Shamokin Valley & Pottsville Railroad v. Malone , 85 Pa. 25 ( 1877 )

Mr. Justice Sharswood

delivered the opinion of the court, October 11th 1877.

It is very clear upon the evidence that the plaintiff, James Malone, was a contractor under the Philadelphia and Sunbury Railroad Company, and constructed for them a branch of their railroad on the same terms as McGrrann and others constructed by written articles the main road. There was no written contract for the branch. McGrrann and partners agreed to do the work, and then turned it over to Malone, who was recognised and dealt with by the company as the contractor. Subsequently to the completion of the contract, the Philadelphia and Sunbury Railroad Company executed a mortgage to Joseph R. Priestley, dated July 23d 1855, under which its franchises and property were sold, and were subsequently vested in the Shamokin Valley and Pottsville Railroad Company, who were incorporated by Act of Assembly of March 25th 1858. To August Term 1859 of the Court of Common Pleas of Northumberland county, Malone commenced an action of covenant in the name of McGrann and others, to his use, against “the Philadelphia and Sunbury Railroad Company, now known by the name and style of the Shamokin Valley and Pottsville Railroad Company.” The process is returned served on “A. R. Eiske, he being superintendent of the road.” The Philadelphia and Sunbury Company having at that time ceased to exist, and having no road to be superintended, we may assume that A. R. Eiske was the superintendent of the Shamokin Valley and Pottsville road. There was no appearance for the Philadelphia and Sunbury, but a special appearance for the Shamokin Valley and Pottsville. They filed a special plea, which is now lost. Nevertheless, the court entered judgment by default against the Philadelphia and Sunbury, and on the special plea in favor of the Shamokin Valley and Pottsville, being of the opinion that the latter company was not a party to the agreement and not a party to the suit. Upon an inquisition on the judgment, the plaintiff’s damages were assessed at $8693.33. This whole proceeding was a tissue of blunders. The suit should not have been in the name of McGrann and others, but of Malone. The defendants were sued as one corporation, known by different names. The declaration should not have been in covenant on the sealed contract with McGrann and others to build the main road, but in assumpsit on the parol agreement for the branch. No judgment by default should have been entered against an extinct corporation, as the Philadelphia and Sunbury Railroad Company was at the institution of the suit, upon which no service had been or could have been made. And the judgment in favor of the Shamokin Valley and Pottsville Railroad Company was also wrong, if the judge was right in holding as he did, and there seems to be very good reason for it, that that company were not parties to the suit. The only defendant was the Philadelphia and Sunbury Company, with an alias which was not true. How could there be a judgment in favor of a person not a party to the suit, carrying with it a necessarily correspondent right to recover costs against the plaintiff? We must concede therefore this judgment to have been a nullity. But it is alleged that laying it aside there was no evidence of the amount of the plaintiff’s claim or debt. Such appears to have been the opinion-of the learned judge below. But it appears to us, that there was sufficient evidence of this apart from the judgment. Malone testified : “ They (the Philadelphia and Sunbury Company) never denied but that the final estimate was due to me and they always acknowledged it. They offered to pay me in the stock of the company in full, but I never had agreed to take stock and I declined to take it. I brought a suit on the agreement in the name of Richard McGrann and others to my use, and recovered a judgment against the Philadelphia and Sunbury Railroad Company for doing the work. The work which I done under the said contract, and for which I recovered said judgment was not work at the basin. That was a separate work.” The testimony of Kline confirms this statement. Surely under this evidence, the master had a right to use the record of that proceeding to ascertain the amount of the claim. Had Malone stated that the amount of his claim for which |he recovered judgment was $8693.33, it would not have been more distinctly in evidence than by this reference. In truth, the whole case shows that the amount of the claim was not at that time a matter in dispute.

