Merchants Bank v. Moore , 106 Ala. 646 ( 1894 )

COLEMAN, J.

— A decree of the court having been rendered upon a bill filed by complainants, by which a deed of trust executed by the Empire Lumber Company was declared a general assignment for the benefit of all its creditors, and a receiver appointed to take charge of all the assets, Moore and others filed their petition, praying to be allowed to come in and prove their claims as preferred creditors. The right to priority was based upon the averment, that the Empire Lumber Company was indebted to petitioners for labor and materials, which entered into the permanent improvement of the property assigned for the benefit of its creditors.

The court granted to petitioner the relief prayed for, and decreed that they should be first paid in full for such services and materials rendered and furnished within six months preceding the appointment of the receiver. The doctrine contended for by appellees, Moore and others, has never been applied by any court that we are aware of, in a case like that before us — certainly not in this State. There are decisions by the Supreme Court of the United States, and it may be firmly established in that court, where this rule was declared and enforced, in favor of wages, labor, supplies and materials.furnished to railroads after they were placed in the hands of a receiver. — Fosdick v. Schall, 99 U. S. 235; Trust Co. v. Souther, 107 U. S. 594; Burnham v. Bowen, 111 U. S. 777. The principle thus far seems to have been limited to railroads and placed upon two main grounds : 1st, that railroads are quasi public corporations ; and, 2d, that he who seeks the aid of a court of equity must be willing to do equity. — 20 Am. & Eng. Encyc of Law, p. 417. Within the second head is embraced the general equity rule, that no man should acquire the benefit of another’s service or property without compensation,and as the mortgaged property has been enhanced by the services and materials of another, it is but equity that the mortgagee be required to do equity by paying for it. This doctrine followed to its legitimate end, it seems, would demonstrate the uselessness of statutory enactments to give laborers, mechanics and material-men prior liens, and other kindred statutes. The necessities of the present case do not require a discussion of the principle, and we content ourselves with the following extract from the case of Kneeland v. American Loan & Trust Company, 136 U. S. 89 : “Upon these facts we remark, first that the appointment of a receiver vests in the court no absolute control over the property, and no general authority to displace vested contract liens. Because in a few specified and limited cases this court has declared that unsecured claims we re entitled to priority over mortgage debts,an idea seems to have obtained that a • court appointing a receiver acquires power to give such preference to any general and unsecured claims. It has been assumed that a court appointing a receiver could rightfully burden the mortgaged property for the payment of any unsecured indebtedness. Indeed, we are advised that some courts have made the appointment of a receiver conditional upon the payment of all unsecured indebtedness in preference to the mortgage liens sought to be enforced. Can anything be conceived which more thoroughly destroys the sacredness of contract obligations? One holding a mortgage debt upon a railroad has the same right to demand and expect of the court respect for his vested and contracted priority as the holder of a mortgage on a farm or lot. So, when a court appoints a receiver of railroad property, it has no right to make that receivership conditional on the payment of other than those few unsecured claims which, by the rulings of this court, have been declared to have an equitable priority. No one is bound to $ell to a railroad company or to work for it, and whoever has dealing with a company whose property is mortgaged must be assumed to have dealt with it on the faith of its personal responsibility, and not in expectation of subsequently displacing the priority of mortgage liens. It is the exception and not the rule that such priority of liens can be displaced. We emphasize this fact of the sacredness of contract liens, for the reason that there seems to be growing an idea, that the chancellor, in the exercise of his equitable powers, has unlimited discretion in this matter of the displacement of vested liens.” See also St. Louis, A. & T. H. R. R. Co. v. C. C. C. & I. R. Co., 125 U. S. 658.

The Empire Lumber Company was not continued as a business concern. It was not a railroad, and possessed none of the elements or interests of a public, or quasi public corporation. It was a strictly private business concern, organized and carried on for the purpose of making money for its owners and stockholders.

No court that we are aware of has ever held that the rule applied in such a case as the present, and we are quite sure, that a proper regard for the sanctity of contracts, and just observance of the distinguishing line between the judicial and legislative departments, will not permit the rule to be extended by courts to any other than the specified and limited cases.

Reversed and remanded.