court of equity cannot create rights of property where none previously existed.

If by the common law of Massachusetts there is a prerogative right of priority in favor of the Commonwealth and of its municipalities for the payment of debts or taxes due them, then the taxes should be preferred; but I doubt if in this Commonwealth either the State, county, or city is entitled to priority of payment for debts or taxes unless it is given by statute, or unless there is a lien on property. It is not contended that any such priority at common law exists in favor of the wages of operatives, clerks, and servants. It seems to me impossible to construe the special provisions of the statutes relating to insolvency concerning preferred debts as intended to be applicable to proceedings under the general equity powers of this or the Superior Court. The provisions of those statutes dissolving attachments made not more than four months before the time of the first publication of the notice, etc., have been held not applicable to proceedings similar to the present. Kittredge v. Osgood, 161 Mass. 384. Merrill v. Commonwealth Ins. Co. 166 Mass. 238. Those statutes I think were passed solely with reference to the statutory proceedings in insolvency, and the repeal of those statutes would have no effect upon the present proceedings. The subject in the settlement of estates by receivers is now regulated by St. 1897, c. 400, which was passed after the present suit was begun, and after the time had expired for the proof of claims. Whether in the present case a court of equity should not have declined to take jurisdiction on .the ground that the proper remedy was in insolvency I do not consider, as that question is not before the court. See White v. White, 169 Mass. 52; Pond v. Framingham & Lowell Railroad, 130 Mass. 194.

It is true that equity usually follows the law in the distribution of legal assets, but by this is meant the general law, whether it be common law or statutory law. Provisions of statute applicable to special proceedings are not a part of the general law. Many of the provisions of our statutes relating to insolvency were in their origin derived from the practice of courts of equity, and in the marshalling of assets and securities equity now often adopts a procedure analogous to the procedure in insolvency. Commonwealth v. Shoe & Leather Dealers’ Ins. Co. 112 Mass. 131. Merchants’ National Bank v. Eastern Railroad, 124 Mass. 518. Bristol County Savings Bank v. Woodward, 137 Mass. 412, Franklin County National Bank v. First National Bank of Greenfield, 138 Mass. 515. But that the wages of operatives, clerks, and servants should be preferred is no part of the general doctrine of equity concerning the marshalling of assets and securities. In the administration in equity of the assets of a partnership, although the firm debts are preferred to the individual debts of the partners in the distribution of the firm assets, I am aware of no decision which prefers debts due to operatives, clerks, and servants for wages unless the preference is authorized by statute.

The contention in the present case must be that a court of equity has the power to create preferences in such a suit as the present, according to its opinion of what on the whole is equitable, and that in the exercise of this power it is equitable to follow the statutory provisions relating to estates in insolvency. Pub. Sts. c. 157, § 104. I agree that, if a court of equity has the power in the case of insolvent corporations, there are strong reasons of policy why it should follow in this respect the statutes relating to insolvency, but I have found no authority for the existence of any such power in the case of receiverships of private business corporations, such as the defendant company. I think that, where there is no lien and no statute authorizing priorities which can be construed as applicable to the proceedings, and the priorities are not sanctioned by the general law, debts due to operatives, clerks; and servants for wages are not entitled to priority in proceedings in equity. It has been considered in Massachusetts that, when statutes creating priorities cannot be construed so as to be applicable to' proceedings in equity, courts of equity usually follow the maxim that equality is equity. Commonwealth v. Phœnix Bank, 11 Met. 129. Cochituate Bank v. Colt, 1 Gray, 382. Ellis v. Boston, Hartford, & Erie Railroad, 107 Mass. 1. In re Heywood, [1897] 2 Ch. 593. Lyon v. Guthard, 52 Mich. 271. In re Ranger, 26 N. Y. Supp. 866. See American Loan Trust Co. v. Northwestern Guaranty Loan Co. 166 Mass. 337.

Justices Allen and Morton concur in this dissent.