It is contended, however, that if this judgment was a nullity, then the plaintiff’s claim at the commencement of this proceeding in equity was barred by the Statute of Limitations. But in this contention the Seventh section of the Act of Assembly of April 25th 1850, Pamph. L. 570, has been overlooked. That section declares that “ the provisions of the Act of 27th of March 1713, entitled ‘an act for the limitation of actions,’ shall not hereafter extend to any suit against any corporation or body politic which may have suspended business or made any transfer or assignment in trusj for creditors, or who may have at the time or after the accruing of the cause of action in any manner ceased from or suspended the .ordinary business for which said corporation was created.” Malone finished his work on the contract in 1854, and his cause of action then accrued. On the 2d of November 1857, the Philadelphia and Sunbury road was sold by the sheriff to Edward S. Whelen — the corporation became extinct, and necessarily “ceased from the ordinary business for which it was created.” The Statute of Limitations then stopped running and the legal bar is not in the plaintiff’s way.

How then does the case stand ? The Philadelphia and Sunbury Railroad Company, on the 23d day of July 1855, was indebted to Malone for work doné under a contract for building a branch of their road. On that day they executed a mortgage to Joseph R. Priestley for the sum of $500,000, upon which a scire facias was issued, judgment entered, a levari facias issued, and a sale by the sheriff to Edward S. Whelen as trustee for bondholders who were subsequently incorporated as the Shamokin Valley and Pottsville Railroad Company. By the joint resolution of the Assembly of January 21st 1843, Pamph. L. 867, it was declared that from and after its passage “ it should not be lawful for any company incorporated by the laws of this Commonwealth and empowered to construct, make and manage any railroad, canal, or other public internal improvement, while the debts and liabilities or any part thereof, incurred by the said company to contractors, laborers and workmen employed in the construction or repair of said improvements remain unpaid, to execute a general or partial assignment, conveyance, mortgage or other transfer of the real or personal estate of the said company, so as to defeat, postpone, endanger or delay these said creditors, without the Avritten assent of the said creditors first had and obtained; and that any such assignment, conveyance, mortgage or transfer shall be deemed fraudulent, null and void against any such contractors, laborers and workmen, creditors as aforesaid.” In commenting upon this resolution in the case of Fox v. Seal and others in the Supreme Court of the United States, 22 Wallace 424, Mr. Justice Strong says: “ The language of the "resolution is too clear to admit of question, that the legislature intended to give to an unpaid contractor a priority of claim to the company’s property, over every right that could be acquired by a mortgagee or acquired under a mortgage, if the mortgage was made after the debt to the contractor was incurred. It was at least intended that the property, into whosesoever hands it might come, should remain subject to a paramount claim of the contractor so long as the debt due to him remained unpaid. That this was substantially giving to him a lien of indefinite duration seems quite plain.- It was not a ‘jus in re’ nor a ‘jus ad remj but it was a charge upon the property, a right to prevent any disposition of it by Avhich it could be AvithdraAvn from the creditor’s reach, and, therefore, in a very legitimate sense an equitable lien. The resolution in effect declared that while his claim against the company exists, a subsequent mortgage or transfer cannot be set up to defeat the contractor’s resort to the property and his superior right to have it applied to the payment of the debt duo him. It is true the mode of that resort is not prescribed. It can only bo by suit, judgment and execution, but Avhenever judgment and execution are obtained, the lien is made to precede the lien of any mortgage or the efl’oet of any conveyance; more accurately, it has the effect it would have were there no mortgage or conveyance in existence. The property may be levied upon and sold and the proceeds may be applied to the satisfaction of the debt due the contractor, without possible interference by the mortgagee, though the mortgage preceded the judgment in time. We cannot regard the resolution as no more than a partial re-enactment of the statute of 13 Elizabeth, invalidating mortgages and transfers only when there is an actual or constructive intent to hinder, delay or defraud creditors. If that was all the resolution intended it was unnecessary and unmeaning. But it declares null and void every mortgage the effect of which is to defeat, postpone, endanger or delay contractors, laborers and workmen. The mortgage may be good as against other creditors, but it is a nullity as to them.” If this reasoning be sound, and we consider it to be incontrovertible, then nothing but the written assent of the creditor first had and obtained according to the words of the resolution can render the mortgage available as against him. His knowledge and silence cannot estop him. The plea of a bona fide purchase without notice under the mortgage must be ineffectual. The. mortgage being void, the judicial sale under it is equally so, so far as regards the paramount lien of his debt. The purchaser is bound to inquire and know whether any such lien exists, and he purchases at his own peril.

It only remains to consider whether the plaintiff had a right under the circumstances to invoke the interposition of a court of equity. On general principles, if there is no special obstacle in his way, undoubtedly he could. Nothing is better settled than that the assets of an insolvent corporation are a fund for the payment of its debts. The holders of such property take it charged with a trust in favor of such creditors which a court of equity will enforce. A court, which never allows a trust to fail for want of a trustee, will see to the execution of that trust, although by the dissolution of the corporation the legal title to its property has been changed: Curran v. The State of Arkansas, 15 Howard 307. “ The withdrawal of the charter — that is, the right to use the corporate name for the purposes of suits before the ordinary tribunals — is such a substantial impediment to the prosecution of the rights of the parties interested, as would authorize equitable interposition in their behalf, within the doctrine of chancery precedents:” Per Campbell, J., in Bacon v. Robertson, 18 Howard 480. Authorities to the same point, both English and American, could easily be multiplied. The assets of the Philadelphia and Sunbury company in the possession of the defendants are still, so far as this plaintiff is concerned, the assets of that company under the resolution of 1843, as if no mortgage had' been executed and no judicial sale had taken place. They are charged, as we have seen, with his debt as a paramount and perpetual lien until it is paid. The extinction of the corporation is a substantial impediment to the prosecution of his claim by legal remedies before the ordinary tribunals.

It has been urged, however, that the Act of Assembly of Aj^ril 4th 1862 (Pamph. L. 235) has given the plaintiff a full and adequate remedy at law, and that his resort to equity is thereby precluded. That act provides that “ whenever any incorporated company, subject to the provisions of the above resolution (of 1843), shall divest themselves of their real or personal estate, contrary to the provisions of said resolution, it shall and may be lawful for any contractor, laborer or workman employed in the construction or repair of said company, having obtained judgment against the said company, to issue a scire facias upon said judgment, with notice to any person or to any incorporated company, claiming to hold or own said real or personal estate, to be served in the same manner as a summons upon the defendant, if it can be found in the county and upon the person or persons or incorporated company claiming to hold or own such real estate ; and upon the return of one nihil and service as aforesaid, on the person or persons or company claiming to hold or own as aforesaid, the case to proceed as in other cases of scire facias on judgment against terre tenants.” It is very plain that the plaintiff has no remedy under this act. The Philadelphia and Sunbury Company was an extinct corporation before he commenced any suit, and those proceedings, as we have seen, were a nullity. He can obtain no valid judgment upon which he can issue a scire facias, to enforce by legal process the collection of his debt.

It is true that in many respects the plaintiff’s bill is defective. It did not place his claim for equitable relief upon the proper grounds. The defects were clearly amendable: Wilhelm’s Appeal, 29 P. F. Smith 120. The defendants did not demur, but went to proofs; there have been two masters’ reports, and there has been great delay and expense. The proofs show that ho is entitled to the relief he prays. In such a case we ought not to send the record back for amendments to the bill, but should in this court consider that as done which ought to have been done. In Danzeisen’s Appeal, 23 P. F. Smith 65, the bill set up a trust either ex malejieio or by a parol declaration, which the proofs did not sustain and the bill was dismissed at Nisi Prius. On appeal, this court considered that the proofs did establish a mortgage, and without remitting the case to the Nisi Prius, made a decree accordingly.

Decree affirmed, and appeal dismissed at the costs of the appellants.